Management Report
Management Report

7.2 Compensation Report

Compensation of the Board of Management

In 2011 the compensation of the Board of Management basically comprised five components: a fixed annual salary, a short-term incentive award on a yearly basis in relation to a target amount, a long-term incentive award for a four-year period in relation to a target amount, a further long-term compensation component introduced in 2010 involving a grant of virtual Bayer shares subject to a three-year retention period, and a company pension plan conferring pension entitlements that increase with years of service. Compensation in kind and other benefits are also provided, such as the use of a company car for private purposes or reimbursement of the cost of health screening examinations.
The short-term incentive (STI) award for 2011 is calculated according to the Group’s core earnings per share and the weighted average target attainment of the HealthCare, CropScience and MaterialScience subgroups. The Supervisory Board can adjust this award according to individual performance. The target attainment of the subgroups is measured chiefly in terms of the EBITDA margin before special items and the growth in sales. A qualitative appraisal in relation to the market and competitors is also taken into account. The members of the Board of Management receive 50% of the STI as direct compensation and 50% in the form of the long-term compensation component introduced in 2010.
The directly effected compensation for the service of the members of the Board of Management in 2011 totaled €6,775 thousand (2010: €10,019 thousand). Of this amount, fixed salaries accounted for €3,139 thousand (2010: €3,936 thousand), the part of the STI awards to be paid out in 2012 for €3,379 thousand (2010: €4,928 thousand), and compensation in kind and other benefits for €257 thousand (2010: €1,155 thousand), the latter item consisting mainly of amounts assigned to compensation in kind and other benefits in accordance with German taxation guidelines.
Under the system introduced in 2010, the long-term compensation of the members of the Board of Management holding office on December 31, 2011 consists of two components: a grant of virtual Bayer shares for which parts of the STI award – which in the past was paid out in full – are used, and the long-term stock-based compensation program Aspire.
According to the changes resolved by the Supervisory Board in December 2009, 50% of the STI was granted in the form of virtual Bayer shares subject to a three-year retention period, thereby creating a new long-term compensation component. The value of these shares depends on the trend in the price of Bayer stock during the retention period. The basis for the conversion of this former part of the STI payment into virtual shares was the average official closing price of Bayer shares over the last 30 trading days of 2011 (November 18 – December 30, 2011) in the Xetra system of the Frankfurt Stock Exchange; this average price was €46.32. Wolfgang Plischke and Richard Pott receive one additional virtual Bayer share for every 20 virtual shares granted under the new system to compensate them for the conversion of part of the former STI into a long-term compensation component. The additional virtual shares are subject to the same retention period and value development.
In addition, the members of the Board of Management participate in the long-term stock-based compensation program Aspire I (annual tranches 2009 through 2011). Under this program, awards are paid out provided that the performance of Bayer stock (both in absolute terms and relative to the EURO STOXX 50 benchmark index) meets defined criteria over a period of three years (four years starting with the 2010 tranche). Further details of this program are provided in Note [26.6] to the consolidated financial statements. The fair value of the stock-based compensation newly granted in 2011 as of its grant date is included in the calculation of total compensation (see following table), although the award entitlement was only partially earned as of the closing date.
The following table shows the compensation components of the individual members of the Board of Management in 2011:
Board of Management Compensation – Aggregate Compensation[Table 3.25]
  Serving members
of the Board of Management
Former
members
 
  Marijn
Dekkers (Chairman)
Werner Baumann

Wolfgang Plischke

Richard Pott

Werner Wenning

Klaus Kühn

Total


  € thousand€ thousand€ thousand€ thousand€ thousand€ thousand€ thousand
Fixed salary
20111,216641641641--3,139
20109006336336338732643,936
Compensation in kind and other benefits
2011691193732--257
20101,010*42353027111,155
Total non-performance-related compensation
20111,285760678673--3,396
20101,9106756686639002755,091
         
Short-term incentive
20111,420653653653--3,379
20109035545545541,8635004,928
Total directly effected compensation
20112,7051,4131,3311,326--6,775
20102,8131,2291,2221,2172,76377510,019
         
Fair value of stock-price-indexed compensation based on the short-term incentive20111,420653686686--3,445
2010903554582582--2,621
Fair value of newly granted stock-based
compensation as of grant date
2011362191191191--935
2010261206291291184331,266
Aggregate compensation
(according to the German Commercial Code)
20114,4872,2572,2082,203--11,155
20103,9771,9892,0952,0902,94780813,906

In some cases, the sum of the figures given in this table may not precisely equal the stated totals due to rounding.

* including one-time relocation expenses

The award entitlements earned in 2011 – both from the 2011 tranche and from previous years’ tranches on which the entitlements were only partially earned – are shown separately in the following table along with the changes in the value of entitlements from previous years’ tranches based mainly on the performance of Bayer stock. The fair value of the award entitlement already earned in 2011 from the 2011 tranche is shown as “Long-term incentive.” Since certain components of the award entitlements are included in both tables, the figures in the following and the preceding table should not be added together.
An amount of €5,718 thousand is recognized in the statement of financial position for future payments of stock-price-indexed compensation based on the short-term incentive to the currently active members of the Board of Management.
Board of Management Compensation – Stock-Based Compensation[Table 3.26]
  Serving members
of the Board of Management
Former
members
 
  Marijn
Dekkers (Chairman)
Werner Baumann

Wolfgang Plischke

Richard Pott

Werner Wenning

Klaus Kühn

Total


  € thousand€ thousand€ thousand€ thousand€ thousand€ thousand€ thousand
Long-term incentive (stock-based compensation
entitlements earned in the respective year)
2011114140239239--732
201067124234234322981,079
Change in value of existing entitlements
2011(138)(59)(39)(39)--(275)
2010-(21)(44)(44)(61)(56)(226)
The current members of the Board of Management are generally entitled to receive a pension upon leaving the Bayer Group, though not before the age of 60, in an annual amount equal to at least 15% of the last yearly fixed salary. This percentage increases depending on years of service as a member of the Board of Management and is capped at 60% except in the case of the member appointed prior to 2006, whose pension entitlement can rise to a maximum of 80% of his last yearly fixed salary. The respective surviving dependents’ benefit is set at 60% of this pension level.
The current service cost for the pension entitlements of the members of the Board of Management is shown in the following table. The current service cost for pension entitlements according to the German Commercial Code (HGB) also includes any past service cost resulting from new entitlements or variations in existing entitlements. The change in the present value of pension entitlements also reflects the interest cost for entitlements earned in prior years, along with actuarial gains and losses. Expenses for the pension entitlements of the members of the Board of Management who retired during the year are included up to the respective retirement dates. Since HGB and IFRS prescribe different methods for calculating pension provisions, the table contains both the amounts disclosed in the financial statements of Bayer AG prepared according to HGB and those published in the consolidated financial statements of the Bayer Group prepared according to IFRS. The figures in each case represent divergent disclosures of one and the same pension entitlement.
Pension Entitlements[Table 3.27]
  Serving members
of the Board of Management
Former
members
 
  Marijn
Dekkers (Chairman)
Werner Baumann

Wolfgang Plischke

Richard Pott

Werner Wenning

Klaus Kühn

Total


  € thousand€ thousand€ thousand€ thousand€ thousand€ thousand€ thousand
Change in the present value of pension
entitlements (IFRS)
20111,0526169801,065--3,713
20102,6126211,0171,0748234266,573
Current service cost for pension entitlements
earned in the respective year (IFRS)
2011550128220236--1,134
20102,175111203217-1412,847
Present value of pension entitlements
at the closing date (IFRS)*
20113,6643,4847,5747,617--22,339
20102,6122,8686,5946,552--18,626
         
Change in the present value of pension
entitlements (German Commercial Code)**
2011744287611605--2,247
20102,4812986025771872554,400
Current service cost for pension
entitlements earned in the respective year
(German Commercial Code)**
2011522119211226--1,078
20102,29211720922531482,994
Present value of pension entitlements
at the closing date (German Commercial Code)
20113,2252,9736,9996,902--20,099
20102,4812,6906,3926,301--17,864

* after deducting plan assets

** incl. employer contribution to Bayer-Pensionskasse

Unlike the aggregate compensation according to the German Commercial Code, the aggregate compensation according to IFRS does not include the fair value of newly granted stock-based compensation, but rather the stock-based compensation entitlements earned in the respective year plus the change in the value of stock-based compensation entitlements from previous years that have not yet been paid out. It also contains the current service cost for pension entitlements.
The components of the Board of Management’s compensation are summarized in the following table:
Board of Management Compensation according to IFRS[Table 3.28]
 20102011
 € thousand€ thousand
Directly effected compensation10,0196,775
Fair value of stock-price-indexed compensation based on the short-term incentive2,6213,445
Long-term incentive (stock-based compensation entitlements earned in the respective year)1,079732
Change in value of existing entitlements(226)(275)
Current service cost for pension entitlements earned in the respective year2,8471,134
Aggregate compensation (IFRS)16,34011,811
For the only Board of Management member whose (recently renewed) service contract was concluded prior to the entry into force of the amendments to the German Corporate Governance Code in June 2008, a general severance indemnity clause applies if the service contract is terminated at the company’s instigation prior to his 60th birthday. The basic principles according to this clause are as follows:
If a member of the Board of Management is not offered a new service contract upon expiration of his existing service contract because he is not reappointed to the Board of Management, or if the member is removed from the Board of Management prematurely during the term of his contract in the absence of grounds for termination without notice, he will receive a monthly bridging allowance amounting to 80% of his last monthly fixed salary for a maximum period of 60 months from the date of expiration of his service contract less the period for which he was released from his duties on full pay or otherwise compensated. (If he were removed during the term of his contract, he would also receive the payment due for the rest of the term, though this would be reduced to the amount of his annual fixed salary plus the target amount for the STI payment for at least twelve months.) His earnings from any new employment elsewhere would be offset against the bridging allowance. In the case of premature termination at the instigation of the company, further years of service might be credited under certain circumstances for the purpose of computing his Board of Management pension entitlement, though not beyond his 60th birthday.
This clause in the service contract referred to above is only applicable until April 30, 2012. For the remaining contracts – and, effective May 1, 2012, for the contract referred to above – it has been agreed, in line with the recommendation of the German Corporate Governance Code, that payment claims of members of the Board of Management can only arise in the event of premature contract termination by the company without cause. Such claims, including ancillary benefits, are then limited to the value of two years’ compensation (severance payment cap) and may not compensate more than the remaining term of the contract. The severance payment cap is to be calculated on the basis of the total compensation (fixed salary plus the target value of the STI) for the previous year and, if appropriate, also the expected total compensation for the current year.
Post-contractual non-compete agreements have been concluded with the members of the Board of Management, providing for compensatory payments to be made by the company for the two-year duration of the post-contractual non-compete clause. For members appointed prior to 2010, this payment amounts to 50% of the average contractually agreed salary for the preceding three years. For the members newly appointed to the Board of Management as of January 1, 2010, the compensatory payment is 100% of the average fixed salary for the twelve months preceding their departure. It is offset against any severance promise payments. In the case of Mr. Pott, this assurance is valid only until April 30, 2012, the original expiration date of his service contract.
Special supplementary arrangements apply in the event of a change of control, see Chapter 6 “Takeover-Relevant Information.”
There were no loans to members of the Board of Management outstanding as of December 31, 2011, nor any repayments of such loans during the year.
We currently pay retired members of the Board of Management a monthly pension equal to 80% of the last monthly base salary received while in service. The pensions paid to former members of the Board of Management or their surviving dependents have been reassessed annually since January 1, 2009 and adjusted taking into account the development of consumer prices. These benefits are in addition to any amounts they receive under previous employee pension arrangements. The pensions paid to former members of the Board of Management and their surviving dependents amounted to €13,069 thousand (2010: €14,116 thousand). Pension provisions for former members of the Board of Management and their surviving dependents at the closing date amounted to €134,179 thousand (2010: €131,599 thousand) according to IFRS and €127,078 thousand (2010: €129,121 thousand) according to HGB.

Compensation of the Supervisory Board

The Supervisory Board is compensated according to the relevant provisions of the Articles of Incorporation, which provisions have not been altered since the resolution of the Annual Stockholders’ Meeting on April 29, 2005. This provides that, in addition to reimbursement of their expenses, each member of the Supervisory Board receives fixed annual compensation of €60,000 and a variable annual compensation component. The variable compensation component is based on corporate performance in terms of the gross cash flow reported in the consolidated financial statements of the Bayer Group for the respective fiscal year. The members of the Supervisory Board receive €2,000 for every €50 million or part thereof by which the gross cash flow exceeds €3.1 billion, but the variable component for each member may not exceed €30,000.
In accordance with the recommendations of the German Corporate Governance Code, additional compensation is paid to the Chairman and Vice Chairman of the Supervisory Board and for chairing and membership of committees. The Chairman of the Supervisory Board receives three times the basic compensation, while the Vice Chairman receives one-and-a-half times the basic compensation. Members of the Supervisory Board who are also members of a committee receive an additional one quarter of the amount, with those chairing a committee receiving a further quarter. However, no member of the Supervisory Board may receive total compensation exceeding three times the basic compensation. It has been agreed that no additional compensation shall be paid for membership of the Nominations Committee. If changes are made to the Supervisory Board and its committees during the fiscal year, members receive compensation on a pro-rated basis. No member of the Supervisory Board received compensation or any other benefits for personally performed services such as consultancy or agency services. The company has purchased insurance for the members of the Supervisory Board to cover their personal liability arising from their service on the Supervisory Board.
In addition to their compensation as members of the Supervisory Board, those employee representatives who are employees of Bayer Group companies receive compensation unrelated to their service on the Supervisory Board. The total amount of such compensation was €645 thousand (2010: €603 thousand).
There were no loans to members of the Supervisory Board outstanding as of December 31, 2011, nor any repayments of such loans during the year.
Compensation of the Members of the Supervisory Board of Bayer AG in 2011[Table 3.29]
 Fixed CompensationVariable CompensationTotal

 € thousand€ thousand€ thousand
Dr. Paul Achleitner7538113
André Aich603090
Willy Beumann7538113
Dr. Clemens Börsig603090
Dr.-Ing. Thomas Fischer7538113
Peter Hausmann7538113
Prof. Dr.-Ing. e.h. Hans-Olaf Henkel7538113
Reiner Hoffmann603090
Dr. rer. pol. Klaus Kleinfeld603090
Petra Kronen7538113
Dr. rer. nat. Helmut Panke603090
Hubertus Schmoldt7538113
Dr. Manfred Schneider (Chairman)18090270
Dr.-Ing. Ekkehard D. Schulz603090
Roswitha Süsselbeck603090
Dr. Klaus Sturany9045135
Dipl.-Ing. Dr.-Ing. e.h. Jürgen Weber7538113
Thomas de Win12060180
Prof. Dr. Dr. h.c. Ernst-Ludwig Winnacker603090
Oliver Zühlke603090
http://www.annualreport2011.bayer.com/en/compensation-report.aspx

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Last updated: February 28, 2012

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