Remuneration of the Management Board
Following intensive public debate on the appropriateness of the remuneration of Management Board members and managers, the German legislature enacted regulations in the form of the Law on the Appropriateness of Management Board Remuneration (VorstAG) which are intended to result in incentives for long-term corporate development increasingly being put in place for Management Board remuneration.
The Management Board and Supervisory Board of IVG Immobilien AG took this development and the German Corporate Governance Code’s recommendation to review the remuneration model on a regular basis, as an opportunity to review and improve the existing remuneration model. In addition to fulfilling legal regulations, another specific goal is providing increased incentives for success that lead to a sustained increase in enterprise value. The Supervisory Board discussed the new remuneration model in December 2009 and resolved to introduce it.
Management Board remuneration under the new remuneration model
The new remuneration model resolved by the Supervisory Board applies from financial year 2010 and is a significant improvement over the old model. The remuneration of Management Board members and of managers is determined on the basis of the same remuneration model.
In contrast to the old model, bonuses for Management Board members are granted not only for achieving a company-related target, but also for achieving personal targets which the Supervisory Board sets individually for each member of the Management Board. Furthermore, the bonus is limited to double the bonus reference figure and a portion of it is converted into limited share acquisition rights for which IVG shares are distributed after three years. This provides for increased incentives for personal performance as well as for sustainable corporate development.
The variable remuneration with long-term incentives was also improved. The vesting period of the new Performance Cash Plan was extended by one year to four years. In addition, the increase in the net asset value (NAV) and funds from operations (FFO) provides greater focus on incentives for targets which contribute to sustainable corporate development.
Under the new remuneration model, the total remuneration of members of the Management Board and managers consists of the elements of fixed remuneration, variable remuneration with short-term incentives and variable remuneration with long-term incentives.
Fixed remuneration
As fixed remuneration, the members of the Management Board and managers receive a monthly base salary and a company car. The basic remuneration for Dr Niesslein is €430,000.00, €350,000.00 for Prof Schäfers and €300,000.00 per year for Dr Reul.
As payment after the end of their activities, the managers primarily receive pension commitments. The basic principles for providing these services to the members of the Management Board have not changed as a result of the new remuneration model. Therefore, please refer to the details of current remuneration in the financial year 2009.
Variable remuneration with short-term incentives
Short-term variable remuneration is granted in the form of a bonus. The amount of the bonus is based on the extent to which company-related and personal targets were achieved. The initial figure for calculating bonuses is the contractually agreed bonus reference figure, which corresponds to 100% target achievement. In calculating the bonus, company-related and personal targets are weighted at 50% each. The total bonus is capped at 200% of the bonus reference figure (bonus-cap).
Bonuses are generally paid out in the month of the General Meeting. However, in the case of members of the Management Board and managers who report directly to the Management Board, only the portion of the bonus relating to achievement of personal targets is paid out in the month of the General Meeting.
The portion of the bonus granted for the achievement of company targets is converted into limited share acquisition rights for this group of individuals. The number of share acquisition rights is calculated by dividing the pro rata bonus by the average IVG share price for the 30 trading days before and after the General Meeting.
After a vesting period of three years, IVG shares are distributed for the share acquisition rights. In the event of the person concerned leaving the company early, this figure is reduced pro rata temporis.
The bonus reference figure for Dr Niesslein is €430,000.00, €350,000.00 for Prof Schäfers and €300,000.00 per year for Dr Reul. The personal targets for each member of the Management Board are determined by the Supervisory Board.
Variable remuneration with long-term incentives
As variable remuneration with long-term incentives, participation in the newly designed Performance Cash Plan is granted. The plan is open to members of the Management Board and selected managers with whom participation in the Performance Cash Plan has been contractually agreed.
In addition, the Management Board may allow other employees and managers to participate independently of a contractual agreement.
The term of a Performance Cash Plan begins with the month after the General Meeting and ends after four full years. The term of the 2009 Performance Cash Plan 2009 begins on 1 June 2009 and ends on 31 May 2013. In future, participation in the plan will be dependent on a mandatory individual investment in IVG shares.
At the start, the participants receive a commitment in the amount of a specified initial figure. The amount to be paid out is calculated by multiplying this initial figure by the following performance multiplier after the end of the performance period of four years.
The performance multiplier varies between 0 and a maximum of 2 and is calculated based on the development of three equally weighted performance indicators:
- 1st performance indicator (shareholder point of view): Performance of the IVG share compared with the FTSE EPRA/NAREIT Developed Europe Index
- 2nd performance indicator (earnings point of view): Increase in the FFO I per share as compared to the planned figure
- 3rd performance indicator (assets point of view): Increase in the NAV per share as compared to the planned figure
The scaling of the three performance indicators at the beginning takes place on the basis of current three-year medium-term planning approved by the Supervisory Board.
A claim to the cash payout from the Performance Cash Plan after the expiration of the fourth year presupposes that the employment agreement with IVG or a subsidiary has not been terminated.
Dr Niesslein’s initial figure is €430,000.00, while Prof Schäfers’ is €350,000.00 and Dr Reul’s is €300,000.00 per year.
Overall, long-term incentives dominate the variable remuneration, since in addition to the Performance Cash Plan the variable remuneration with short-term incentives also includes a long-term incentive component in the form of the limited share acquisition rights.
Management Board remuneration under the previous remuneration model
Management Board remuneration in 2009
The remuneration in 2009 is essentially still based on the remuneration model previously applicable for Management Board members. However, the Supervisory Board has resolved that for 2009 the variable remuneration with long-term incentives will not be granted as performance shares, as in previous years, but instead in the form of participation in the newly designed Performance Cash Plan.
The remuneration of the members of the Management Board is linked to performance and consists of fixed and variable remuneration components.
The fixed remuneration component for members of the Management Board consists of a monthly base salary, other payments and pension commitments. Other payments consist primarily of the taxable value of a company car for private use.
As a variable remuneration component with short-term incentives, every member of the Management Board receives a bonus based on pre-tax consolidated net profit (in 2009 for the last time). Dr Niesslein, the Chief Executive Officer, receives a bonus of 0.5%, Dr Kottmann, who was Chief Financial Officer until 31 May 2009, and Prof Schäfers, who took up this position on 1 February 2009, receive a pro rata temporis bonus of 0.4%, and Dr Reul and Mr Barth receive a bonus of 0.35% of consolidated net profit before income taxes and other taxes but not less than €100,000.00 per year, or €150,000.00 per year in the case of Prof Schäfers.
As a variable remuneration component with long-term incentives, the members of the Management Board were granted participation in the newly designed Performance Cash Plan. The Supervisory Board resolved that the initial figures for the Performance Cash Plan shall be equivalent to the individual bonus reference figures applicable from 2010. Dr Niesslein’s initial figure is €430,000.00, while Prof Schäfers’ is €350,000.00 and Dr Reul’s is €300,000.00. In accordance with the new Performance Cash Plan, the initial figures allocated can increase by a maximum factor of 2 over the term until 2013.
Furthermore, in recognition of the particular achievements of Dr Niesslein and Prof Schäfers in the past year and as an incentive to continue along this path with undiminished commitment, their initial figures were additionally increased by €300,000.00 (Dr Niesslein)/by €200,000.00 (Prof Schäfers) on a one-off basis. The same regulations apply for this increase as for the new Performance Cash Plan, with the exception that the performance multiplier can only vary between 1 and 2 and the claim remains valid if the beneficiaries leave IVG Immobilien AG before the end of the plan.
Details on the new Performance Cash Plan can be found in the section above on the new remuneration model, as well as in Section 12.12 of the notes to the consolidated financial statements.
In 2009, the members of the Management Board received the following total remuneration (2008 in brackets):
In the calculation of total remuneration, participation in the new Performance Cash Plan was included at fair value at the date it was granted. Payments to Dr Kottmann were included pro rata temporis until the date of his departure from the Management Board of IVG Immobilien AG.
The following table shows changes in outstanding performance shares granted to members of the Management Board in previous years:
The performance shares granted in 2006 expired in 2009, as the agreed targets were not achieved.
The existing Performance Share Plans and the participation in the new 2009 Performance Cash Plan result in the following expenses (-) and income (+) for 2009: Dr Niesslein: -€93,878.34; Dr Reul: -€33,214.95 (2008: +€109,335.34), Mr Barth +€3,086.01 (2008: +€28,202.21); Dr Kottmann: -€49.79 Euro (2008: +€178,864.73) and Prof Schäfers: -€69,924.02.
In line with the termination agreement concluded with Dr Kottmann dated 13 May 2009, he received his fixed salary payments until 31 December 2009 and a bonus of €100,000.00. Under the termination agreement, there is also a claim to the performance shares granted under the 2007 and 2008 plans. From 1 January 2010, a termination benefit of 50% of the last fixed annual payments, i.e. in the amount of €175,000.00 p.a., is payable to Dr Kottmann. Any other remuneration will be fully offset against this.
In line with the termination agreement concluded with Mr Barth dated 18 December 2009, Mr Barth continues to receive fixed salary payments until 31 December 2010 and at a maximum until 30 June 2011, provided he does not enter into other employment. From 2010 onwards, Mr Barth no longer has a claim to a bonus. There is also no further claim to the performance shares granted under the 2007 and 2008 plans.
Commitment in the case of premature termination of employment
It is agreed with Dr Niesslein and Prof Schäfers that if their appointment on the Management Board is terminated before expiry of their contracts, without good cause or the existence of a change of control, they will receive a severance payment of any outstanding amounts until the end of the remaining period of their contracts, less a discount of 25%. The severance payment shall amount to no more than two times total annual remuneration (severance cap). The severance payment and severance cap shall be based on total remuneration for the last full financial year before leaving the Management Board as shown in the remuneration report, taking into account probable total remuneration for the current financial year.
If the contract is terminated prematurely due to a change of control at the company, Dr Niesslein will receive compensation in the form of lump-sum payment in the outstanding amount due from the time the termination of his employment contract is effective until the end of the agreed contractual period, reduced by 25%. The compensation, after the reduction of 25%, shall not be less than two times and not more than three times the total normal annual salary.
The members of the Management Board received the following pension commitments:
Pensions
Dr Kottmann is entitled to retirement benefits of 50% of his full fixed salary.
Dr Niesslein, Dr Reul and Mr Barth are entitled to receive a defined contribution commitment linked to their fixed salary.
As a rule retirement benefits are paid from the age of 65 onwards.
Otherwise, if Dr Niesslein, Dr Reul or Mr Barth leave before their 65th birthday, vested retirement benefits accrued up to that point are payable. In case of early retirement a discount of 0.5% is applied for each month by which the claim is premature.
Due to his special situation as a university professor on leave, IVG pays a pension supplement for Prof Schäfers to the State of Bavaria as represented by the University of Regensburg and thus continues his pension scheme existing there.
IVG adjusts current retirement benefits on 1 January of each year to account for inflation (living costs for a four-person household). If the beneficiary leaves IVG early, entitlements are not inflation-linked or adjusted.
The pension expenses (service cost) for the financial year 2009 amount to €240,518.00 for Dr Niesslein (2008: €20,748.00), €58,557.00 for Dr Reul (2008: €38,864.00), €233,775.00 for Mr Barth (2008: €28,566.00), €30,128.62 for Prof Schäfers and €870,170.00 for Dr Kottmann (2008: €72,414.00).
Disability benefits
If a member of the Management Board leaves IVG after the end of the waiting period and before claiming retirement benefits because they are incapacitated or partially incapacitated – as confirmed by an official doctor’s certificate – they are entitled to a monthly incapacity benefit for the duration of the incapacity or partial incapacity.
For Dr Niesslein, Dr Reul and Mr Barth, the entitlement is equivalent to the vested retirement benefits accrued up to that point.
Surviving dependant benefits
Benefits of up to 100% of retirement benefits for members of the Management Board are paid to surviving dependants. If the member of the Management Board leaves IVG at their own request before the age of 65, benefits paid to surviving dependants are limited to 100% of the vested entitlement.
On the death of a member of the Management Board, the surviving spouse receives a pension for life of 60% of the benefits that the member received or would have received if they had become incapacitated at thetime of their death, or 60% of the vested entitlement.
If a member of the Management Board dies, their surviving children are entitled to an orphan’s pension. For Dr Niesslein, Dr Reul und Mr Barth, the orphan’s pension is 20% of the widow’s or widower’s pension for each half-orphan and 40% for each full orphan. The orphan’s pension can be claimed by the deceased’s own children, step-children and foster children who are not in regular employment and have not yet reached the age of 18 at the time when the Management Board member dies. For a child over the age of 18 in education or vocational training, or carrying out military or civilian service, or which is not capable of supporting itself due to physical or mental handicap, the orphan’s pension will be paid until the end of this time but no later than the age of 25 or 27.
In the case of Prof Schäfers, any claims to benefits for invalidity and surviving dependents result from his contractual regulations with the Free State of Bavaria as represented by the University of Regensburg.
As at 31 December 2009, no advance payments or loans had been made to members of the Management Board.
Total payments to former board members and their surviving dependants
Total payments to former Management Board members and their surviving dependants amounted to €2,521,418.23 (2008: €961,149.48). The pension obligations totalled €14,504,600.00 (2008: €10,143,413.00). Total payments to former Management Board members include expense of €1,110,038 from the obligation to pay a termination benefit to Dr Kottmann until he reaches the age of 60.
Supervisory Board remuneration in 2009
The remuneration of the Supervisory Board is regulated in Section 16 of the Articles of Association of IVG Immobilien AG. It takes into account the responsibilities and scope of activities of the Supervisory Board members as well as the economic situation of the company.
Members of the Supervisory Board receive an annual fixed remuneration of €20,000.00 and a variable component of remuneration in the amount of €500.00 per €0.01 by which Group earnings per share exceed €0.50. The variable remuneration is capped at twice the fixed remuneration.
The Chairman receives double, the Deputy Chairman one and a half times the fixed and variable remuneration. Members of the Supervisory Board who belong to committees receive an additional annual remuneration of €2,500 for each committee membership. The Committee Chairman receives double this additional remuneration. The members of the Nomination Committee do not receive any additional remuneration.
Members of the Supervisory Board also receive reimbursement of out-of-pocket expenses for each Supervisory Board meeting or committee meeting.
Remuneration for the Supervisory Board in 2009 totalled €0.23 million (2008: €0.23 million). The variable remuneration was not paid, as Group earnings per share were negative.
As at 31 December 2009, no advance payments or loans had been made to members of the Supervisory Board.
