Remuneration

Principles of remuneration for Executive Board members

The remuneration report contains the principles regarding the remuneration of Vossloh AG’s Executive Board members and specifies the amount and structure of the Executive Board members’ income. In addition, the report describes the principles and amount of Supervisory Board remuneration.

Principles of Executive Board remuneration

Purpose. The aim of the Executive Board remuneration system is the fair remuneration of Vossloh AG’s Executive Board members in accordance with their areas of activity and responsibility and in compliance with legal requirements.

Criteria for the appropriate remuneration of Executive Board members are based on each member’s function and individual performance, Vossloh AG’s economic situation, success and future prospects in addition to customary remuneration polices in view of the Company’s comparative environment, remuneration structure and their development over time.

Executive Board remuneration system. The annual remuneration is a fixed basic salary plus variable remuneration. The variable remuneration component is calculated on the basis of a target remuneration defined for each Executive Board member in the event of 100 percent attainment of the performance targets set by the Supervisory Board.

Review and adjustment of remuneration in the 2017 fiscal year

In the 2017 fiscal year, the Supervisory Board conducted a market rate and system analysis of the remuneration of Vossloh AG’s Executive Board members with the external support of Deloitte Consulting GmbH’s remuneration experts, who, in the view of the Supervisory Board, are independent of the Executive Board and Company. The review confirmed that Vossloh AG’s remuneration system meets the statutory requirements and that the total remuneration is appropriate and in line with market practice both in the horizontal (with comparable companies) and vertical comparison (differentiation between the members of the Executive Board from each other and from the downstream levels in the Company). Furthermore, the basis for calculating the variable remuneration and the payments in kind granted were also regarded as appropriate and customary within the market.

Based on the findings of Deloitte’s analysis of Executive Board remuneration, Deloitte also issued a recommendation for the further development of the Executive Board remuneration system. The recommendation focused on a structural redistribution within the variable remuneration components by reducing the discretionary portion of the remuneration, which is at the discretion of the Supervisory Board, in favor of the annual bonus and the multi-year variable remuneration. Deloitte recommended a ratio of 40:60 for the ratio of annual bonus to multi-year remuneration components. On the basis of this recommendation, the Supervisory Board reviewed the remuneration system again and adjusted it with effect for the 2017 fiscal year.

New remuneration system for members of the Executive Board since 2017

Specifically, Vossloh AG’s new remuneration system for the Executive Board members consists of three components, the basic remuneration, the annual bonus and the multi-year bonus, which break down as follows:

Basic remuneration is a fixed annual sum, based on the responsibilities of each Executive Board member and is to be paid in twelve equal monthly installments. It amounts to around 35 percent of the total target remuneration for the CEO and 40 percent of the total target remuneration for the other members of the Executive Board. In addition, Executive Board members receive noncash fringe benefits as payments in kind, which primarily relate to the private use of a company car. No separate remuneration is provided for services performed on behalf of subsidiaries.

Variable remuneration, which amounts to around 65 percent of total target remuneration for the CEO and 60 percent for the other members of the Executive Board at 100 percent target achievement, consists of an annual and a multi-year remuneration component. The performance targets for variable remuneration are determined annually by the Supervisory Board and consist primarily of financial performance indicators. In addition, one third of the multi-year bonus is based on the personal goals and tasks of the individual Executive Board members. All performance targets are forward-looking and are set by the Supervisory Board with target values at the beginning of each assessment period by means of target agreements with the members of the Executive Board.

The one-year bonus is determined via annual performance targets and accounts for 40 percent of the total variable remuneration. The performance targets for the annual bonus in the 2017 fiscal year related to EBIT, revenue and the average working capital intensity of the Vossloh Group.

At 60 percent, the multi-year bonus accounts for the majority of the variable target remuneration and is dependent on the achievement of multi-year performance targets. Two-thirds of the performance targets for the multi-year bonus are based on financial performance indicators. For the multi-year bonuses promised for the 2017 fiscal year, these were average revenue growth and average ROCE. The remaining one-third of the multi-year bonus is based on the achievement of individual performance targets and tasks set by the Supervisory Board for the Executive Board members in annual target agreements.

The achievement of targets for the annual bonus and the financial performance indicators for the multi-year bonus are determined annually by the Supervisory Board on the basis of the approved consolidated financial statements. The target bonus is granted if the target is fully realized. The bonus increases or decreases in relation to the target bonus depending on the achievement of the defined target values. The annual bonus and the portion of the multi-year bonus based on financial performance indicators are limited to a maximum of 170 percent of the respective target bonus. The portion of the multi-year bonus based on individual objectives and tasks is limited to a maximum of 100 percent of the basic amount. With regard to the individual goals and tasks of the members of the Executive Board, the Supervisory Board determines whether the targets have been achieved at its discretion.

However, the Supervisory Board may use its discretion to set an extra bonus allocation for extraordinary performance and development.

Executive Board remuneration in the 2017 fiscal year

The following table depicts the remuneration for the Executive Board assigned by name and in compliance with the recommendations of the German Corporate Governance Code. The benefits granted also include accrued amounts for variable remuneration components that will not be paid out until 2018 or 2019. Payments in kind cover private company car use in the amount recognized for tax purposes.

   Variable remuneration  
  Fixed remunerationPayments
in kind
TotalOne-year variable remunerationMulti-year variable
remuneration1
TotalService
costs
Total remuneration
Benefits granted     2015 & 20162016 & 201722017 & 20183   
Andreas
Busemann
CEO since
4/1/2017*
2016----------
2017412,50015,259427,759436,570--359,378795,947-1,223,706
2017 min.412,50015,259427,7590--00-427,759
2017 max.412,50015,259427,759510,000--660,0001,170,000-1,597,759
Dr. h.c.
Hans M, Schabert
CEO until
3/31/2017
2016500,00014,736514,736252,835100,669785,287-1,138,792(54,401)*1,599,127
2017125,0003,684128,68456,250--68,750125,000-253,684
2017 min.125,0003,684128,684---00-128,684
2017 max.125,0003,684128,684112,500--137,500250,000-378,684
Oliver Schuster
member of the
Executive Board
since 3/1/2014
2016350,00021,970371,970176,98570,468549,701-797,154161,0711,330,195
2017433,33322,974456,307407,465-97,362335,419840,246213,8571,510,410
2017 min.433,33322,974456,3070--00213,857670,164
2017 max.433,33322,974456,307476,000--616,0001,092,000213,8571,762,164
Volker Schenk
member of the
Executive Board
since 5/1/2014
2016350,00011,485361,485176,985
70,468451,701-699,154157,4731,218,112
2017416,66711,485428,152407,465-97,362335,419840,246208,7431,477,141
2017 min.416,66711,485428,1520--00208,743636,895
2017 max.416,66711,485428,152476,000--616,0001,092,000208,7431,728,895

*All values for Mr. Busemann in 2017 were calculated pro rata temporis.

1 The granting of multi-year variable remuneration is dependent on the achievement of performance targets for the period in question. Target fulfillment is measured after the expiry of the multi-year period as defined in the contract. The benefits were calculated on the basis of the most likely value and recognized as a provision, provided the contract was still valid.

2 The actual benefits granted for 2016 include a multi-year special bonus in the amount of €550,000 for Dr. h.c. Schabert, €385,000 for Mr. Schuster and €287,000 for Mr. Schenk.

3 In the case of analogous application of the presentation method selected in this report, the following comparative values for the maximum variable remuneration would have resulted as follows in the previous year: for Dr. h.c. Schabert €1,500,000 and €1,050,000 each for Mr. Schuster and Mr. Schenk.

4 The negative service costs in the previous year resulted from the actuarial consideration of the termination of Executive Board duties for Dr. h.c. Schabert.

Commitments in the event of termination of duties

The table below shows the receipt of remuneration in the reporting year and the previous year in accordance with the recommendations of the German Corporate Governance Code. The paid amounts for the variable remuneration were allocated to the years in which they were received by the respective Executive Board member.

Entitlements to defined retirement benefits in accordance with German GAAP (Commercial Code) are as follows:

Receipt in € Fixed remunerationPayments
in kind
TotalOne-year variable remunerationMulti-year variable
remuneration1
TotalService
costs
Total remuneration
      2014 & 20152015 & 20162   
Andreas Busemann
CEO since 4/1/2017
2016---------
2017412,50015,259427,759-----427,759
Dr. h.c. Hans M, Schabert
CEO until 3/31/2017
2016500,00014,736514,736343,993306,317300,000950,310(54,401)31,410,645
2017125,0003,684128,684309,085-1,116,3651,425,450-1,554,134
Oliver Schuster
member of the Executive
Board since 3/1/2014
2016350,000
21,970371,97065,795214,422192,500472,717161,0711,005,758
2017433,33322,974456,307176,985-568,629745,614213,8571,415,778
Volker Schenk
member of the Executive
Board since 5/1/2014
2016350,000
11,485361,485240,795214,422100,000555,217157,4731,074,175
2017416,66711,485428,152176,985-470,629647,614208,7431,284,509

1 Including the multi-year special bonuses received in each year.

2 For Dr. h.c. Schabert, the one-year variable remuneration received includes an amount of €56,250 for 2017 and an amount of €304,037 in the multi-year variable remuneration received for 2015 and 2016. This compensated for claims from the years 2016 and 2017 at the time of his departure.

3 The negative service costs in the previous year resulted from the actuarial consideration of the termination of Executive Board duties for Dr. h.c. Schabert.

Entitlements in accordance with provisions from the German Commercial Code are as follows:

 Amount deferred for the fiscal yearPresent value of pension obligation
Entitlements to defined
retirement benefits
   
Andreas Busemann
CEO since 4/1/2017
2016--
2017--
Oliver Schuster
member of the Executive Board
201694,424266,362
2017249,679516,042
Volker Schenk
member of the Executive Board
201694,382249,742
2017241,120490,862
Dr. h.c. Hans M. Schabert
CEO until 3/31/2017
2016(29,076)*229,411
201723,178252,589

* The negative amount deferred for the previous year resulted from the actuarial consideration of the termination of Executive Board duties for Dr. h.c. Schabert.

Retirement benefits. The Executive Board members Oliver Schuster and Volker Schenk have been granted entitlements to defined retirement benefits in the form of pension payments upon reaching the retirement age of 63. Depending on the years of service on the Executive Board, annual pension benefits after a minimum three-year Executive Board membership amount to 1 percent, or in the case of a first time contract renewal 2 percent, up to a maximum of 40 percent of the pensionable annual basic remuneration. The additional provision for Executive Board members in the 2017 fiscal year amounted to €513,977 (previous year: €159,730). Upon the death of an active or former member of the Executive Board, the pension entitlement or the most recent pension paid to the surviving spouse is reduced to 60 percent. The CEO, Andreas Busemann, receives an annual amount of €50,000 for the establishment of a private pension, which is to be part of the fixed remuneration.

Commitments in the event of premature termination of duties

Commitments in the event of premature termination of duties. In the event of an agreed premature termination of the employment contract, the Executive Board contracts contain commitments to pay out their expected remuneration, unless the termination is based on a unilateral resignation by the Executive Board member without good cause or on a revocation of the appointment for good cause. However, the commitments are in any case limited to a maximum of two years’ remuneration (severance payment cap). No payment obligations are made in the event of an early termination of Executive Board duties due to a change of control.

Consulting activities. During the 2017 fiscal year, Oliver Schuster, member of the Executive Board, spent around one working day per week advising Knorr-Bremse AG on a financial project in the period between June and October 2017. The Supervisory Board approved this temporary advisory activity from the outset. An agreement has been concluded with Knorr-Bremse AG under which Knorr-Bremse AG reimburses Vossloh AG for the portion of the Executive Board remuneration (fixed salary and variable remuneration) and expenses attributable to the time spent on consulting services. Accordingly, Knorr-Bremse AG has reimbursed Vossloh AG for a total amount of €74,554. Compared to the amounts shown in the remuneration tables, Vossloh has therefore incurred correspondingly lower expenses.

Loans to Executive Board members. No advances or loans were granted to any Executive Board members of Vossloh AG in the 2017 fiscal year.

Remuneration to former Executive Board members of Vossloh AG and their surviving dependents. Remuneration in the form of pension payments to former members of the Executive Board and management as well as their surviving dependents totaled €1,133,332 (previous year: €1,105,236). These were pension payments. Current pension payments are subject to adjustment in relation to the collective pay trend in the metal and electrical industries of North Rhine-Westphalia. Pension obligations to former members of the Executive Board and management, as well as their surviving dependents amounted to €19,310,583 (previous year: €18,802,278). Employer pension liability insurance policies totaling €10,624,485 (previous year: €10,784,849) are pledged in each beneficiary’s favor. The remaining amount of these pension obligations is covered by provisions.

Remuneration of the Supervisory Board

Supervisory Board remuneration in 2017. The remuneration of members of the Supervisory Board is to be determined by the Annual General Meeting and governed by the Company’s Articles of Incorporation. The remuneration system complies with German law and takes into account the responsibilities and scope of duties of Supervisory Board members.

In addition to reimbursement for their expenses, Supervisory Board members receive a fixed annual remuneration for duties performed of €40,000 (gross) to be paid after the conclusion of the fiscal year. The Supervisory Board Chairman receives three times and the vice-chairman one-and-a-half times the above fee. Membership in a committee is compensated by a premium of one quarter of the aforementioned remuneration amounts. The Audit Committee Chairman receives three times the additional Audit Committee membership fee. If the Supervisory Board Chairman is also a committee member, no additional fee is to be paid for his activities on the committee. At the meeting of the Supervisory Board on September 24, 2015, the members of the Nomination Committee unanimously declared that they would waive the remuneration stipulated by the Articles of Incorporation for their work on the Nomination Committee.

For the 2017 fiscal year, Supervisory Board members received a total remuneration of €420,000 (previous year: €410,000).

The table below depicts the amounts paid to each Supervisory Board member:

 20172016
Heinz Hermann Thiele (Chairman until 5/24/2017)50,000120,000
Dr.-Ing. Volker Kefer (Chairman since 5/24/2017)80,000
Ulrich M. Harnacke (Deputy Chairman)100,000100,000
Ursus Zinsli 50,00050,000
Dr.-Ing. Wolfgang Schlosser 40,00040,000
Michael Ulrich60,00060,000
Andreas Kretschmann (since 8/30/2017)16,667-
Helmut Schwind (from 2/1/2017 to 7/3/2017)20,000-
Silvia Maisch (until 1/31/2017)3,33340,000
Total420,000410,000

Consultancy agreement. During the 2017 fiscal year, there was a consultancy agreement with Ursus Zinsli, which expired in March 2017. In the year under review, he received €16,000 from this consultancy agreement.

Loans to Supervisory Board members. In the 2017 fiscal year, no advances or loans were granted to any Supervisory Board members.