The remuneration report also forms part of the Group Management Report.
The total remuneration paid to individual Board of Management members for financial year 2011 was determined by the Supervisory Board, which held consultations to resolve on the remuneration system for the Board of Management, including the main contractual elements. In so doing it obtained advice from an independent remuneration consultant.
The Board of Management remuneration reflects the size and global reach of the company, its economic and financial situation and the roles and achievements of the individual members. It is set to ensure competitiveness with comparable German and international companies, thus incentivising the Board of Management members to deliver maximum performance and achieve results.
The remuneration paid to the Board of Management for 2011 is in line with standard market practice, appropriate to the tasks involved and designed to reward performance; it comprises fixed (non-performance-related) elements and variable (performance-related) elements, which include short, medium and long-term incentives.
Non-performance-related components are the annual base salary (fixed annual remuneration), fringe benefits and pension commitments. The annual base salary is paid in twelve equal monthly instalments retroactively at the end of each month. Fringe benefits mainly comprise the use of company cars, supplements for insurance premiums and special allowances and benefits for assignments outside the home country.
The variable remuneration paid to the Board of Management is predominantly medium and long-term based. Half of the variable remuneration consists of a long-term incentive plan with a four-year calculation period; the other half is made up of an annual bonus linked to the company’s yearly profits, with 50% of the annual bonus flowing into a medium-term component with a three-year calculation period. Thus only 25% of the variable remuneration component is paid out on the basis of a one-year calculation.
The medium-term component described is applicable to all employment contracts and contract renewals entered into after the effective date of the Gesetz zur Angemessenheit der Vorstandsvergütung (VorstAG – German Act on the Appropriateness of Management Board Remuneration) (5 August 2009). For all contracts concluded prior to that date, 25% of the annual bonus flows into the medium-term component until the cessation of the term of the contract.
The amount of the annual bonus is set at the due discretion of the Supervisory Board on the basis of the company’s performance. The individual annual bonus amounts reflect the extent to which predefined targets are achieved, missed or exceeded.
For all Board of Management members, the Group’s EBIT after asset charge performance metric, including the asset charge on goodwill before goodwill impairment (EAC), is the main parameter used in this calculation. For the Board of Management members in charge of the MAIL, GLOBAL FORWARDING, FREIGHT, EXPRESS and SUPPLY CHAIN divisions, the EAC of their respective division is also a key parameter. Furthermore, an employee-related target is agreed with all Board of Management members based on the annual employee opinion survey, as are additional targets.
Achievement of the upper targets for the financial year that have been agreed based on demanding objectives is rewarded with the maximum annual bonus not to exceed 100% of the annual base salary. If the targets specified for the financial year are only partially reached or completely missed, the annual bonus will be paid on a pro-rata basis or not at all. The Supervisory Board may also elect to award an appropriate special bonus for extraordinary achievement.
The annual bonus is not paid in full in a single instalment on the basis of having reached the agreed targets. Instead, 50% of the annual bonus flows into a medium-term component with a three-year calculation period (performance phase of one year, sustainability phase of two years). This medium-term component will be paid out after expiry of the sustainability phase subject to the condition that EAC, as an indicator of sustainability, is reached during the sustainability phase. Otherwise, payment of the medium-term component is forfeited without compensation. This demerit system puts greater emphasis on sustainable company development in determining management board remuneration and sets long-term incentives.
Stock appreciation rights (SARs) are granted as a long-term remuneration component based on the Long-Term Incentive Plan resolved by the Supervisory Board in 2006 (2006 LTIP).
Each SAR entitles the holder to receive a cash settlement equal to the difference between the average closing price of Deutsche Post shares for the five trading days preceding the exercise date and the exercise price of the SAR. In 2011, the members of the Board of Management each invested 10% of their annual base salary as a personal financial investment. The waiting period for the stock appreciation rights is four years from the date on which they were granted. After expiration of the waiting period and provided an absolute or relative performance target has been achieved, the SAR s can be exercised wholly or partially for a period of two years. Any SAR s not exercised during this two-year period will expire.
To determine how many, if any, of the SAR s granted can be exercised, the average share price or the average index value for the reference period is compared with that of the performance period. The reference period comprises the last twenty consecutive trading days prior to the issue date. The performance period is the last sixty trading days before the end of the waiting period. The average share price (closing price) is calculated as the average closing price of Deutsche Post shares in Deutsche Börse AG’s Xetra electronic trading system.
A maximum of four out of every six SAR s can be “earned” via the absolute performance target and a maximum of two via the relative performance target. If neither an absolute nor a relative performance target is met by the end of the waiting period, the SAR s attributable to the related tranche will expire without replacement or compensation.
One SAR is earned each time the closing price of Deutsche Post shares exceeds the issue price by at least 10%, 15%, 20% or 25%. The relative performance target is tied to the performance of the shares in relation to the STOXX Europe 600 Index (SXXP, ISIN EU0009658202). It is met if the share price equals the index performance during the performance period or if it outperforms the index by at least 10%.
Remuneration from stock appreciation rights is limited to 300% of the annual target cash compensation (annual base salary plus the annual target bonus). Moreover, it may be limited by the Supervisory Board in the event of extraordinary circumstances.