The compensation received by the members of the Board of Management is closely dependent on LANXESS’s performance. In addition to the annual base salary, which is market-oriented and in line with that paid at other comparable companies, the compensation of the members of the Board of Management contains three variable components which are aligned with LANXESS’s annual performance and, particularly, with its corporate success over a number of years.

Pursuant to the German Law on the Appropriateness of Management Board Compensation, a new contractual basis was established for the activities of the members of the Board of Management on January 1, 2010. The Annual Stockholders’ Meeting of LANXESS AG on May 28, 2010, resolved to approve the compensation system introduced with these contracts.

Under the current system of compensation for the members of the LANXESS AG Board of Management, the criteria for determining the appropriateness of compensation for an individual Board of Management member are his duties, his personal performance, the economic situation and the sustained development of the company, benchmarking against other comparable companies, and the company’s own compensation structure. The compensation structure is also designed to be competitive in the international market for highly qualified executives and provide the motivation to successfully work toward sustainable corporate development.

Variable compensation components

Annual Performance Payment (APP): The annual component of the variable compensation is the Annual Performance Payment (APP). This is linked to the attainment of corporate performance targets such as Group EBITDA, which are defined by the Supervisory Board for each fiscal year, and to compliance with other conditions, which are also defined by the Supervisory Board.

Long Term Incentive Plan (LTIP): For many years LANXESS has already been in compliance with the new statutory requirement for a stronger focus on long-term performance through its Long-Term Incentive Plan (LTIP), which is linked to the performance of LANXESS stock and is also open to the members of the Board of Management. Under the previous programs, first payments under the LTIP are made after three years. Under the new program introduced in 2010, the Long-Term Stock Performance Plan (LTSP), this period is four years provided LANXESS stock has outperformed the Dow Jones STOXX 600 ChemicalsSM reference index. Also, since 2005, participation in the LTIP by the members of the Board of Management has required a prior personal investment each year in the company’s shares to a value of 13% of their annual base salary. For the new LTSP, the required investment is 5% of the annual base salary.

Long Term Performance Bonus (LTPB): In the interests of long-term corporate performance, a Long-Term Performance Bonus (LTPB) is the third variable compensation component to be paid, which will reward target attainment after two successive fiscal years. The basis for calculating the LTPB is the individual APP target attainment for the fiscal years in question. The exact amount of the LTPB results from the average individual APP target attainment for the two fiscal years. The first payments could therefore be made in spring 2012 on the basis of fiscal 2010 and 2011.

A cap has been defined for each of the variable compensation components.

The compensation mix of 31% annual base salary and 69% variable compensation components is strongly aligned with the company’s performance and long-term value creation.

Details of the compensation of the Board of Management in fiscal 2010 are given in the Compensation Report, which forms part of the Management Report.