Remuneration system for the Management Board

A new remuneration model for the Management Board of the Group was introduced with effect from 1 January 2010 which meets the requirements of the Law on the Appropriateness of Management Board Remuneration (VorstAG) and the recommendations of the German Corporate Governance Code.

The model that IVG developed ensures that the performance of IVG’s key figures and the individual performance of the Management Board member concerned are taken into account in the incentives. In addition, more incentives for long-term corporate development were set by providing incentives for success that leads to a sustained increase in enterprise value.

The following revisions were made compared to the 2009 model:

• A harmonised and uniform model for remuneration and incentives applies to the Management Board and those who report directly to the Management Board.
• The Management Board incentives are equally based on achievement of company results targets and achievement of personal targets.
• The incentives are based more on multi-year measurement principles and therefore establish long-term business success.
• The different incentive measures are based on performance indicators that are key to the company. For the most part, they are directly derived from medium-term planning.

The new remuneration model provides three contractually established remuneration elements for Management Board members Dr Niesslein, Professor Dr Schäfers, Mr Kühni and Dr Volckens: fixed remuneration, variable remuneration with short-term incentives and variable remuneration with long-term incentives. Dr Niesslein’s employment relationship expired at the end of his term of appointment on 31 October 2011 in line with his contract.

The fixed remuneration component for members of the Management Board is a monthly base salary and other payments that consist primarily of the taxable value of the private use of a company car.

The base salary for Dr Niesslein up until 31 October 2011 was €430,000.00 per year. Professor Dr Schäfers’ base salary was €350,000.00 per year until 31 October 2011, and €500,000.00 per year from 1 November 2011. The base salary for Mr Kühni amounted to €325,000.00 per year and that of Dr Volckens was €350,000.00 per year.

Variable remuneration with short-term incentive effect (STI) 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 are achieved.

For the most part, the targets are derived directly from the medium-term planning agreed by the Management Board and Supervisory Board and established for each Management Board member at the beginning of the year by IVG’s Supervisory Board. Company-related and personal targets are weighted at 50% each.

The degree to which all the goals can be achieved varies from 0% to 200%. The Supervisory Board can adjust the degree to which goals are achieved by +/- 20 percentage points at its sole discretion. Overall the bonus is limited to twice the contractually established bonus value that corresponds to 100% achievement (bonus cap).

The portion of the bonus pertaining to the achievement of personal goals is paid out in the month of the General Meeting the following year. The portion of the bonus granted for the achievement of company targets is converted into limited share acquisition rights (restricted stock units). 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 of the following year.

After a vesting period of three years, IVG shares are distributed for the share acquisition rights. This means that the members have direct participation in both the positive and negative developments of IVG’s shares and therefore their interests are the same as those of the shareholders. 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 was €430,000.00 per year until 31 October 2011, for Professor Dr Schäfers it was €350,000.00 per year until 31 October 2011 and €500,000.00 per year from 1 November 2011, for Mr Kühni it is €325,000.00 per year and for Dr Volckens it is €350,000.00 per year.

Variable remuneration with long-term incentives (LTI) is granted in the form of participation in the Performance Cash Plan. The Supervisory Board decides on the structure of the plan on an annual basis.

The term of a Performance Cash Plan begins with the month after the General Meeting and ends after four full years. 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. The performance indicators are as follows:

1. Performance indicator (shareholder point of view): Performance of IVG shares as compared to the FTSE EPRA/NAREIT Developed Europe Index
2. Performance indicator (earnings point of view): Increase in the FFO I per share as compared to the planned figure
3. Performance indicator (assets point of view): Increase in the adjusted NAV per share as compared to the planned figure

The scaling of the three performance indicators takes place on the basis of current medium-term planning approved by the Supervisory Board. For previous plans, the following exception applied: If an established performance target is not achieved (underperformance) the respective multiplier is 0. Starting with the 2010 Performance Plan, the Supervisory Board may correct a multiplier of 0 to a multiplier of between 0 and 1 at its sole discretion.

A claim to the cash payout from the Performance Cash Plan after the expiration of the fourth year presupposes that the member of the Management Board is still a member of the Management Board at the end of the term. In the case of the other plan participants, the prerequisite of the cash payout is that an employment agreement exists with IVG Immobilien AG or a Group company.

The initial figure for Dr Niesslein was €430,000.00 per year until 31 October 2011, for Professor Dr Schäfers it was €350,000.00 per year until 31 October 2011 and €500,000 per year from 1 November 2011, for Mr Kühni it is €325,000.00 per year and for Dr Volckens it is €350,000.00 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 in 2011

For the financial year 2011 (2010), the Management Board received total remuneration as defined in GAS 17 of €1.9 million (€2.2 million). Of this amount, €1.0 million (€1.2 million) was cash remuneration and €1.0 million (€1.0 million) was share-based remuneration. As such, around 50% of total remuneration was granted on a deferred basis in the form of share-based remuneration instruments with a multi-year vesting period that are dependent on the development of selected performance indicators. In accordance with GAS 17, the fair values of the share-based remuneration components shown below relate to the grant date of the remuneration instrument concerned and may sometimes differ considerably from the fair values as at the balance sheet date.

The individualised disclosures are as follows:

The bonus claim resulting calculated from the individual achievement of personal targets (STI) of the Management Board members was reduced due to IVG’s current economic situation. At the suggestion of the Management Board, the Supervisory Board used its powers of discretion under the remuneration system to the full extent and reduced the degree of total target achievement by 20 percentage points for all Management Board members.

For the Management Board members in office, the Supervisory Board also resolved at the suggestion of the Management Board not to pay out the portion of the bonus relating to achievement of personal targets (€32,250.00 for Professor Dr Schäfers, €6,630.00 for Mr Kühni and €7,140.00 for Dr Volckens) in May 2012 – in variance to the contractual claims – but instead to allocate restricted stock units (RSUs). The members of the Management Board in office also undertook each to invest an additional 25% of the allocated RSU amount from their own assets in IVG shares and thereby increase their holdings of IVG shares. As a result of the conversion, no cash bonuses are reported for the Management Board members in office and the RSUs granted are recognised at their fair value at the grant date.

The bonus for personal targets for Dr Niesslein was paid out in cash in accordance with the contractual regulations.

The long-term share-based remuneration component of the STI refers to restricted stock units (RSUs) that are generally issued for the corporate target related portion of the bonuses for 2011. By way of a resolution in January 2011, the Supervisory Board offered RSUs with a fair value of €479,473.00 in connection with the definition of the corporate targets. As at 31 December 2011 the fair value of these RSUs, taking into account target achievement, amounts to €0.00.

The RSUs granted instead of cash bonuses (remuneration for achievement of personal targets) have a total fair value of €46,020.00 at the grant date.

The final number of RSUs is established using the average share price as of the 2012 General Meeting. The shares for the RSUs are distributed after a three year vesting period.

The number of RSUs granted for 2011 – taking into account the different grant dates – amounted to 29,353 for Dr Niesslein, 40,446 for Professor Dr Schäfers, 19,586 for Mr Kühni and 21,093 for Dr Volckens.

Taking into account target achievement and the conversion of the cash bonuses, the number of RSUs up to and including 2011 amounted to 7,131 for Dr Niesslein, 21,979 for Professor Dr Schäfers, 3,052 for Mr Kühni and 3,287 for Dr Volckens on 31 December 2011; the number of RSUs offered for 2011 was estimated.

The long-term share-based remuneration from the LTI pertains to granting participation in the new 2011 Performance Cash Plan, which is earned over a period of four years.

Dr Niesslein’s employment relationship expired at the end of his term of appointment on 31 October 2011 in line with his contract. Total payments to Dr Niesslein until he left office can be seen in the table. Commitments and severance payments were not granted in connection with his resignation. Dr Niesslein’s claims to participation commitments from previous Performance Share Plans and the 2009 and 2010 Performance Cash Plans expire without compensation upon his resignation. However, the claim to the special allocation with an initial value of €300,000.00 as part of the 2009 Performance Cash Plan remains. There will not be a pro rata temporis reduction of his restricted stock units (RSUs).

The existing and newly issued share-based remuneration components (Performance Cash Plan and restricted stock units) resulted in the following expense (-) or income (+) in 2011 (2010): Dr Niesslein +€6,912.90 (-€252,696.09), Professor Dr Schäfers -€51,131.68 (-€173,652.63), Mr Kühni €0.00 (€0.00) and Dr Volckens €0.00 (€0.00).

Commitment in the case of premature termination of employment

It is agreed with Professor Dr Schäfers, Mr Kühni and Dr Volckens 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 in terms of the basic monthly salary, bonuses, any other contractually agreed payments and the value of remuneration in kind, minus 25% for a discount and the calculation of other payments. The severance payment shall amount to no more than two times total annual remuneration of the respective Management Board member (severance cap). The main determiner for the calculation of the severance and the severance cap is the total remuneration of the Management Board member for the last full financial year before leaving the Management Board, as it is reported in the remuneration report, taking into consideration the expected total remuneration for the current financial year using 100% target achievement for the calculation of the bonuses, but at the most the target achievement in the last full financial year before leaving the Management Board.

A change of control regulation applied only to Dr Niesslein; no change of control agreements were made with Professor Dr Schäfers, Mr Kühni or Dr Volckens.

The members of the Management Board received the following pension commitments:

Pensions

The retirement benefits accrued for Dr Niesslein expire as a result of his leaving the company as at 31 October 2011. Mr Kühni and Dr Volckens 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 Mr Kühni und Dr Volckens leave before their 65th birthdays, vested retirement benefits accrued up to that point are payable. In the case of early retirement from the age of 60, a discount of 0.5% is applied for each month by which the claim is premature prior to the beneficiary’s 63rd birthday.

Due to his special situation as a university professor on leave, IVG pays a pension supplement for Professor Dr 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 by 1% on 1 July of each year. If the beneficiary leaves IVG early, entitlements are not inflation-linked or adjusted.

The pension expenses (service cost) for the financial year 2011 amount to €284,263.00 (2010: €261,185.00) for Dr Niesslein and €34,062.84 (2010: €33,880.48) for Professor Dr Schäfers. As of 31 December 2011, the pension provisions amount to €0.00 (2010: €603,892.00) for Dr Niesslein, €28,997.00 (2010: €0.00) for Mr Kühni and €44,120.00 (2010: €0.00) for Dr Volckens.

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.

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 the time 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 Mr Kühni and Dr Volckens, 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 Professor Dr Schäfers, any claims to benefits for disability and surviving dependants result from his contractual regulations with the Free State of Bavaria as represented by the University of Regensburg.

As at 31 December 2011, 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 €1,423,869.46 (2010: €1,606,978.44). The pension obligations totalled €17,191,744.00 (2010: €16,309,519.00) as of 31 December 2011.

Remuneration of the Supervisory Board

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. On recommendation of the Management Board and the Supervisory Board, the remuneration system was modernised by resolution of the General Meeting on 20 May 2010.

The members receive annual fixed remuneration of €20,000.00. The Chairman receives double, the Deputy Chairman one and a half times the fixed remuneration. Members of the Supervisory Board who belong to the Audit Committee receive additional fixed annual remuneration of €4,000.00, while members of the Supervisory Board who belong to another committee (except for the Nomination Committee) receive additional fixed annual remuneration of €2,500.00. The chairman of a Supervisory Board committee receives double the additional fixed remuneration.

In addition, the members of the Supervisory Board receive an attendance fee of €1,000.00 per meeting of the Supervisory Board or the Audit Committee.

They also receive variable remuneration, the amount of which depends on the development of the company’s share price compared with the FTSE EPRA/NAREIT Developed Europe Index during a two-year reference period. The reference period is always two years and ends on 31 December of each year. If the IVG share price performs worse than the EPRA index during the reference period, the Supervisory Board members receive no variable remuneration. If the IVG share price performs better than the EPRA index during the reference period, the Supervisory Board members receive variable remuneration calculated by multiplying the target remuneration of €10,000.00 by a set multiplier that depends on the average annual deviation between the development of the IVG share price and the EPRA index. This multiplier varies between 1 and 2. The Chairman of the Supervisory Board receives double, the Deputy Chairman one and a half times the variable remuneration.

Members of the Supervisory Board also receive reimbursement of outof- pocket expenses for each Supervisory Board meeting or committee meeting.

The remuneration of the Supervisory Board totalled €425,709.86 in 2011 (2010: €387,887.32). The variable remuneration was recognised as share-based remuneration at fair value at the date it was granted. In 2011, the members of the Supervisory Board received the following total remuneration:

*Including attendance fees

The variable, share-based remuneration of the Supervisory Board relates to the variable remuneration granted at the beginning of 2011 with the reference period 2011/2012, and for Mr Krauth also the pro rata variable remuneration with the reference period 2010/2011, since he was elected to the Supervisory Board during the financial year.

Due to the underperformance of the IVG share as against the EPRA index in the reference period 2010/2011, no variable remuneration is expected to be paid for this reference period (2010: €107 thousand for the reference period 2009/2010).

As at 31 December 2011, no advance payments or loans had been made to members of the Supervisory Board.