Remuneration of the board of management

The annual remuneration paid to the members of DEUTZ AG’s Board of Management consists of fixed and variable components as well as a pension benefit contribution. The fixed component is paid monthly as basic salary. The variable component is performance-related and consists of two parts: the first is a bonus that is based on attainment of specific targets; the other comes in the form of virtual performance shares that offer a long-term incentive. For the pension contribution, an amount is paid into a benevolent fund; there is no other entitlement to a pension or surviving dependants’ pension.

The calculation of the annual bonus is based on the degree of attainment of annual performance targets (short-term targets). The number, content and weighting of the short-term targets are set annually by the Supervisory Board at its due discretion after consulting with the respective Board of Management member. The minimum level of target attainment for the payment of a bonus is 75 per cent; the maximum level of target attainment relevant to the payment of the bonus is 150 per cent. The highest amount that can be paid as a bonus in the case of maximum target attainment is determined by the respective service contract. Only 60 per cent of the annual bonus is paid out at the end of the year. The rest of the bonus is paid out in two equal instalments of 20 per cent, subject to the attainment of further medium-term financial targets (medium-term targets), at the end of a further one year and two years, whereby the amount that is paid out is based on the level of attainment of these medium-term targets (to a maximum of 150 per cent). The highest permissible amounts for these further payments are also contractually agreed. The targets for all payments are set at the beginning of the year for which the bonus is to be paid.

Details regarding the virtual performance shares are set forth in a long-term incentive plan for the Board of Management (LTI plan BoM), which forms part of the contractual agreements with the Board of Management members. The number of virtual performance shares allocated to a Board of Management member is calculated each year on the basis of the contractually specified euro amount divided by a reference price. The reference price is the average closing price of DEUTZ AG shares in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange during the 60 trading days preceding the grant date. Virtual performance shares represent an entitlement to payment of a cash amount in accordance with the provisions of the LTI plan BoM. The cash amount per virtual performance share corresponds to the average closing price of DEUTZ shares in Xetra trading (or a comparable successor system) on the Frankfurt Stock Exchange during the last 60 trading days prior to the expiry of a vesting period of four years after the grant date, and is limited to a maximum of 1.5 times the reference price. Entitlement to the cash payment only arises, however, if either the market price of DEUTZ shares has increased by at least 30 per cent relative to the reference price or the market price of DEUTZ shares has outperformed the MDAX (or a future index replacing the MDAX) by at least 10 percentage points during the vesting period. A further requirement is that the Board of Management member makes a personal investment by holding one DEUTZ share for every 20 virtual performance shares received.

The variable remuneration is designed in a way that the majority of it is measured against performance over several years. The overall remuneration structure is designed to support the sustainable growth of the Company.

Additional benefits received by the members of the Board of Management include, in particular, a company car and allowances towards insurance policies.

If the employment contract of a member of the Board of Management is terminated prematurely without good cause, the member of the Board of Management receives a severance payment equivalent to the total remuneration for the period until the original termination date of his or her contract of employment up to a maximum of two years. For the purpose of this severance payment, the amount of total remuneration is determined by the total remuneration paid for the last full financial year, or the anticipated total remuneration for the then current financial year, if appropriate (cap on severance pay in accordance with article 4.2.3 of the German Corporate Governance Code).

The service contracts of the Board of Management members stipulate a special provision in the event of a change of control. Further details can be found in the section ‘Disclosures pursuant to sections 289a (1) and 315a (1) HGB.

The table below presents the total remuneration of the Board of Management in accordance with the recommendation in the German Corporate Governance Code dated 7 February 2017. In line with this recommendation, the benefits granted in 2017 and those actually paid are reported separately.

The following table shows the breakdown of benefits granted to members of the Board of Management:

Benefits granted
  Dr Ing Frank Hiller
Chairman of the Board of Management
Dr Margarete Haase Michael Wellenzohn Dr Ing Helmut Leube
Chairman of the Board of Management
  Took office on 1 January 2017                 Retired on 31 December 2016
  2016 2017 2017 (min) 2017 (max) 2016 2017 2017 (min) 2017 (max) 2016 2017 2017 (min) 2017 (max) 2016 2017 2017 (min) 2017 (max)
€ thousand                                
Fixed remuneration   750 750 750 580 580 580 580 520 520 520 520 725      
Additional benefits 1)   177 177 177 146 147 147 147 109 107 107 107 173      
Total 927 927 927 726 727 727 727 629 627 627 627 898      
One-year variable remuneration 2)   450 675 270 270 405 255 255 383 360      
Multi-year variable remuneration                                
2017–2018 deferral (2016 bonus) 180 170 240      
2018–2019 deferral (2017 bonus)   300 450 180 270 170 255      
LTI 2016–2020 3) 155 160 207      
LTI 2017–2021 3) 223 300 167 225 173 233      
Total 973 1,425 605 617 900 585 598 870 807      
Other      
Total remuneration 1,900 927 2,352 1,331 1,344 727 1,627 1,214 1,225 627 1,497 1,705      
Instead of the target values for one-year variable remuneration and for deferrals from one-year variable remuneration required under the German Corporate Governance Code (DCGK), the figures in the table below for total remuneration indicate the remuneration figures that are required to be disclosed under the applicable accounting standards. For the one-year variable remuneration, these represent the provisions for the annual bonus for 2017, adjusted for any over- or under-allocation in the previous year. With regard to the deferrals from the one-year variable remuneration, the figures represent the amounts vested and recognised in provisions in 2017.
One-year variable remuneration 629     242 377     188 356    
Multi-year variable remuneration                                
2015–2016 deferral (2014 bonus)     18     14    
2016–2017 deferral (2015 bonus)            
2017–2018 deferral (2016 bonus)     108     102    
2018–2019 deferral (2017 bonus) 416     250     236    
Total remuneration 2,195     1,141 1,629     991 1,494 1,105    
 
1) Includes payment into a life insurance policy.
2) The figures given for one-year variable remuneration and for deferrals from one-year variable remuneration represent the amount granted for full achievement of targets.
3) Share-based remuneration represents the fair value of the options on the date of grant. Please refer to Note 31 in the consolidated financial statements for a description of the structure of the share-based remuneration agreements. General contractual conditions are identical for all members of the Board of Management.

The following table shows the breakdown of benefits actually paid to members of the Board of Management:

Benefits paid
  Dr Ing Frank Hiller
Chairman of the Board of Management
Dr Margarete Haase Michael Wellenzohn Dr Ing Helmut Leube
Chairman of the Board of Management
  Took office on 1 January 2017     Retired on 31 December 2017
  2017 2016 2017 2016 2017 2016 2017 2016
€ thousand                
Fixed remuneration 750 580 580 520 520 725
Additional benefits 177 147 146 107 109 173
Total 927 727 726 627 629 898
One-year variable remuneration 240 227
Multi-year variable remuneration                
2014–2015 deferral (2013 bonus) 21 13 28
2015–2016 deferral (2014 bonus) 18 17 14 14 24 23
LTI 2013-2017 219 185 292
Other
Total 477 38 426 27 316 51
Total remuneration 927 1,204 764 1,053 656 316 949

The total expense for share-based payments recognised in the reporting year amounted to €75 thousand for Dr Hiller (2016: €0 thousand), €32 thousand for Dr Haase (2016: €275 thousand) and €74 thousand for Mr Wellenzohn (2016: €242 thousand). In connection with the share-based payments for Dr Leube, income recognised from the reversal of provisions amounted to €32 thousand in the reporting year (2016: expense of €367 thousand).