The current compensation system for the members of the Managing Board of Siemens AG has been in place since fiscal 2020 and was endorsed at the Annual Shareholders’ Meeting on February 5, 2020 by a majority of 94.51%.
The following chart provides an overview of the key components and the design of the compensation system for Managing Board members. A full description of the system can be found in the Notice of Annual Shareholders’ Meeting 2020 under Agenda Item 6 “To resolve on the approval of the system of compensation for the members of the Managing Board”.
The Supervisory Board determines, in accordance with the compensation system, the amount of each Managing Board member’s total target compensation for the upcoming fiscal year. This determination is based on an appropriate consideration of the Managing Board member’s tasks and performance and the Company’s economic situation, performance and future prospects.
The compensation system enables the Supervisory Board to define total target compensation according to the function of each Managing Board member and thus to consider the different requirements for each function when defining both the absolute amount and the structure of compensation. In doing so, the Supervisory Board ensures that the proportions of total target compensation represented by each of the individual compensation components are within the following percentage ranges:
- fixed compensation: minimum 36% to maximum 43% of total target compensation
- short-term variable compensation (Bonus): minimum 20% to maximum 28% of total target compensation
- long-term variable compensation (Stock Awards): minimum 30% to maximum 42% of total target compensation.
Except for Dr. Roland Busch, Managing Board members’ total target compensation was not adjusted as part of the regular income review and is thus unchanged compared to the previous year.
For Dr. Roland Busch, the Supervisory Board already passed a resolution in its meeting on March 19, 2020 increasing base salary, the bonus target amount and the Stock Awards target amount, effective October 1, 2020. The increase is made in connection with the assumption of responsibility for coordinating and implementing the 2021 budget of Siemens AG and also as a result of the appointment of Dr. Roland Busch as CEO effective, at the latest, with the end of the Annual Shareholders’ Meeting on February 3, 2021. Furthermore, the contribution to the Siemens Defined Contribution Pension Plan (BSAV) for Dr. Roland Busch was increased for fiscal 2021.
In addition to Dr. Roland Busch, the Supervisory Board exercised its option to differentiate the compensation of two other members of the Managing Board in fiscal 2021. As in previous years, all components of Joe Kaeser ’s compensation were differentiated due to his function as President and CEO. The target amount of Prof. Dr. Ralf P. Thomas’s Stock Awards was differentiated due to his particular responsibility as CFO.
The total target compensation determined by the Supervisory Board for fiscal 2021 and the resulting compensation structure are as follows:
For each Managing Board member, the Supervisory Board determines an amount relative to base salary that represents the maximum value of fringe benefits for the upcoming fiscal year. This amount covers expenses incurred to the benefit of the Managing Board member, for example, in-kind compensation and fringe benefits granted by the Company, including the provision of a company car, insurance allowances and medical check-ups.
Like the employees of Siemens AG, the members of the Managing Board are included for the most part in the Siemens Defined Contribution Pension Plan (BSAV). Under the BSAV, Managing Board members receive contributions that are credited to their pension accounts. Newly appointed members of the Managing Board can be granted, instead of a BSAV contribution, a fixed cash amount that he or she can freely dispose of (pension substitute).
In general, no adjustments were made to the level of base salaries or the pension contributions. Only Dr. Roland Busch's base salary and pension contribution was adjusted in line with the assumption of responsibility for coordinating and implementing the 2021 budget of Siemens AG and also as a result of the appointment of Dr. Roland Busch as CEO effective, at the latest, with the end of the Annual Shareholders’ Meeting on February 3, 2021.
In fiscal 2021, Managing Board members are entitled to fringe benefits equal to a maximum of 7.5% of their base salary.
The as of October 1, 2020 newly appointed Managing Board members Judith Wiese and Matthias Rebellius are not included in the BSAV. Instead of a BSAV contribution they are granted a fixed cash amount that they can freely dispose of (pension substitute).
The system of short-term variable compensation (Bonus) is based on three equally weighted target dimensions, which take account of the overall responsibility of the Managing Board as well as the Managing Board members’ respective business responsibilities and their individual challenges: “Siemens Group”, “Managing Board portfolio” and “Individual targets.”
In the “Siemens Group” and “Managing Board portfolio” dimensions, target attainment is measured based on one financial key performance indicator each. Individual targets can either be financial or non-financial targets.
In the “Individual targets” dimension, financial targets measuring liquidity or growth, as well as further non-financial targets, can be applied.
After the end of the fiscal year, target attainment for the key performance indicators for the target dimensions “Siemens Group” and “Managing Board portfolio” and the attainment for the individual targets are determined and aggregated to form a weighted average. The percentage of weighted target attainment multiplied by the individual target amount yields the Bonus payout amount for the past fiscal year. The payable Bonus is limited to two times the target amount and is disbursed entirely in cash.
There are malus and clawback regulations that allow the Supervisory Board to withhold or reclaim short-term variable compensation (Bonus) in certain cases.
Application for fiscal 2021
On September 23, 2020, the Supervisory Board of Siemens AG approved the following performance criteria for the short-term variable compensation (Bonus) for fiscal 2021:
- for “Siemens Group,” the performance criterion “profit,” measured in terms of basic earnings per share (EPS)
- for “Managing Board portfolio,” the performance criterion “profitability/capital efficiency,” measured in terms of return on capital employed (ROCE).
In addition, the Supervisory Board has set from two to four individual targets for each member of the
Information on the “Individual targets” are only published following the end of the fiscal year in order to avoid disclosure of strategic initiatives relevant to competition ex-ante. Otherwise Siemens could risk putting itself at a competitive disadvantage. The same applies to the concrete target setting for the financial key performance indicators of the target dimensions “Siemens Group” and “Managing Board portfolio.”
Siemens grants long-term variable compensation in the form of Stock Awards. A Stock Award is the claim to one share – conditional on target attainment – after the expiration of a defined vesting period.
Since fiscal 2020, the number of Siemens shares that are actually transferred depends 80% on the financial performance criterion “long-term value creation,” measured on the basis of total shareholder return (TSR), and 20% on the non-financial performance criterion “sustainability.” For measuring the sustainability criterion, Siemens AG’s performance in the area of Environmental, Social & Governance (ESG) is assessed on the basis of a Siemens internal ESG/Sustainability index, the composition of which is determined annually by the Supervisory Board.
The target attainment range for TSR and the Siemens internal ESG/Sustainability index is between 0% and 200%. If target attainment is less than 200%, a number of Siemens Stock Awards equivalent to the shortfall are forfeited without refund or replacement and an accordingly reduced number of shares will be transferred.
The value of the Siemens shares transferred after the expiration of the vesting period is further limited to a maximum of 300% of the target amount. If this ceiling is exceeded, a corresponding number of Stock Awards will be forfeited without refund or replacement.
The remaining Stock Awards are settled by the transfer of Siemens shares to the relevant Managing Board member.
There are malus and clawback regulations that allow the Supervisory Board to withhold or reclaim long-term variable compensation (Stock Awards) in certain cases.
Total Shareholder Return (TSR)
The TSR is indicative of the performance of a share over a period of time. It includes the dividends paid and any changes in the share price during this period. To reflect the Company’s international footprint, the TSR of Siemens AG is compared at the end of the vesting period with the TSR of an international sector index, the MSCI World Industrials or a comparable successor index. The MSCI World Industrials offers a stable, strategically relevant metric over the term of a tranche.
The following applies for the determination of target attainment:
- If the change in the TSR of Siemens AG is at least 20 percentage points above that of the sector index, target attainment is 200%.
- If the change in the TSR of Siemens AG is equal to that of the sector index, target attainment is 100%.
- If the change in the TSR of Siemens AG is at least 20 percentage points below that of the sector index, target attainment is 0%.
If the change in the TSR of Siemens AG is between 20 percentage points above and 20 percentage points below that of the sector index, target attainment is calculated using linear interpolation.
Environmental, Social & Governance (ESG)
The Siemens internal ESG/Sustainability index consists of three equally weighted, structured and verifiable ESG key performance indicators. At the beginning of each tranche, the Supervisory Board sets ambitious target values for each of the ESG key performance indicators. Targets are measured based on pre-defined interim targets for each fiscal year. Target attainment for the Siemens internal ESG/Sustainability index is finally determined at the end of the approximately four-year vesting period based on the weighted average of the target attainment values calculated for each of the key performance indicators.
Application for fiscal 2021
The Supervisory Board approved the following performance criteria for the 2021 Stock Awards tranche (vesting period: November 2020 through November 2024):
- “long-term value creation,” measured in terms of total shareholder return (TSR) relative to the MSCI World Industrials index and
- “sustainability,” measured in terms of the Siemens internal ESG/Sustainability index and taking into account the following three equally weighted key performance indicators: CO2 emissions (environmental), digital learning hours per employee (social) and Net Promoter Score as a measure of customer satisfaction (governance).
Maximum compensation is determined annually by the Supervisory Board for each Managing Board member in accordance with Section 87 a para. 1 sent. 2 No. 1 of the German Stock Corporation Act (Aktiengesetz, AktG). Maximum compensation is equal to the sum of the maximum amounts that can be paid out to each Managing Board member for all compensation components for the given fiscal year and is calculated by adding base salary, maximum fringe benefits, BSAV contribution (or cash amount at the member's free disposal) as well as two times the Bonus target amount and three times the Stock Awards target amount.
Under the Siemens Share Ownership Guidelines, Managing Board members are obligated to permanently hold Siemens shares of an amount equal to a multiple of their base salary during their terms of office on the Managing Board, following an initial four-year build-up phase. They amount to 300% of base salary for the President and CEO and 200% of base salary for all other Managing Board members. The average base salary received by each member of the Managing Board in the four years before the applicable verification date is relevant for this purpose.
Fulfillment of this obligation must be verified for the first time after the four-year build-up phase and annually thereafter. If share price fluctuations cause the value of the accumulated shareholding to fall below the respective amounts to be verified, the Managing Board member will be obligated to purchase additional shares.
If a Managing Board member holds a position in another Siemens company, no separate compensation is paid since holding such positions is considered to be covered by contractual Managing Board compensation.
With regard to compensation paid for external mandates, the Supervisory Board will decide at its duty-bound discretion on a case-by-case basis whether and to what extent the compensation for such positions is to be deducted. In this context, particular consideration will be given to the extent to which the activity is in the interest of the Company or the Managing Board member.
In the event of termination due to regular expiration of the term of office, no severance payments or special pension contributions are made. The same applies for early termination by mutual agreement at the request of the Managing Board member or if there is serious cause that entitles the Company to terminate the appointment.
In the event of early termination of Managing Board employment by mutual agreement and without serious cause, the Managing Board contracts stipulate a severance payment in line with regulatory requirements and common market practice.
For newly concluded Managing Board employment contracts (first-time appointments) or the extension of these contracts, there are no special provisions for the event that a change of control occurs, that is, neither special rights to terminate the contract nor severance payments. Existing Managing Board employment contracts provide for a special termination right and a severance payment in line with the requirements of the German Corporate Governance Code in its version dated February 7, 2017 and common market practice.
Siemens attaches great importance to a high degree of transparency in connection with reporting on the compensation of the Managing Board. Shareholders and other stakeholders should always be able to understand clearly how the compensation system for the Managing Board members helps implement the Company’s strategy and fosters its sustainable development.
For the reporting year, the target values, performance ranges and the degree of target attainment for the key performance indicators that are decisive for the bonus target dimensions “Siemens Group” and “Managing Board portfolio” will be published retrospectively in the Compensation Report. In addition, the target values, performance ranges and the degree of target attainment for the Total Shareholder Return (TSR) and the Siemens internal ESG/Sustainability index of the relevant Stock Awards tranches will be published after the expiration of the vesting period.
Furthermore, the compensation report for the fiscal year ended provides an outlook on the relevant performance criteria and the corresponding key performance indicators for the bonus of the following fiscal year. The key performance indicators for the Siemens internal ESG/Sustainability index that have been selected for the respective tranche of Stock Awards are also published.
Disclaimer: The information on this website describes the key elements of the compensation system for the Managing Board of Siemens AG and the manner in which the system has been applied in fiscal year 2021. A detailed and authoritative description of the compensation system can be found in the Notice of Annual Shareholders’ Meeting 2020 under Agenda Item 6 “To resolve on the approval of the system of compensation for the members of the Managing Board”.