Anpassung des Vorstandsvergütungs-systems ab Geschäftsjahr 2020

Compensation of Managing Board members

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 is available 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. In making this determination, the Supervisory Board ensures that the proportion of long-term variable compensation always exceeds that of short-term variable compensation and that the proportions of the individual compensation components are within the ranges defined in the compensation system.

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 (function-specific differentiation).

As part of its regular income review, the Supervisory Board approved an increase in the total target compensation of Dr. Roland Busch effective October 1, 2021. This increase was implemented by raising his Stock Awards target amount to €2,954,000 from €2,390,000. The new total target compensation of Dr. Roland Busch is in line with common market practice regarding the compensation of chief executive officers in the DAX 40.

 

In addition, the Supervisory Board decided at its meeting on December 2, 2021, to extend the appointment of CFO Prof. Dr. Ralf P. Thomas until December 2026. In connection with this extension, the Supervisory Board approved retroactively an increase in the total target compensation of Prof. Dr. Ralf P. Thomas effective October 1, 2021. This increase was implemented by raising his Stock Awards target amount to €2,000,000 from €1,544,000. The new total target compensation of Prof. Dr. Ralf P. Thomas is in line with common market practice regarding the compensation of chief financial officers in the DAX 40.

 

By increasing the Stock Awards target amounts, variable compensation is structured on a more long-term basis and compensation as a whole is oriented even more toward sustainable Company development.

 

As in previous years, all components of the compensation of the position of President and CEO are differentiated as is the Stock Awards target amount of the position of CFO.

 

The other 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.

 

The individualized total target compensation of each Managing Board member determined by the Supervisory Board for fiscal 2022 and the relative proportions of total target compensation represented by each of the individual compensation components are as follows.

Each Managing Board member receives a base salary, which is paid in 12 monthly installments.

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.

No adjustments were made to the level of base salaries or to the level of contributions to the BSAV.

 

In fiscal 2022, Managing Board members are entitled to fringe benefits equal to a maximum of 7.5% of their base salary.

 

Managing Board members Judith Wiese and Matthias Rebellius, who were newly appointed to the Managing Board effective October 1, 2020, are not included in the BSAV. Instead of BSAV contributions, they receive a fixed cash amount for free disposal.

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 each Managing Board members’ specific business responsibilities and individual challenges:

 

→       “Siemens Group”

→       “Managing Board portfolio”

→       “Individual targets.”

 

Performance criteria are assigned to each of the three target dimensions based on Company priorities and the responsibilities of each Managing Board member. One financial performance criterion is assigned to the “Siemens Group” dimension and another to the “Managing Board portfolio” dimension. The fulfillment of these criteria is measured on the basis of key performance indicators.

Within the “Individual targets” dimension, the financial performance criteria growth and liquidity can be employed as can additional non-financial performance criteria. In the case of non-financial performance criteria, the Supervisory Board considers the degree to which a Managing Board member has fulfilled so-called focus topics, which comprise operations-related aspects of the execution of the Company’s strategy as well as sustainability-related aspects.

At the end of the fiscal year, target achievement for the individual key performance indicators and the achievement of the Managing Board members’ individual targets are determined and aggregated to form a weighted average. The percentage of weighted target achievement multiplied by the individual target amount yields the Bonus payout amount for the past fiscal year. The payable Bonus is capped at two times the target amount and is paid in cash, at the latest, together with the compensation paid at the end of February of the following fiscal year.

There are malus and clawback regulations that allow the Supervisory Board to withhold or reclaim short-term variable compensation (Bonus) in certain cases.

 

Application in fiscal 2022

 

The following overview shows the performance criteria, the key performance indicators and the focus topics for short-term variable compensation (Bonus) for fiscal 2022, as approved by the Supervisory Board of Siemens AG on September 23, 2021. Four individual targets were set for each member of the Managing Board.

Information on concrete target setting for the financial key performance indicators EPS and ROCE and on the individual targets are published only after the end of the fiscal year in order to avoid the ex-ante disclosure of strategic initiatives relevant to competition since such disclosure could put Siemens at a competitive disadvantage.

Siemens grants long-term variable compensation in the form of Stock Awards. A Stock Award is the claim to one share – conditional on target achievement – after the expiration of a defined vesting period. The vesting period is, accordingly, the term of each tranche.

 

At the beginning of a fiscal year, the Supervisory Board defines a target amount in euros based on 100 % target achievement for each Managing Board member. This target amount is extrapolated to target achievement of 200 % (“maximum allocation amount”). Stock Awards for this maximum allocation amount are then allocated to the Managing Board members. The number of Stock Awards is calculated by dividing the maximum allocation amount by the price of the Siemens share on the allocation date, less the estimated discounted dividends (“allocation price”).

 

An approximately four-year vesting period begins with the allocation of Stock Awards, after the expiration of which Siemens shares are transferred. The beneficiary Managing Board members are not entitled to dividends during the vesting period.

 

Since fiscal 2020, the number of Siemens shares that is actually transferred depends 80% on the financial performance criterion “long-term value creation,” measured on the basis of the key performance indicator total shareholder return (TSR), and 20% on the non-financial performance criterion “sustainability.” For measuring the “sustainability” performance criterion, Siemens AG’s performance in the environmental, social and governance (ESG) area 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 achievement range for TSR and for the Siemens-internal ESG/Sustainability index is between 0% and 200%. If target achievement is less than 200%, a number of Siemens Stock Awards equivalent to the shortfall is forfeited without refund or replacement and a correspondingly smaller number of shares is transferred.

 

The value of the Siemens shares transferred after the expiration of the vesting period is also capped at 300% of the target amount. If this cap is exceeded, a corresponding number of Stock Awards is forfeited without refund or replacement.

 

The remaining number of Stock Awards is 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)

TSR is indicative of the performance of one share over a period of time. It takes into account changes in the share price and dividends paid 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 achievement.

Environmental, Social and Governance (ESG)

The Siemens-internal ESG/Sustainability index is based on 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 measurement is based on defined interim targets for each fiscal year. Target achievement for the Siemens-internal ESG/Sustainability index is finally determined at the end of the approximately four-year vesting period on the basis of the weighted average of the target achievement values calculated for each of the key performance indicators.

 

Application in fiscal 2022

The Supervisory Board approved the following performance criteria and key performance indicators for the 2022 Stock Awards tranche (vesting period: November 2021 through November 2025).

The maximum compensation of each Managing Board member is determined annually by the Supervisory Board in accordance with Section 87a para. 1 sent. 2 No. 1 of the German Stock Corporation Act (Aktiengesetz, AktG). Maximum compensation is equal to the total of the maximum amounts of all compensation components that can possibly be paid out to each Managing Board member for the relevant fiscal year. It is calculated by adding base salary, maximum fringe benefits, BSAV contribution (or the amount for 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 is 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 achievement 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 achievement 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 this system has been applied in fiscal 2022. A detailed and authoritative description of the compensation system is available 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.”