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 /  /  / Remuneration of the Executive Board

Remuneration of the Executive Board

Remuneration of the Executive Board

The remuneration of the members of the Executive Board is determined by their tasks and their own individual performance as well as by the success of the company. The amount of remuneration is based overall on the level customary in the comparable business environment. The peer group used in 2018 was formed from companies represented on the German Mid-Cap index MDAX of Deutsche Börse AG to which Salzgitter AG belonged at the time.

The remuneration system in the financial year 2018

In the financial year 2018, remuneration consisted of the following components:

  • an annual fixed basic salary to be paid out in equal monthly installments (monthly salary),
  • supplementary benefits (consisting mainly of making a company car available for private use),
  • annual variable remuneration to be paid in full at the end of a financial year and measured partly by personal performance and partly by the return on capital employed (ROCE) calculated as an average of the last five years, with both parts capped, and
  • a defined benefit pension commitment depending on the length of service to the Group, capped at a maximum 60 % of the fixed salary.

The remuneration system in the financial year 2019

The Executive Board remuneration has been given a new structure, effective as from 2019. Remuneration almost fully reflects the most recent recommendations of the German Corporate Governance Code and now consists of the following components.

  • an annual fixed basic salary to be paid out in equal monthly installments (monthly salary),
  • supplementary benefits (consisting mainly of making a company car available for private use),
  • annual variable remuneration to be paid out partly at the end of the respective financial year and partly at the end of the third year following the respective financial year, and measured partly by personal performance and the earnings before taxes of the respective year and partly by the trend of the Salzgitter share on the stock exchange in the three years following the respective financial year and the ROCE expressed as an average and achieved over a period of four years, beginning with the respective financial year, as well as
  • a defined contribution pension commitment.

The system of variable remuneration in the financial year 2019 in detail:

Variable remuneration is based on the achieving of objectives. It consists, on the one hand, of an annual bonus and, on the other, of an annual performance bonus (performance cash award). Regarding the bonus for a one-year period, a target bonus is agreed in the Executive Board member’s employment contract, along with a target amount for the performance bonus.

  • Annual bonus:

    The precondition for the disbursement of the annual bonus is split as follows: 70 % for achieving a financial performance target, measured on the basis of earnings before taxes (EBT), and 30 % for individual performance, measured by qualitative criteria that are fixed by the Supervisory Board at the beginning of each year and relate to the respective year.

    The calculation of the payout multiplier for the EBT performance target is based on the EBT achieved in the respective financial year compared with the EBT of the preceding financial year. If EBT remains the same compared with the previous year, the multiplier is 100 % of the target bonus agreed in the Executive Board employment contract. If EBT is raised by 50 % compared with the previous year, the maximum multiplier of 150 % is achieved. If EBT is –50 % compared with the previous year, the minimum multiplier of 50 % is achieved. Linear interpolation is applied if objectives are achieved between the fixed points. If the minimum multiplier is not achieved, the payout multiplier is 0 %. If EBT is negative for the second year in a row, or if EBT of the previous year or the current financial year is less than € 1 million respectively, the Supervisory Board can determine the degree to which an objective has been achieved at its own discretion. If a positive EBT is achieved in the previous year and a negative EBT in the respective financial year, the payout factor is 0 %.

    In setting the criteria for individual performance the Supervisory Board may factor in a series of different aspects, such as strategic business development, specific projects, occupational safety and employee development. The individual performance is assessed at the end of the financial year by the Supervisory Board based on the predefined criteria. The degree to which an objective has been achieved can be determined by the Supervisory Board on a linear basis between 0 % and 150 %.

    The annual bonus is paid out in an amount of 50 % following the end of the respective financial year (one-year variable remuneration). The remaining 50 % (initial value) of the annual bonus is withheld and converted into virtual shares in the company (share deferral) for a period of three years (blocking period), starting with the end of the respective financial year. The number of virtual shares is calculated from the arithmetic average of the Salzgitter share’s closing price on XETRA on the Frankfurt Stock Exchange during the last 30 trading days before the start of the blocking period. After the end of the blocking period, the number of virtual shares is multiplied by the arithmetic average of the Salzgitter share’s closing price on XETRA on the Frankfurt Stock Exchange during the last 30 trading days before the end of the blocking period, plus the fictitious dividend payout on the virtual shares during the blocking period, and paid out. The disbursement amount resulting from these calculations is capped at 150 % of the initial value. The outlay for share-based remuneration recorded for Prof. Dr.-Ing. Fuhrmann in the financial year 2019 amounts to k€ 84 and for Mr. Becker and Mr. Kieckbusch to k€ 28 each.

    In the event of exceptional and unforeseeable developments, the Supervisory Board can reduce the annual bonus at its discretion. 
  • Performance cash award:

    The precondition for the disbursement of a performance cash award is also split at 70 % for achieving a financial performance target, in this case measured by the return on capital employed (ROCE) expressed as an average of the four-year performance period, and at 30 % for achieving stakeholder objectives set by the Supervisory Board at the beginning of each year for the respective performance period.

    The average of the ROCE figures achieved after the end of the respective financial years during the performance period is used to calculate the payout amount for the ROCE performance target. The average of the planned ROCE figures in the respective financial years is then deducted from this amount. The resulting divergence between actual figures and targets in percentage points is compared with the values set by the Supervisory Board at the start of the performance period, taking account of the general development of business as well as the economic prospects of Salzgitter AG for a payout factor of 100 % (target), 50 % (minimum figure) and 200 % (maximum figure) of the target amount agreed in the Executive Board member’s contract of employment. Linear interpolation is applied if objectives are achieved between the fixed points. If the minimum figure is not achieved, the payout multiplier is 0 %. Exceeding the maximum figure will not increase the payout multiplier.

    Example: If the target figure for the divergence of the average ROCE achieved from the average budgeted ROCE is set at 0 %, with a minimum of –3 % and a maximum of 2 %, the payout factor is 100 % of the target amount assuming that the exact amount of the budgeted ROCE is achieved. If a ROCE is achieved that is one percentage point higher than budgeted, the payout factor amounts to 150 %. If a ROCE is achieved that is one percentage point lower than budgeted, the payout factor is 83.33 %.

    In setting the stakeholder objectives, the Supervisory Board may factor in a series of different aspects, including strategic business development, specific projects, occupational safety or employee development. Achieving the targets is assessed by the Supervisory Board after the performance period has ended. The degree to which targets are achieved can be determined by the Supervisory Board on a linear basis between 0 % and 200 %.

    The performance cash award is paid out at the end of the respective performance period.

    If the employment relationship of an Executive Board member is terminated by the company for an important reason during a financial year by way of extraordinary termination within the meaning of Section 626 (1) of the German Commercial Code (BGB), or prematurely terminated upon the initiative of an Executive Board member, without the company having established an important reason for such premature termination within the meaning of Section 626 (1) BGB, and without a change of control within the meaning of the Executive Board employment contract, the claim to an annual bonus as well as all claims from current share deferrals whose blocking period has not yet expired when the termination was announced shall be void without any entitlement to a substitute or compensation, along with all tranches of the multi-year remuneration whose performance periods have not yet come to the end on the date of the premature termination of the employment relationship. 

Pension commitments

The commitments for the company pension scheme (pension commitments) vary:

For the period up until December 31, 2018, all Executive Board members received a commitment for payment of a pension the amount of which depends on the length of service to the Group and is capped at a maximum of 60 % of the fixed basic salary (defined benefit commitment). Payment can be drawn once the age of 65 has been reached. In respect of Executive Board member Prof. Dr.-Ing. Heinz Jörg Fuhrmann, this commitment also applies to the period after December 31, 2018. In the context of this commitment, Prof. Fuhrmann will be deemed eligible for payments as if he had already reached the age of 65 if he retires before having reached the age of 65. The pension commitments in favor of Executive Board members Burkhard Becker and Michael Kieckbusch as of December 31, 2018, have been fixed as of this date and, as of January 1, 2019, supplemented by new, defined contribution commitments (see below). Should the company not offer a contract to Mr. Becker for a further term of office upon expiration of his current employment contract, the company waives the assertion of actuarial reductions in the event of the premature receipt of benefits, as well as the pro rata reduction of the entitlement over time for the event of his withdrawal from the company in a non-lapsable entitlement without immediate subsequent benefit eligibility.

For the period starting January 1, 2019, Executive Board members Burkhard Becker and Michael Kieckbusch were given a commitment by the company that it will make a certain amount of money available on a personal pension account (defined contribution commitment) for each year of Executive Board activity. A guaranteed annual interest credit will also be taken account of on the personal pension account. This interest credit will be based on the maximum technical interest rate of the life assurance industry in accordance with the actuarial reserve ordinance (DeckRV; guaranteed interest). The amount will be invested similar to the life cycle model established within the Salzgitter Group in the conditions for deferred compensation (SZAG model), while taking account of the securities designated by the Investment Committee for the Salzgitter Group’s company pension. If the investment generates higher interest after tax compared with the guaranteed interest, this will be credited when benefits become due.

If the Executive Board member leaves the service of the company and enters into the statutory pension insurance scheme either on or before reaching the statutory retirement age, the Executive Board member will receive the credit on the pension account as a one-off retirement asset or, upon application, in ten annual instalments. If the Executive Board member leaves the company before reaching the statutory retirement age, the Board member shall be granted a vested claim on the basis of the pension account in accordance with the legal provisions of the German Company Pensions Act. The Executive Board Member shall, upon application, receive premature retirement assets upon reaching the age of 62 at the earliest.

Withdrawing from the company due to a change in control and premature departure

In the event of termination of Executive Board member activities due to a change of control, the Board members are entitled to settlement in the amount of overall remuneration for the remaining term of their contracts of employment. This settlement is, however, capped to the value of three years of remuneration. Should Executive Board activities be terminated without an important reason, the Executive Board members are entitled to the remuneration agreed until expiry of the contract. However, this entitlement is restricted to the amount of two years’ remuneration (fixed and variable components). No benefits were granted or pledged by external parties to the individual members of the Executive Board in the financial year 2019 or the previous year for their activities as Executive Board members.

 

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