The Remuneration Report summarises the principles applied when determining the remuneration arrangements for the Board of Management of KSB AG. It is prepared in accordance with the recommendations of the German Corporate Governance Code (item 4.2.5) and explains the remuneration system in place for Board of Management members. This system is geared towards sustainable corporate development. It is adopted by the Supervisory Board plenary session based on the recommendation of the Personnel Committee and reviewed at regular intervals. The same applies to individual Board of Management compensation amounts.
The remuneration arrangements for the Board of Management were structured as clearly and transparently as possible. The total amount of remuneration for the individual Board of Management members was determined based on various parameters. Criteria for assessing the appropriateness of the remuneration included the responsibilities of the individual Board of Management members, their personal performance, the economic situation, the company’s success and prospects as well as customary remuneration amounts when taking peer companies and the remuneration structure used elsewhere within the company into consideration.
The remuneration of the Board of Management consisted of fixed and variable components. Fixed components were granted regardless of performance and consisted of a fixed sum plus benefits, as well as pension commitments (retirement, disability, widow’s or orphan’s pension). The fixed sum made up 60 % of the maximum annual salary and was paid out as a monthly basic remuneration. All Board of Management members were equally entitled to the accompanying fringe benefits which included the private use of a company car, payment of insurance premiums and any payments associated with a post-contractual non-competition clause. No loans or advance payments were granted to members of the Board of Management in the year under review.
To ensure the sustainability of the nature of the remuneration, the variable remuneration component consisted mainly of future-oriented components determined on the basis of a multi-year assessment. They were partly based (60 %) on the degree of implementation of the corporate strategy and its actual market success, and partly (20 %) on the return on investment measured according to the economic value added method based on a past average value over a medium-term horizon. The short-term share (20 %) was based on the development of the net financial position in the respective financial year as compared with the planned development. The total amount of the variable remuneration components was limited in order to take extraordinary, unforeseen developments into account.
The weighting factors above do not reflect the additional possibility of a bonus, to be paid out in individual cases at the discretion of the Supervisory Board, of no more than three monthly salary payments per financial year in recognition of any special performance of individual members of the Board of Management. Such decisions are only made on an irregular basis, meaning that they do not necessarily have to be made annually.
In December 2017 the Supervisory Board discussed and decided to adjust the measurement bases for variable remuneration as of 2018. Determination of the long-term components is now carried out on the basis of the net profit plus depreciation / amortisation weighted for 3 years. The short-term share is measured in equal proportions based on the development of the annual EBIT margin, sales revenue and success in the achievement of a personal goal.
Furthermore, when Board of Management contracts are concluded it is agreed that payments made to a Board of Management member in the event of his or her Board of Management tenure being terminated prematurely without good reason shall not exceed the value of two years’ remuneration including fringe benefits (settlement cap in accordance with item 4.2.3 of the German Corporate Governance Code). No other payments have been promised to any Board of Management members in the event of termination of service; similarly no compensation will be paid in the event of a takeover offer. If a contract of service is terminated by a Board of Management member for cause, the company shall not make any severance payments. On 6 May 2015 – using a legally permissible option – the Annual General Meeting again resolved not to disclose the details of the compensation for individual members of the Board of Management for a period of five years.
In total, the short-term benefits (total remuneration) paid to the members of the Board of Management for their activities in the 2017 financial year amounted to € 1,858 thousand (previous year: € 1,250 thousand), and the payments for benefits after termination of work € 1,422 thousand (previous year: € 1,388 thousand). € 2,934 thousand (previous year: € 5,255 thousand) has been provided for pension obligations to current members of the Board of Management, and € 42,202 thousand (previous year: € 39,309 thousand) to former members of the Board of Management and their surviving dependants; total benefits paid to these persons amounted to € 2,422 thousand in the year under review (previous year: € 2,244 thousand). No stock options or other share-based payment arrangements are granted to members of the Board of Management.
The short-term benefits (total remuneration) paid to members of the Supervisory Board amounted to € 834 thousand for the 2017 financial year (previous year: € 716 thousand). Information on the structure of the remuneration arrangements for the Supervisory Board is provided in the Corporate Governance Statement pursuant to section 289f of the HGB.
Frankenthal, 21 March 2018
KSB Management SE
The Managing Directors