Board of Management remuneration

The remuneration of the members of the Board of Management conforms to the requirements of the Aktiengesetz (AktG – German Stock Corporation Act) and to most of the recommendations and, to a large extent, the suggestions set out in the German Corporate Governance Code. A consensus was reached on the new recommendation that the full Supervisory Board should decide and regularly review the remuneration system for members of the Board of Management, including the essential elements of their contracts, with the result that the Supervisory Board resolved at its meeting on November 21, 2008 to follow this recommendation. The remuneration system was discussed at this meeting; no amendments were resolved.

The members of the Board of Management receive a fixed remuneration of a total of €5,346,622 (previous year: €4,810,736). The fixed remuneration also includes differing levels of remuneration for the assumption of appointments at Group companies and noncash benefits, which consist in particular of the use of company cars and the grant of insurance cover. Taxes due on the noncash benefits were mainly borne by Volkswagen AG.

The fixed components of the package ensure firstly a basic level of remuneration enabling the individual members of the Board of Management to perform their duties in the interests of the Company and to fulfill their obligation to act with proper business prudence without needing to focus on merely short-term performance targets.

On the other hand, variable components, dependent among other criteria on the financial performance of the Company, serve to balance the interests of the Board of Management and the other stakeholders.

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REMUNERATION OF THE MEMBERS OF THE BOARD OF MANAGEMENT

 

 

Fixed

 

Variable

 

Stock options exercised

 

Total

 

Total

 

 

 

 

 

 

 

2008

 

2007

Martin Winterkorn

 

1,636,572

 

4,500,000

 

6,575,800

 

12,712,372

 

5,145,496

Francisco Javier
Garcia Sanz

 

931,189

 

2,000,000

 

6,575,800

 

9,506,989

 

2,868,426

Jochem Heizmann

 

942,546

 

2,000,000

 

3,927,650

 

6,870,196

 

2,588,936

Horst Neumann

 

891,774

 

2,000,000

 

3,880,700

 

6,772,474

 

2,673,472

Hans Dieter Pötsch

 

944,541

 

2,000,000

 

6,575,800

 

9,520,341

 

2,676,989

 

 

 

 

 

 

 

 

 

 

 

Members of the Board of Management who left in the previous year

 

 

 

 

 

544,567

 

 

5,346,622

 

12,500,000

 

27,535,750

 

45,382,372

 

16,497,886

The additional annual variable amount paid to each member of the Board of Management contains annually recurring components tied to the business success of the Company. The amount is primarily oriented on the results achieved and the financial position of the Company.

Long-term incentive components resulted from the convertible bonds issued until 2006 to the Board of Management, Group senior executives and the employees of Volkswagen AG; these incentive continued to be effective into 2008. The benefits under the conversion rights were linked to the development of the price of Volkswagen ordinary shares. All tranches of the stock option plan entitled members of the Board of Management to subscribe for a maximum of 500 nontransferable convertible bonds at a price of €2.56 per bond, conveying the right to acquire a maximum of 5,000 ordinary shares. If a member of the Board of Management was a member of top management at the date of grant for each tranche, they could – like all other members of top management – subscribe for a maximum of 500 nontransferable convertible bonds at a price of €2.56 per bond, conveying the right to acquire a maximum of 5,000 ordinary shares. The precondition for participation in this stock option plan was a contribution of between €5,000 and €25,000 in Time Assets, depending on the number of convertible bonds being acquired. The benefits under the stock option plan were essentially as follows: the basis for determining the conversion price (base conversion price) of a tranche was the average Xetra closing price of Volkswagen ordinary shares on the five trading days prior to the respective decision on the issue of convertible bonds. Conversion was possible for the first time after a vesting period of 24 months, and then for a period of five years as from the date of issue of the convertible bonds. The conversion price was initially set at 110% of the base conversion price, and then increased by five percentage points each year. The members of the Board of Management were only permitted to exercise their conversion rights three times a year, within four-week windows beginning on public reporting dates of Volkswagen AG. The stock option plan was thus based on demanding, relevant comparative parameters as set out in the German Corporate Governance Code. Further details were contained in the agenda of the Annual General Meeting held on April 16, 2002, at which the authorization to implement the stock option plan was granted. A detailed description of the stock option plan is contained in note 24 Equity.

The stock option plan was designed to provide the members of the Board of Management – like all other employees – with an element of their total remuneration package that was oriented on an increase in the share price, and thus encourage them to increase value added and the enterprise value. Furthermore, the stock option plan was also a commonly employed instrument in recruiting and assuring the long-term loyalty of members of the Board of Management. There was no possibility of subsequently modifying the performance targets or comparative parameters underlying the stock option plan.

Since all members of the Board of Management exercised all their conversion rights under the stock option plan at the end of 2008, a new Long-Term Incentive Plan (LTI) is being prepared. This remuneration component will be oriented on the Company’s long-term performance. The planned implementation means that the suggestion in paragraph 2, sentence 2 of article 4.2.3. of the Code regarding “long-term incentives containing risk elements” will again be complied with.

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STOCK OPTION GRANTS

 

 

Brought  forward  Jan. 1

 

Contri-buted

 

Exercised

 

Returned

 

Held at  Dec. 31

 

Fair value of  options 2008  in €

 

Fair value of  options 2007  in €

*

Including 500 options converted automatically after the expiration of each conversion period.

Martin Winterkorn

 

2,000

 

 

2,000*

 

 

 

 

2,010,600

Francisco Javier Garcia Sanz

 

2,000

 

 

2,000*

 

 

 

 

2,010,600

Jochem Heizmann

 

1,000

 

 

1,000

 

 

 

 

965,950

Horst Neumann

 

1,000

 

 

1,000

 

 

 

 

952,400

Hans Dieter Pötsch

 

2,000

 

 

2,000*

 

 

 

 

2,010,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,000

 

 

8,000

 

 

 

 

7,950,150

Post-employment benefits

The members of the Board of Management are entitled to a pension and to a surviving dependents’ pension as well as the use of company cars in the event of termination of their service on the Board of Management.

The old-age pension to be granted after leaving the Company is payable immediately if their membership of the Board of Management is terminated by the Company, and in other cases on reaching the age of 63. Any remuneration received from other sources until the age of 63 is deductible from the benefit entitlement up to a certain fixed amount.

The old-age pension is calculated as a percentage of the fixed basic salary, which accounts for most of the fixed individual remuneration of the Board of Management shown in the table above. Mr. Winterkorn and Mr. Garcia Sanz have an old-age pension entitlement of 70%, Mr. Heizmann of 64% and Mr. Neumann and Mr. Pötsch of 62% of their fixed basic salaries as of the end of 2008.

Starting at 50%, the individual percentage increases by 2 percentage points for each year of service up to the maximum of 70% defined by the Presidium of the Supervisory Board.

The members of the Board of Management are entitled to the retirement pension in the event of disability, and to payment of their normal remuneration for six months in the event of illness. Their surviving dependents receive a widows’ pension of 66 2/3% and orphans’ benefits of 20% of the former member of the Board of Management’s pension.

On December 31, 2008 the pension obligations for members of the Board of Management in accordance with IAS 19 amounted to €32,732,521 (previous year: €30,334,447). Current pensions are index-linked in accordance with the index-linking of the highest collectively agreed salary insofar as the application of section 16 of the Gesetz zur Verbesserung der betrieblichen Altersversorgung (BetrAVG – German Company Pension Act) does not lead to a larger increase.

Retired members of the Board of Management and their surviving dependents received €8,269,973 (previous year: €8,688,685). Obligations for pensions for this group of persons were recognized in the amount of €102,789,267 (previous year: €107,971,788).

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