Remuneration
Structure of the compensation
The structure of the compensation system and the level of compensation for the members of the Board of Management are determined by the Supervisory Board, after preparation by the Presidial Committee. The appropriateness of the compensation is regularly reviewed by an external personnel consulting company. The criteria for determining the appropriateness of the compensation for an individual Board of Management member include, in particular, his duties, his personal performance, the economic situation, and the success and sustainable growth of the LANXESS Group. In addition, consideration is also given to compensation at comparable companies and the company’s overall compensation structure with regard to the ratio between the compensation of the Board of Management and that of LANXESS’s senior executives and the rest of the workforce, both overall and in terms of time. 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. Two of the three variable components are measured according to corporate performance over several years, and thus set long-term incentives.
The compensation system that was introduced for members of the Board of Management in 2010 was approved by the Annual Stockholders’ Meeting of LANXESS AG on May 28, 2010, with a majority of 99.10% of the capital represented. The company intends to allow the 2020 Annual Stockholders’ Meeting to vote on the compensation system after the ongoing legislative procedure regarding the Second Shareholder Rights Directive Implementation Act (ARUG II) is complete and the new version of the German Corporate Governance Code (GCGC) is adopted.
Components of the compensation
The components of the compensation for members of the Board of Management are the base salary; the short-term and long-term variable components, which are the Annual Performance Payment (APP), the Long-Term Stock Performance Plan (LTSP) and the Long-Term Performance Bonus (LTPB); and a retirement pension. The three variable components APP, LTSP and LTPB are linked to LANXESS’s annual performance and performance over a number of years. The average compensation mix of 33% annual base salary and 67% variable compensation components, assuming 100% target attainment, is strongly aligned with the company’s performance and long-term value creation. The present service contracts for members of the Board of Management set out the annual base salary and caps on the amounts for the variable compensation components. Currently, the contracts do not provide for a separate cap, exceeding the aforementioned, on total compensation, even taking into account a possible discretionary bonus.
Changes to the existing Board of Management contracts are planned in the near future. Please see “Other” in the compensation report for details.
- The total compensation for the members of the Board of Management is to be capped in the future.
- The size of the contributions to the company pension plan and the compensation in kind is not to exceed a defined proportion of the annual base salary.
- The Supervisory Board’s granting of an ad hoc discretionary bonus to recognize special achievements or to create an additional performance incentive is to be limited to a maximum amount.
- The LTPB is to be altered in the future to assess target attainment in three consecutive fiscal years.
- The Supervisory Board reserves the right to withhold or reclaim (“claw-back”) the granted variable compensation in full or in part in the event of grave dereliction of duty.
The company intends to allow the 2020 Annual Stockholders’ Meeting to vote on the compensation system after the ongoing legislative procedure regarding the Second Shareholder Rights Directive Implementation Act (ARUG II) is complete and the new version of the German Corporate Governance Code (GCGC) is adopted.
(fiscal 2018)
The compensation of the Supervisory Board is governed by Section 12 of the company’s articles of association. The members of the Supervisory Board of LANXESS AG receive fixed compensation of €80 thousand per year. The Chairman of the Supervisory Board receives three times, and the Vice Chairman one and a half times, this amount. Serving as the chair or a member of Supervisory Board committees is compensated separately in accordance with the German Corporate Governance Code.
Compensation of committees/mandates
Supervisory Board members who belong to a committee receive one half of the fixed compensation amount in addition. The chair of the Audit Committee receives a further half. Supervisory Board members who chair a committee other than the Audit Committee receive a further quarter. However, no member may receive in total more than three times the fixed compensation amount. Supervisory Board members are reimbursed for their expenses in addition and also receive an attendance allowance of €1.5 thousand for each Supervisory Board meeting and each committee meeting they attend, with the exception of meetings of the Committee formed pursuant to Section 27, Paragraph 3, of the German Codetermination Act and meetings of the Nominations Committee. With respect to their membership on the supervisory boards of LANXESS Group companies, the members of the Supervisory Board are remunerated only for their service on the Supervisory Board of LANXESS Deutschland GmbH in the amount of €5 thousand each.Long-term incentive compensation
The Supervisory Board members also receive a long-term incentive based on the company’s performance during the standard term of an individual’s membership on the Supervisory Board (five years). Unlike the fixed compensation component, this variable compensation component is not paid every year, but only once at the end of the standard term of office. If a Supervisory Board member serves a shorter term, the amount is prorated.
Payment of the variable compensation depends on how LANXESS’s stock performs relative to the Dow Jones STOXX 600 ChemicalsSM during a member’s five-year term. The average price of LANXESS stock and the average level of the index during the 90 trading days prior to the Annual Stockholders’ Meeting at which the Supervisory Board members were elected are each compared with the respective average for the 90 trading days prior to the Annual Stockholders’ Meeting at the conclusion of which the members’ terms end. The variable compensation is only payable if the stock has outperformed the benchmark index.
The exact amount of the variable compensation depends on the extent to which the stock price outperformed the benchmark index in the preceding five years. If LANXESS stock has outperformed the Dow Jones STOXX 600 ChemicalsSM by up to ten percentage points, the variable compensation amounts to €50 thousand for this five-year period; if it has outperformed the index by between 10 and 20 percentage points, €100 thousand is paid, and if the degree of outperformance is greater than this, the compensation is €150 thousand.
No variable compensation was paid out in fiscal year 2018. The expected compensation payable for the current terms of office of Supervisory Board members was valued at €1,310 thousand (previous year: €950 thousand) as of December 31, 2018, and recognized as a provision.
None of the members of the Supervisory Board received benefits for services provided personally during the reporting period. No loans or advances were granted to members of the Supervisory Board during the reporting year.