As we see in below screenshot a specific group has been excluded :-

However WEM GPO are still getting applied although the exclusion policy seems to be working as per the debug logs.
Based on our review of the product code with the Engineering team, here is a clarification of how WEM handles exclusions and Group Policy Objects (GPOs):
The "Exclusion Group" setting specifically targets the WEM UI Agent (the user-session executable), not the background service.
User-Level Actions: If a user is excluded, the WEM UI Agent will not launch. Consequently, user-specific actions like printer mapping, application delivery, and desktop shortcuts will not be processed.
Machine-Level Optimizations: These are managed by the WEM Agent Host Service. Since this service runs independently of the user session, machine-wide optimizations (such as CPU, Memory, and I/O management) will remain active even for excluded users.
We have confirmed that WEM GPOs are processed by the Agent Host Service rather than the UI Agent. Because of this architectural design, the standard UI Agent exclusion does not prevent WEM GPOs from being applied.
To successfully prevent GPOs from applying to specific users, we need to use the Active Directory Group Match filter condition within the WEM Console. This allows us to create a logic-based filter for the user-level GPOs:
Reference: WEM Filter Conditions - AD Group Match