The remuneration system for members of the Management Board

Remuneration system for the members of the Management Board

Remuneration system for the members of the Management Board (graphic)

(Schematic illustration)

Management Board remuneration consists of a fixed salary and two variable performance-based components: the short-term incentive and the long-term incentive. The company also offers pension provisions and other supplemental benefits.

As a rule, the fixed salary and the variable remuneration paid to new members of the Management Board are reduced on a percentage basis in the first two years of service.

Total remuneration and the individual compensation components are appropriately geared to the responsibilities of each individual member of the Board, his or her personal performance and the company’s economic situation. They fulfil legal stipulations regarding customary remuneration. Variable remuneration serves as an incentive for the Management Board to increase the company’s value and is designed to generate sustainable, long-term company growth. In financial year 2013/14, the individual components of Management Board remuneration were as follows:

Fixed salary

The fixed salary is contractually set and is paid in monthly instalments.

Short-term incentive

The short-term incentive for members of the Management Board is determined mainly by the development of return on capital employed (RoCE) and net earnings (NE) on the basis of a financial year. The use of the metric NE combined with RoCE rewards profitable growth of METRO GROUP. EBIT is divided by capital employed to determine RoCE. NE principally amount to profit for the period. The Supervisory Board may resolve an adjustment for special items. To ensure the individual performance orientation of Management Board remuneration, the Supervisory Board of METRO AG now also reserves the general right to reduce or increase the weight of the individual short-term incentive by up to 30 per cent at its discretion.

For a financial year, members of the Management Board receive between €500 and €833 per 0.01 percentage point of RoCE above 7 per cent. For each additional €1 million in NE, they receive an additional €304 to €506. The amounts are set by the Supervisory Board of METRO AG based on the company’s strategy and medium-term targets, are regularly reviewed and are adjusted if necessary. The payout of the short-term performance-based remuneration granted for RoCE and NE is capped each year. The following individual values were determined as the basis for Management Board remuneration in financial year 2013/14:

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€ p. a.

Amount per 0.01 percentage points of RoCE above 7 per cent

Amount per €1 million in NE

Payout cap for financial year 2013/14

1

Proportionate average level for financial year 2013/14, based on the following amounts: RoCE €500 for 1 October to 31 December 2013 and €625 for 1 January to 30 September 2014; NE €304 for 1 October to 31 December 2013 and €380 for 1 January to 30 September 2014

Olaf Koch

833

506

3,900,000

Mark Frese1

594

361

2,470,000

Pieter Haas

500

304

2,080,000

Heiko Hutmacher

625

380

2,600,000

The short-term performance-based remuneration of members of the Management Board is generally paid out four months after the end of a financial year.

Long-term incentive

The long-term incentive is a performance-based compensation component with a long-term incentive effect. It is designed to achieve sustainable growth in the company’s value and applies a multi-year assessment basis.

Sustainable performance plan 2013/14–2015/16

After the last tranche of the performance share plan was paid in the short financial year 2013, the Supervisory Board of METRO AG decided on 10 December 2013 to approve a three-tranche, long-term performance-based remuneration scheme for financial years 2013/14, 2014/15 and 2015/16: the sustainable performance plan. The sustainable performance plan creates incentives for the sustainable and successful performance of METRO GROUP under consideration of the long-term expectations of shareholders and other stakeholders as well as the group’s environmental responsibility. Performance will be measured both by share-based key indicators as well as by qualitative aspects of business, environmental and social company management.

A target value in euros is set for each member of the Management Board. 75 per cent of this amount will be based on the so-called TSR component (total shareholder return), a metric that will be determined on the basis of the METRO ordinary share’s performance relative to a defined reference index during a performance period. The remaining 25 per cent will be based on a so-called sustainability component that considers the ranking that METRO AG achieves during the performance period as part of the Corporate Sustainability Assessment conducted by the independent agency RobecoSAM AG. In case of employment termination, separate rules for the payout of the tranches have been agreed upon.

The timing of the sustainable performance plan is structured as follows:

Timing of the sustainable performance plan (SPP)

Timing of sustainable performance plan (SPP) (graphic)

To calculate the TSR component, the Xetra closing prices of the METRO ordinary share will be recorded over a period of 40 trading days that directly follow the Annual General Meeting of METRO AG. The arithmetic mean calculated from these prices will then be used as the starting share price. The performance period for the respective tranche will begin on the 41st trading day following the Annual General Meeting. In the next step that will also cover a period of 40 trading days directly following the Annual General Meeting held three years after the determination of the starting share price and the issuance of the respective tranche, the Xetra closing prices of METRO’s ordinary share will be recorded. The arithmetic mean calculated from these prices will then be used as the ending share price. The TSR percentage value will be determined on the basis of the change in the METRO share price and the total amount of reinvested dividends throughout the performance period in relation to the starting and ending share prices.

The METRO TSR calculated in this manner will be compared with the TSR of the Dow Jones STOXX Europe 600 Retail Index (index TSR) during the performance period, and the factor for computing the TSR component will be determined in this way:

  • If METRO’s TSR is identical to the index TSR, the factor for the TSR component will be one.
  • If METRO’s TSR is 30 percentage points or more below the index TSR, the factor for the TSR component will be zero.
  • If METRO’s TSR is 30 percentage points above the index TSR, the factor for the TSR component will be two.
  • If METRO’s TSR is 60 percentage points or more above the index TSR, the factor for the TSR component will be a maximum of three (cap).
  • Outside these values, the TSR factor for the sustainable performance plan will be determined using the linear interpolation method and calculated to the hundredth place value.

If the TSR factor is zero, no payment will be made and the TSR component will be closed. If the TSR factor is positive, the following additional condition will apply: a payment of 75 per cent of the target amount multiplied by the TSR factor will be made only if the calculated ending price of the METRO share does not fall below the starting share price. Should this condition not be met, the calculated amount will not be paid initially. In this case, an entitlement to payment will exist only if the Xetra closing price of the METRO ordinary share is higher than or equivalent to the starting share price for 40 consecutive trading days within a three-year period after the completion of the performance period, or oxer period. Should this condition not be met within the three years after the performance period ends, no payment of the TSR component of the tranche will be made.

To determine the factor of the sustainability component, METRO AG takes part in the Corporate Sustainability Assessment conducted by the independent agency RobecoSAM AG during each year of the three-year performance period of the sustainable performance plan. RobecoSAM AG uses this assessment to determine the ranking of METRO AG within the industry group “Food and Staples Retailing” that is defined in accordance with the Global Industry Classification Standard (GICS). S&P Dow Jones Indices uses this ranking as the basis for decisions regarding a company’s inclusion in the Dow Jones Sustainability Indices (DJSI). METRO AG is informed each year by RobecoSAM AG about its new ranking. The company’s average ranking – rounded to whole numbers – is determined on the basis of the three rankings communicated by RobecoSAM AG during the performance period. The factor for the sustainability component is determined in the following manner on the basis of the average ranking during the performance period:

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Average ranking (rounded)

Sustainability factor tranche for financial year 2013/14

Sustainability factor tranche for financial year 2014/15

Sustainability factor tranche for financial year 2015/16

1

3.00

3.00

3.00

2

3.00

3.00

2.50

3

3.00

2.50

2.00

4

2.50

2.00

1.50

5

2.00

1.50

1.25

6

1.50

1.25

1.00

7

1.25

1.00

0.75

8

1.00

0.67

0.50

9

0.50

0.33

0.25

Below 9

0.00

0.00

0.00

The following additional condition will also apply: A payment of 25 per cent of the target amount multiplied by the sustainability factor will be made only if the ranking of METRO AG does not fall by more than two places below the last announced ranking before the issuance of the tranche in any year of the performance period. Otherwise, the factor for the sustainability component will be zero.

Performance share plan 2009–2013

By resolution of the Personnel Committee of the Supervisory Board and with the approval of the Supervisory Board, METRO AG introduced a five-year performance share plan in 2009. The last tranche of this plan was paid in the short financial year 2013. A target value in euros was set for each member of the Management Board. The target number of performance shares was calculated by dividing this target value by the share price upon allotment, based on the average price of the METRO share during the three months up to the allotment date. The key metric in this calculation was the three-month average price of the METRO share before allotment. A performance share entitles its holder to a cash payment in euros matching the price of the METRO share on the payment date. The key metric in this calculation was also the three-month average price of the METRO share before the payment date.

Based on the relative performance of the METRO share compared with the median of the DAX 30 and Dow Jones Euro STOXX Retail indices – total return – the final number of payable performance shares is determined after the end of a performance period of at least three and at most 4.25 years. It corresponds to the target number of shares when an equal performance with said stock indices is achieved. Up to an outperformance of 60 per cent, the number increases on a straight-line basis to a maximum of 200 per cent of the target amount. Up to an underperformance of 30 per cent, the number is accordingly reduced to a minimum of 50 per cent. In the case of an underperformance of more than 30 per cent, the number is reduced to zero.

Payment can be made at six possible times that are set in advance. The earliest payment date is three years after allotment of the performance shares. From this time, payment can be made every three months. The members of the Management Board can choose the date upon which they want to exercise performance shares. A distribution over several payment dates is not permitted. The payment cap in euros amounts to five times the target value.

METRO GROUP introduced so-called share ownership guidelines along with its performance share plan: as a precondition for the payout of performance shares, the members of the Management Board are obliged to undertake a significant continuous self-financed investment in METRO shares up to the end of the three-year blocking period. This ensures that, as shareholders, they will directly participate in share price gains as well as potential losses of the METRO share. Their investment in company shares promotes the remuneration system’s long-term structure and orientation towards sustainable development and results in a healthy balance of the various remuneration elements. The self-financed investment applies to the entire term of the performance share plan.

Pension provisions

In 2009, company pension provisions were introduced for members of the Management Board. These provisions consist of direct benefits with a defined contribution component and a performance-based component.

The defined contribution component is financed by the Management Board and the company based on an apportionment of “7 +7 +7”. When a member of the Management Board makes a contribution of 7 per cent of his or her defined basis for assessment, the company will contribute the same amount. Depending on the economic situation, the company will pay the same amount again. In view of the macroeconomic environment, the additional amount was again suspended in the reporting period. When a member of the Management Board leaves the company before retirement age, the contributions retain the level they have reached. The performance-based component is congruently reinsured by Hamburger Pensionsrückdeckungskasse VVaG (HPR). The interest rate for the contributions is paid in accordance with the profit-sharing system of the HPR with a guarantee applying to the paid-in contribution.

An entitlement to pension benefits exists

  • if the working relationship ends with or after the reaching of standard retirement age as it applies to the German state pension scheme,
  • as early retirement benefits, if the working relationship ends at the age of 60 or after the age of 62 for pension benefits that were granted after 31 December 2011, as well as ends before reaching standard retirement age,
  • as disability benefits, if the working relationship ends before the standard retirement age is reached and preconditions have been fulfilled,
  • as surviving dependants’ benefits, if the working relationship is ended by the person’s death.

Payment can be made in the form of capital, instalments or a life-long pension. A minimum benefit is granted in the case of invalidity or death. In such instances, the total amount of contributions that would have been credited to the member of the Management Board for every calendar year up to a credit period of ten years, but limited to the point when the individual turns 60, will be added to the benefits balance. This performance-based component is not reinsured, but will be provided directly by the company when the benefit case occurs.

Further benefits in case of an end to employment

The active members of the Management Board receive no additional benefits beyond the described pension provisions should their employment end. In particular, no retirement payments will be granted. In the event of the death of a member of the Management Board during active service, his or her surviving dependants will be paid the fixed salary for the month in which the death occurred as well as for an additional six months.

Supplemental benefits

The supplemental benefits granted to members of the Management Board include non-cash benefits and expense allowances (for example, company cars).

In financial year 2013/14, a new company car scheme for the members of the Management Board called the Green Car Policy was approved by the Supervisory Board. It represents the first time that the company has placed a limit on the CO2 emissions of company cars as a sustainability criteria – similar to the new company car policy for METRO GROUP executives. It also contains a cap on the non-cash benefit covering the private use of company cars.

Other

The members of the Management Board of METRO AG are not entitled to additional remuneration or special benefits as a result of a change of control.

Remuneration of the Management Board in financial year 2013/141

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Short-term incentive2

Long-term incentive

 

 

in €1,000

Short financial year 2013 Financial year 2013/14

Fixed salary

Supple­mental benefits

for the short financial year 2013

for the financial year 2013/14

Value of granted tranches3

(Payout from tranches granted in the past)

Total4

(Effective salary5)

1

Statements pursuant to § 285 Sentence 1 No. 9 a and § 314 Section 1 No. 6 a of the German Commercial Code (HGB) (excluding pension provisions)

2

In the short financial year 2013, no data for the short-term incentive was reported, as it was calculated on the basis of the 2013 calendar year and, according to German Accounting Standard 17 (GAS 17), may only be shown upon full entitlement. In financial year 2013/14, the short-term incentive for both the short financial year 2013 and financial year 2013/14 is shown.

3

Shown here is the fair value at the time of granting the tranche

4

Total of the columns fixed salary, supplemental benefits, the short-term incentive and value of the granted tranche

5

Total of the columns fixed salary, supplemental benefits, the short-term incentive and payout from the tranches of the long-term incentive granted in the past

6

Member of the Management Board since 1 April 2013

7

Reported figures for the short financial year 2013 relate to active members of the Management Board in financial year 2013/14

Olaf Koch

2013 (9 months)

900

52

0

0

1,573

(0)

2,525

(952)

2013/14 (12 months)

1,200

16

575

676

1,098

(0)

3,565

(2,467)

Mark Frese

2013 (9 months)

540

17

0

0

944

(0)

1,501

(557)

2013/14 (12 months)

855

102

332

445

823

(0)

2,557

(1,734)

Pieter Haas6

2013 (9 months)

360

7

0

0

944

(0)

1,311

(367)

2013/14 (12 months)

720

107

203

390

659

(0)

2,079

(1,420)

Heiko Hutmacher

2013 (9 months)

540

86

0

0

944

(0)

1,570

(626)

2013/14 (12 months)

900

54

304

468

823

(0)

2,549

(1,726)

Total7

2013 (9 months)

2,340

162

0

0

4,405

(0)

6,907

(2,502)

2013/14 (12 months)

3,675

279

1,414

1,979

3,403

(0)

10,750

(7,347)

Long-term incentives in financial year 2013/14

The target value for the 2013/14 tranche is €1.6 million for Mr Koch, €1.2 million each for Mr Frese and Mr Hutmacher, and €0.96 million for Mr Haas. The value of the tranche distributed in financial year 2013/14 as part of the sustainable performance plan was calculated at the time of granting by external experts using recognised financial-mathematical methods.

Sustainable performance plan (tranches 2013/14–2015/16)

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Tranche

End of the performance period

Starting price for the TSR component

Target amount Management Board as of 30/9/2014

2013/14

41st trading day following the Annual General Meeting three years after the issuance of the tranche

€29.73

€4,960,000

In addition to the tranche from the sustainable performance plan in financial year 2013/14, the active members of the Management Board in this financial year possess rights from the following tranches of the performance share plan: Mr Koch possesses rights from the tranches from 2010, 2011, 2012 and 2013; Mr Haas rights from the tranches from 2013; and Mr Hutmacher rights from the tranches from 2012 and 2013.

Performance share plan (tranches 2009–2013)

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Tranche

End of the blocking period

Three-month average price before allotment

Number of Management Board performance shares as of 30/09/2014

2009

August 2012

€36.67

Expired

2010

August 2013

€42.91

11,652

2011

August 2014

€41.73

11,982

2012

April 2015

€29.18

87,731

2013

April 2016

€22.84

154,117

The blocking period for the 2010 and 2011 tranches ended in August 2013 and August 2014, respectively. No payouts from these tranches were made to members of the Management Board in financial year 2013/14.

In financial year 2013/14, value changes resulted from the current tranches of performance-based payment programmes with a long-term incentive effect. The company’s expenses amounted to €0.54 million for Mr Koch, €0.4 million for Mr Haas and €0.36 million for Mr Hutmacher. The total for Mr Frese was €0.4 million.

Services after the end of employment in financial year 2013/14 (including pension provisions)

In financial year 2013/14, a total of €0.57 million according to International Financial Reporting Standards (IFRS) and €0.54 million according to the German Commercial Code (HGB) were used for the remuneration of the active members of the Management Board of METRO AG for benefits to be provided after the end of their employment (9M 2013 determined on the basis of IFRS and HGB: €4.6 million). Of this total, approximately €0.169 million was allotted to Mr Koch for pension provisions according to IFRS, approximately €0.129 million to Mr Frese, approximately €0.144 million to Mr Haas and approximately €0.131 million to Mr Hutmacher.

According to the German Commercial Code (HGB), approximately €0.165 million was allocated to Mr Koch, approximately €0.123 million to Mr Frese, approximately €0.129 million to Mr Haas and approximately €0.121 million to Mr Hutmacher.

The cash value of provisions according to IFRS and the German Commercial Code (HGB) was approximately €0.007 million for Mr Koch, approximately €0.015 million for Mr Frese, approximately €0.026 million for Mr Haas and approximately €0.016 million for Mr Hutmacher.

Total compensation of former members of the Management Board in financial year 2013/14

Former members of the Management Boards of METRO AG and the companies that were merged into METRO AG as well as their surviving dependants received €3.5 million (9M 2013: €7.0 million).

The corresponding cash value of provisions for current pensions and pension entitlements according to IFRS amounts to €54.3 million (30/9/2013: €54.1 million).

The corresponding cash value of provisions for current pensions and pension entitlements according to the German Commercial Code (HGB) amounts to €44.0 million (30/9/2013: €46.6 million).