Compensation of the Board of Management

Objective

The compensation system for the Board of Management of Bayer AG applies in the version approved by a large majority (81.1%) at the Annual Stockholders’ Meeting on April 29, 2016. It is aligned to the corporate strategy and geared toward performance-driven, sustainable corporate governance and an appropriate compensation structure and level. The compensation system for the Board of Management corresponds very largely to the system applying to all managerial employees not covered by collective bargaining agreements.

Key elements in Board of Management compensation include not only the absolute amount and appropriate and clear thresholds, but also a balanced mix of fixed income and short- and long-term variable compensation components. In accordance with the recommendations of the German Corporate Governance Code and the guidelines for the sustainable compensation of management board members, the variable portion of target compensation at Bayer has a predominantly long-term character. Fixed compensation accounts for about 30% of target compensation, the annual target bonus for about 30% and the four-year long-term bonus for about 40%.

The compensation of the Board of Management is reviewed each year and is usually increased in line with the consumer price index for Germany. If the Supervisory Board considers an additional adjustment necessary, the Human Resources Committee discusses the matter in detail with the aid of background information and prepares a corresponding resolution proposal for the Supervisory Board. The benchmark for the compensation review, for which an external independent expert is consulted, is the DAX 30 companies excluding financial services companies. All of the assessment criteria recommended in Section 4.2.2 of the German Corporate Governance Code are taken into account. The full Supervisory Board then resolves on the proposed adjustment.

An overview of the compensation system for the Board of Management is given below:

Board of Management Compensation Policy for 2018

 

 

Objective

 

Basis of calculation

Fixed annual compensation

 

 

 

The level of fixed annual compensation reflects a person’s role on the Board of Management, their experience, the scope of responsibility to be exercised and market conditions.

Fringe benefits

 

 

 

Fringe benefits include a company car with driver, the costs of health screening examinations, various types of insurance, and private home security installations. They also include indemnity payments to new members of the Board of Management for variable compensation components granted to them by former employers that lapse due to their joining Bayer.

Short-term variable cash compensation (Short-term incentive [STI]) = annual bonus

 

The annual bonus encourages profitable growth and is based on a comparison of target attainment with the budgeted targets of individual segments and the Group as a whole.

 

1. Sales growth (Fx & portfolio adj.) & EBITDA margin before special items of segments
2. Core EPS
In addition, Bayer Agrees on personal targets with each member of the Board of Management. The attainment of these targets and a Board member’s contribution to attaining Group targets can positively or negatively affect their individual payout.

Right of the Supervisory Board to intervene in determining the annual bonus; malus and clawbacks

 

Ensuring the relative fairness of bonuses for the individual members of the Board of Management

 

The Supervisory Board has the discretion to alter the amount of an annual bonus if the Supervisory Board arrives at an assessment that differs from the evaluation determined for a member of the Board of Management. Irrespective of this, the legal basis exists for Bayer to reduce payments or demand their return if a Board of Management member commits a breach of duty that results in financial loss. It is intended that this also be contractually agreed in the future.

Long-term stock-based cash compensation Aspire 2.0 (long-term incentive [LTI])

 

The four-year bonus fosters a sustained increase in corporate value.

 

Virtual, stock-based compensation program: Payments are made automatically after four years based on the absolute increase in value, dividends, and performance of Bayer shares relative to the EURO STOXX 50.

Payment limits (caps)

 

Avoiding excessive, out-of-control payments

 

Caps apply to both variable compensation components. In addition, there is an overall cap on the three components of cash compensation:

STI:
Target value = 100% of fixed annual compensation
Cap = 200% of the target value

LTI:
Target value = 150% of fixed annual compensation multiplied by the personal STI payment factor for the previous fiscal year
Cap = 250% of the target value

The overall payment cap for components of cash compensation amounts to 1.8 times the target cash compensation (fixed annual compensation + STI + LTI). In this calculation, the LTI target value is set at 150% of fixed annual compensation.

Share ownership guidelines

 

Promotion of sustainable corporate development and identification with the company

 

Within four years of their appointment, members of the Board of Management are contractually obligated to purchase Bayer shares equating to one-half of the LTI target value (75% of fixed annual compensation) and to retain these shares for as long as they serve on the Board of Management.

Retirement and surviving dependents’ pensions

 

Provision of contributions to provide an adequate pension

 

Company contributions amount to 42% of fixed annual compensation, with the Board of Management member contributing 9%. These amounts are converted into pension entitlements. Benefits accrue from the sum total of the pension entitlements.

Contract termination

 

Inappropriately high payments are to be avoided.

 

If the company terminates a Board of Management member’s contract early, the company will fulfill its contractual commitments until that Board member leaves Bayer. This does not apply in the event of termination for cause. The company may also make a severance payment equivalent to the lower of two years’ compensation or the compensation for the remainder of the original contract term.

Change of control

 

Ensuring independence in acquisition situations

 

Indemnity payments amounting to 250% of fixed annual compensation, capped as per the German Corporate Governance Code at the lower of (i) three years’ compensation or (ii) the compensation for the remainder of the contract term

Performance-related components

Short-term variable cash compensation

The short-term variable cash compensation (STI) depends on the company’s business success in the respective year. The level of the STI is determined by the target attainment for three subcomponents – the Group component, the divisional component and the individual performance component – each of which is given a one-third weighting in the performance evaluation. The performance evaluation takes into account both positive and negative developments.

  • The Group component is based on the core earnings per share of the Group and is capped at 200%.
  • The divisional component is incentivized based on the average performance of the divisions. For the members of the Board of Management with functional responsibility, this component is calculated using the following weighting: Pharmaceuticals 50%, Consumer Health 20% and Crop Science 30% (of which the Crop Science Division accounts for 85% and Animal Health for 15%). For the Board members with divisional responsibility, this one-third of the STI is incentivized entirely on the basis of the respective division’s earnings. The assessment of divisional performance comprises a 70% component linked to the attainment of financial targets in relation to the EBITDA margin before special items and divisional sales growth. For Crop Science, cash flow performance is also taken into account. The remaining 30% component of divisional performance is based on the attainment of qualitative goals in areas such as innovative progress, safety, compliance and sustainability. The divisional component is capped at 300%.
  • The target attainment criteria for the individual performance component are based on the duties and resulting personal targets of the respective member of the Board of Management, as well as on his or her individual contribution to the attainment of the Group targets. The individual targets for the members of the Board of Management are determined annually by the Supervisory Board, which also assesses their attainment. The individual performance component is capped at 200%.

The entire amount of the STI is paid out in cash in the second quarter of the following year.

Short-Term Variable Cash Compensation Components (STI)

Short-Term Variable Cash Compensation Components (STI) (chart)

For fiscal 2018, the following target values for core EPS were budgeted and achieved, respectively, for the Group component: Target value: €5.74 per share / Target attainment: €5.94 per share. The performance evaluation corridor set for 2018 was between €6.24 (200% payout = cap) and €5.24 (payout from this component = 0). These values were adjusted due to the acquisition of Monsanto and the capital increases implemented in 2018. The previous target value was €6.72 per share with a corridor of €7.22 (200% payout = cap) and €6.22 (payout from this component = 0).

The divisional component consists of quantitative (70%) and qualitative (30%) elements. For the quantitative performance evaluation for the divisional component, sales growth (Fx & portfolio adj.) and the EBITDA margin before special items are compared in a two-dimensional matrix. Awards above 100% of the target value can occur, for example, if one performance target is met and the other is exceeded, or if both performance targets are exceeded.

STI Payment Matrix1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA margin before special items

 

 

 

 

 

 

 

 

 

 

 

 

< Target value

 

Target value

 

> Target value

1

Financial targets for the respective division (70% weighting)

2

Currency-adjusted sales growth is used at Crop Science in view of the Monsanto acquisition.

 

 

 

 

 

 

 

 

 

 

 

 

PH

 

32.7%

 

 

33.7%

 

 

34.7%

 

 

 

 

 

 

 

 

 

 

 

 

CH

 

20.0%

 

 

21.0%

 

 

22.0%

 

 

 

 

 

 

 

 

 

 

 

 

CS

 

15.7%

 

 

17.7%

 

 

19.7%

 

 

 

 

 

 

 

 

 

 

 

 

AH

 

21.2%

 

 

22.2%

 

 

23.2%

 

 

 

 

PH

 

CH

 

CS

 

AH

 

 

 

 

 

 

 

 

 

 

 

 

Sales growth (Fx & p. adj.)2

 

< Target value

 

2.7%

 

–1.0%

 

47.6%

 

–0.9%

 

 

 

0%

 

 

50%

 

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Target value

 

5.2%

 

1.5%

 

52.6%

 

1.6%

 

 

 

50%

 

 

100%

 

 

150%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

> Target value

 

7.7%

 

4.0%

 

57.6%

 

4.1%

 

 

 

100%

 

 

150%

 

 

200%

For fiscal 2018, the following target values for sales growth and the EBITDA margin before special items were budgeted and achieved, respectively, for the divisions.

Pharmaceuticals

  • Sales growth vs. 2017 (Fx & portfolio adj.): Target value: 5.2% / Attainment: 3.4%
  • EBITDA margin before special items: Target value: 33.7% / Attainment: 33.4%

Consumer Health

  • Sales growth vs. 2017 (Fx & portfolio adj.): Target value: 1.5% / Attainment: – 0.7%
  • EBITDA margin before special items: Target value: 21.0% / Attainment: 20.1%

Crop Science

  • Sales growth vs. 2017 (Fx adj.): Target value: 52.6% / Attainment: 52.8%8
  • EBITDA margin before special items: Target value: 17.7% / Attainment: 18.6%
  • The Crop Science target values were adjusted due to the acquisition of Monsanto. The original targets were 5.1% for sales growth and 21.7% for the EBITDA margin before special items.

8 When determining target attainment, the sales of the Monsanto business were adjusted for currency effects on the basis of the exchange rates prevailing at the time the targets were set.

Animal Health

  • Sales growth vs. 2017 (Fx & portfolio adj.): Target value: 1.6% / Attainment: 0.5%
  • EBITDA margin before special items: Target value: 22.2% / Attainment: 23.9%

The qualitative performance evaluation is based on the attainment of other divisional targets. The qualitative components can also be used as a correction factor at the reasonable discretion of the Supervisory Board.

The quantitative and qualitative elements that make up the divisional component for 2018 resulted in the following overall target attainment levels:

  • Pharmaceuticals: 52%
  • Consumer Health: 35%
  • Crop Science: 105%
  • Animal Health: 123%
  • Reconciliation: 65%

In accordance with a resolution of the Human Resources Committee and the Supervisory Board, all members of the Board of Management receive individual targets that are tailored to their respective areas of responsibility. Target attainment is individually evaluated following the end of the fiscal year. The following table provides an overview of the subject areas taken into account for the individual performance targets agreed upon.

Individual Targets Agreed

Board of Management member

 

Topic areas for individual targets

1

Wolfgang Nickl, Heiko Schipper and Stefan Oelrich took over the personal targets of their respective predecessors for the remainder of the year.

2

For information on Leaps by Bayer, see also Chapter “Focus on Innovation”

Werner Baumann

 

Acquisition and integration of Monsanto, strengthening the Bayer brand, quality assurance, integrating new Board members

Dr. Hartmut Klusik

 

Talent acquisition and employee development, quality assurance, production safety, sustainability strategy

Johannes Dietsch / Wolfgang Nickl1

 

Acquisition and integration of Monsanto, financing of the Monsanto acquisition, reducing Bayer's interest in Covestro

Kemal Malik

 

Research, innovation, Leaps by Bayer2

Liam Condon

 

Acquisition and integration of Monsanto, business continuity at Crop Science, digitalization

Erica Mann / Heiko Schipper1

 

Consumer Health core topics, focus on United States and China, digitalization

Dieter Weinand / Stefan Oelrich1

 

Research and product pipeline at Pharmaceuticals, quality assurance, inlicensing, key markets, digitalization

In addition, team targets are agreed to reflect the collective responsibility of the members of the Board of Management as a governance body. The team targets are based on the Group targets set by the Board of Management for 2018 and approved by the Supervisory Board. The following table provides an overview of the subject areas taken into account for the Group targets.

Team Targets 2018

Subject area

 

Targets

Alignment against growth markets

 

//

 

Prepare closing and successfully integrate Monsanto while maintaining business continuity

 

 

//

 

Drive organic growth by further focusing activities on ‘must-wins’

 

 

//

 

Create value-creating growth opportunities by active portfolio management, M&A and inlicensing

Innovation powered by science

 

//

 

Drive pipeline progress in divisions

 

 

//

 

Drive breakthrough innovation through Leaps by Bayer

 

 

//

 

Drive digital transformation

Excellence in execution

 

//

 

Take measures to ensure profitable growth and sound cash generation

 

 

//

 

Realize Monsanto synergy milestones and drive other divisional / functional efficiency programs

 

 

//

 

Accomplish functional excellence for best-in-class business support

Commitment to people and sustainability

 

//

 

Ensure quality, safety, compliance and actively manage risks

 

 

//

 

Drive cultural enhancement and further advance Bayer as an employer of choice

 

 

//

 

Drive societal and ecological progress

The attainment of the individual targets and the team targets is assessed by the Human Resources Committee and the Supervisory Board following the end of the fiscal year and has a one-third weighting in the calculation of the STI payout.

Long-term stock-based cash compensation (LTI)

Members of the Board of Management are eligible to participate in the annual tranches of the long-term stock-based compensation program Aspire on condition that they purchase a certain number of Bayer shares – determined for each individual according to specific guidelines – as a personal investment and hold them for as long as they continue in the service of the Bayer Group.

The LTI target values for the Aspire 2.0 tranches issued each year since 2016 are generally based on a contractually agreed target rate of 150% of fixed annual compensation. The starting value is also multiplied by the individual STI payment factor for the Board member concerned for the year prior to the issuance of the respective tranche.

LTI target value – calculation (chart)

The cash payment amounts are determined after four years based on the LTI target value, the development of Bayer’s share price, the performance of Bayer stock relative to the EURO STOXX 50 and the dividends paid in the meantime (total stockholder return approach).

LTI payout – calculation (chart)

For the Board of Management, an additional performance measure has been included in the LTI program in the form of the comparison with the EURO STOXX 50 mentioned above. This increases or decreases the payout by the percentage of overperformance or underperformance, respectively, but by no more than 50 percent either way.

Illustration of Aspire 2.0 Elements and Design

Illustration of Aspire 2.0 Elements and Design (line chart)

The payments made under the tranches of the Aspire program issued in the years up to 2015 continue to be based until their expiration on the Aspire Target Opportunity, which is a contractually agreed percentage of fixed annual compensation. Depending on the performance of Bayer stock, both in absolute terms and relative to the EURO STOXX 50 benchmark index, participants are granted an award of between 0% and a maximum 300% of their individual Aspire Target Opportunity at the end of the respective performance periods.

The payout/performance matrix according to the absolute and relative development of Bayer’s share price is explained at www.investor.bayer.com/en/stock/stockprograms/aspire/.

If a member of the Board of Management enters retirement during the year or steps down from the Board of Management during the year due to the nonextension of their service contract by mutual agreement or by the company’s decision, the Aspire tranche granted for that year is reduced on a prorated basis according to the duration of the member’s active service on the Board of Management during this first year of the tranche. In this case, tranches granted for previous years remain in effect without any changes.

The payout from the 2014 Aspire tranche in January 2018 was based on the following starting and closing prices / values for Bayer’s shares and the EURO STOXX 50, with the closing price / value having been calculated at year-end 2017 (end of the four-year period):

  • Starting price of Bayer shares (average of the last 30 trading days in 2013): €96.96
    Closing price of Bayer shares (average of the last 30 trading days in 2017): €106.61
  • Starting value of the EURO STOXX 50 (average of the last 30 trading days in 2013): 3,026.85
    Closing value of the EURO STOXX 50 (average of the last 30 trading days of 2017): 3,566.83

For the 2014 Aspire tranche, 20% of the starting value was paid out. The 2015 tranche did not lead to a payout in January 2019 due to a decline in the stock price.

Pension entitlements (retirement and surviving dependents’ pensions)

The annual pension entitlement for members of the Board of Management is based on contributions. Each year Bayer provides a hypothetical contribution amounting to 42% of the respective fixed annual compensation. This percentage is comprised of a basic contribution of 6% and a matching contribution of 36%, which is four times the member’s personal contribution of 9%. The total annual contribution is converted into a pension entitlement according to the annuity table for the applicable tariff of the Rheinische Pensionskasse VVaG pension fund. The annual pension entitlement upon retirement is the total amount of the accumulated pension entitlements including an investment bonus. The investment bonus is determined annually based on the net return on the assets of the Rheinische Pensionskasse VVaG minus the minimum return on the contributions that is guaranteed under the tariff and approved by the German Financial Supervisory Authority (BaFin). Future pension payments are annually reviewed and adjusted to take into account the development of consumer prices.

In addition, special individual arrangements exist for the following members of the Board of Management:

  • Werner Baumann has been granted a vested entitlement to an annual pension of €200 thousand starting on his 60th birthday. This is subject to a prorated reduction in the event that his term of office ends prior to his 60th birthday under certain conditions.
  • Kemal Malik has been granted a vested entitlement to an annual pension of €80 thousand starting on his 65th birthday. This is subject to a prorated reduction in the event that his term of office ends prior to his 65th birthday under certain conditions.
  • Erica Mann participated in pension plans in Germany (30%) and Switzerland (70%) on a prorated basis in view of her split service contract. Ms. Mann had the option to receive either a lifelong monthly annuity or a capital sum when the pension benefits from her two pension plans fell due. She chose the capital sum.
  • Heiko Schipper participates in pension plans in Germany (30%) and Switzerland (70%) on a prorated basis in view of his split service contract.

Certain assets are administered by Bayer Pension Trust e.V. under a contractual trust arrangement (CTA) to cover pension entitlements resulting from direct commitments in Germany. This provides substantial additional security – beyond the benefits from the Pension Insurance Association – for the respective pension entitlements of the members of the Board of Management in Germany.

Benefits upon termination of service on the Board of Management

When a service contract of a Board of Management member terminates (by expiration or nonextension), all previously applicable payments for fixed compensation and the annual bonus (STI) cease along with expenditures for the company pension plan and all fringe benefits. However, long-term variable compensation (LTI) has a continuing effect, as payments from these four-year tranches are only made over time and are not brought forward upon termination of the service contract. However, the entitlements have been earned during the regular contract term.

Post-contractual noncompete agreements

Post-contractual noncompete agreements exist with the members of the Board of Management, providing for compensatory payments to be made by the company for the two-year duration of these agreements. The compensatory payment for each of the two years amounts to 100% of the average fixed compensation for the 12 months preceding their departure. In line with legal requirements, other work-related income is taken into account when determining the compensatory payment. The company can opt to waive the noncompete agreement when a service contract terminates, in which case no compensatory payment is made. This is also the case when a member of the Board of Management retires after leaving the company.

Unfitness for work

In the event of temporary unfitness for work, members of the Board of Management continue to receive the contractually agreed compensation. Bayer AG may early terminate the service contract if the Board member has been continuously unfit for work for at least 18 months and is likely to be permanently incapable of fully performing their duties (permanent incapacity to work). A disability pension is paid in the event of contract termination before the age of 60 due to permanent incapacity to work. For members of the Board of Management, the amount of the disability pension under the service contract corresponds to the entitlement accrued on the date of contract termination, taking into account a fictitious period of service between that date and the member’s 55th birthday, where applicable.

Planned changes starting in 2019 and 2020

For members of the Board of Management with functional responsibility, the following adjustment will be made to the weighting of the divisional component of their short-term variable cash compensation as a result of the Monsanto acquisition: Pharmaceuticals 45%, Consumer Health 10% and Crop Science 45% (of which the Crop Science Division accounts for 95% and Animal Health for 5%).

The Supervisory Board intends to adjust the Share Ownership Guidelines and to increase the required value of each Board of Management member’s personal investment in Bayer stock to 100% of fixed annual compensation starting in 2020.

The Supervisory Board also plans to include explicit clawback provisions – i.e. possibilities for reclaiming compensation components that have already been paid out – in the contracts.

Compensation of the Board of Management in 2018

The aggregate compensation (HGB) for the members of the Board of Management in 2018 totaled €24,509 thousand (2017: €24,324 thousand), comprising €8,212 thousand (2017: €6,414 thousand) in non-performance-related components and €16,297 thousand (2017: €17,910 thousand) in performance-related components. The pension service cost amounted to €2,745 thousand (2017: €2,546 thousand).

As of December 31, 2018, the Board of Management of Bayer AG consisted of seven members. The following changes to the membership of the Board of Management took place in 2018, with the new members having been appointed by the Supervisory Board:

  • Heiko Schipper became a member of the Board of Management of Bayer AG effective March 1, 2018. He succeeded Erica Mann as head of the Consumer Health Division on April 1, 2018.
  • Wolfgang Nickl became a member of the Board of Management of Bayer AG effective April 26, 2018. He succeeded Johannes Dietsch as Chief Financial Officer of Bayer AG on June 1, 2018.
  • Stefan Oelrich became a member of the Board of Management of Bayer AG effective November 1, 2018. He succeeded Dieter Weinand as head of the Pharmaceuticals Division on the same date.

The following table shows the aggregate compensation, according to the German Commercial Code, of the individual members of the Board of Management who served in 2017 and / or 2018:

Board of Management Compensation (German Commercial Code)

 

 

Fixed annual compensation

 

Fringe benefits

 

Short-term variable cash compensation

 

Long-term stock-based cash compensation (Aspire)1

 

Aggregate compensation

 

Pension service cost2

 

 

2017

2018

 

2017

2018

 

2017

2018

 

2017

2018

 

2017

2018

 

2017

2018

 

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

1

Fair value at grant date

2

Including company contributions to Bayer-Pensionskasse VVaG, Rheinische Pensionskasse VVaG and to a pension fund outside Germany

3

The fringe benefits for Stefan Oelrich contain an indemnity payment of €135 thousand for variable compensation components granted to him by his former employer that lapsed due to his joining Bayer. The indemnity amounts to €2,424 thousand in total and will be paid over a period of three years on a pro rata temporis basis.

4

The fringe benefits for Heiko Schipper contain an indemnity payment of €894 thousand for variable compensation components granted to him by his former employer that lapsed due to his joining Bayer. The compensation amounts to €1,950 thousand in total. A quarter of this amount was paid as at the date he joined the Board of Management. The remaining three-quarters of this amount will be paid over a period of three years on a pro rata temporis basis.

5

Johannes Dietsch was additionally granted a compensatory payment of €1,522 thousand under the post-contractual noncompete agreement. This will be paid out monthly over a period of two years on a pro rata temporis basis.

6

It was agreed with Erica Mann that she would receive a severance payment of €1,978 thousand in view of her leaving the company effective March 31, 2018. This puts her in the same position as if she had held office until December 31, 2018, and had then retired.

7

The total compensation of the Board of Management includes fixed annual compensation of €583 thousand (2017: €529 thousand), fringe benefits of €1,000 thousand (2017: €24 thousand), short-term variable cash compensation of €581 thousand (2017: €265 thousand) and long-term stock-based cash compensation of €874 thousand (2017: €847 thousand) that Erica Mann and Heiko Schipper received from our subsidiary Bayer Consumer Care AG, Switzerland, in their respective capacities as head of the Consumer Health Division.

Serving members of the Board of Management as of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Werner Baumann (Chairman)

 

1,487

1,511

 

49

46

 

1,335

1,708

 

3,530

2,039

 

6,401

5,304

 

809

874

Liam Condon

 

806

819

 

43

45

 

519

1,056

 

1,677

793

 

3,045

2,713

 

320

348

Dr. Hartmut Klusik

 

756

768

 

40

39

 

565

805

 

1,597

864

 

2,958

2,476

 

305

331

Kemal Malik

 

781

794

 

36

37

 

604

813

 

1,591

923

 

3,012

2,567

 

310

315

Wolfgang Nickl

 

523

 

41

 

571

 

1,056

 

2,191

 

133

Stefan Oelrich3

 

137

 

142

 

133

 

973

 

1,385

 

19

Heiko Schipper4

 

640

 

1,431

 

639

 

1,104

 

3,814

 

178

Former members

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Johannes Dietsch5

 

756

320

 

42

17

 

679

346

 

1,483

432

 

2,960

1,115

 

305

141

Erica Mann6

 

756

192

 

24

3

 

378

192

 

1,210

145

 

2,368

532

 

257

204

Dieter Weinand

 

806

683

 

32

24

 

810

674

 

1,932

1,031

 

3,580

2,412

 

240

202

Total7

 

6,148

6,387

 

266

1,825

 

4,890

6,937

 

13,020

9,360

 

24,324

24,509

 

2,546

2,745

Fixed annual compensation

The fixed annual compensation of the members of the Board of Management was adjusted in 2018. The total fixed annual compensation of all the members was €6,387 thousand (2017: €6,148 thousand).

Short-term variable cash compensation

The total short-term variable cash compensation for all the members of the Board of Management in 2018 totaled €6,937 thousand (2017: €4,890 thousand) after deduction of the solidarity contribution. Provisions of €5,725 thousand (2017: €4,890 thousand) were established for payment of this compensation component to the members of the Board of Management serving as of December 31, 2018. The solidarity contribution is made by all employees of the companies covered by the respective agreements with the employee representatives to help safeguard jobs at the German sites. For 2018 it amounted to 0.22% (2017: 0.25%) of each person’s STI award.

Long-term variable cash compensation based on virtual Bayer shares

This compensation component no longer exists following the adjustment of the compensation system for the Board of Management effective January 1, 2016. The conversion of 50% of the STI into virtual Bayer shares took place for the last time in 2015 and was based on an average price of €119.17. The aggregate compensation for 2018 according to IFRS includes a negative change of €978 thousand (2017: positive change of €538 thousand) in the value of existing entitlements. Provisions of €1,824 thousand (2017: €6,841 thousand) existed as of December 31, 2018, for the future cash disbursements to currently serving members of the Board of Management based on the virtual Bayer shares granted in previous years. This amount also contains the dividend entitlements attributable to the respective prior years.

Long-term stock-based cash compensation (Aspire)

The long-term stock-based cash compensation under the Aspire program is included in the aggregate compensation according to the German Commercial Code at its fair value of €9,360 thousand (2017: €13,020 thousand) at the respective grant date.

The aggregate compensation according to IFRS includes the fair value of the partial entitlement earned in the respective year. Grants of stock-based compensation with a four-year performance period are therefore expensed at their respective fair values over four years starting with the grant year. The stock-based compensation according to IFRS also includes the change in the value of existing entitlements under ongoing Aspire tranches granted in prior years.

Board of Management Compensation – Aspire Program (IFRS)

 

 

 

 

Serving members of the Board of Management as of December 31, 2018

 

Former members

 

 

 

 

 

 

Werner Baumann (Chairman)

Liam Condon

Dr. Hartmut Klusik

Kemal Malik

Wolfgang Nickl

Stefan Oelrich

Heiko Schipper

 

Johannes Dietsch

Erica Mann

Dieter Weinand

 

Total

 

 

 

 

€ thou­sand

€ thou­sand

€ thou­sand

€ thou­sand

€ thou­sand

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

€ thou­sand

 

€ thou­sand

1

The newly earned entitlements are derived from the 2015 – 2018 (2017: 2014 – 2017) tranches of the Aspire program because this compensation was or is being earned over a four-year period. They are stated at their prorated fair values in 2017 and 2018, respectively. Johannes Dietsch, Erica Mann and Dieter Weinand earned their entitlements at an accelerated rate until they left the company on May 31, 2018, March 31, 2018, and October 31, 2018, respectively. Accordingly, the proportion earned by Johannes Dietsch and Erica Mann in 2017 and by Dieter Weinand in 2018 is higher than for serving Board members as of December 31, 2018. The Aspire entitlements earned in 2017 and 2018 and the value changes for Liam Condon, Johannes Dietsch, Dr. Hartmut Klusik, Kemal Malik, Erica Mann and Dieter Weinand relate in part to Aspire tranches granted to them before they joined the Board of Management but not yet fully earned.

2

This line shows the change in the value of the entitlements already earned in 2015, 2016 and 2017 (2017: 2014, 2015 and 2016).

3

€425 thousand of the entitlements earned in 2018 (2017: € 1.434 thousand) and minus €344 thousand of the change in the value of existing entitlements (2017: minus €168 thousand) pertain to entitlements against our subsidiary Bayer Consumer Care AG, Switzerland.

Stock-based compensation entitlements earned in the respective year1

 

2018

1,029

1,029

537

524

536

105

28

131

1,197

1,197

475

2,098

 

6,660

 

2017

 

1,528

871

819

830

2,038

2,049

947

 

9,082

Change in the value of existing entitlements2

 

2018

(972)

(972)

(604)

(565)

(581)

(26)

(26)

(491)

(529)

 

(3,768)

 

2017

 

(120)

(77)

(42)

(58)

(51)

(240)

(53)

 

(641)

Total3

 

2018

57

57

(67)

(41)

(45)

105

28

131

1,171

1,171

(16)

1,569

 

2,892

 

2017

 

1,408

794

777

772

1,987

1,809

894

 

8,441

Provisions of €5,590 thousand (2017: €11,747 thousand) were established for the Aspire entitlements of the members of the Board of Management serving as of December 31, 2018. Of this amount, €4,695 thousand relates to the tranches issued up to 2017 and €895 thousand to the 2018 tranche.

Pension entitlements

The pension service cost recognized for the members of the Board of Management in 2018 according to the German Commercial Code was €2,745 thousand (2017: €2,546 thousand), while the current service cost for pension entitlements recognized according to IFRS was €3,489 thousand (2017: €3,907 thousand). The following table shows the service cost and the settlement or present value of the pension obligations attributable to the individual members of the Board of Management.

Pension Entitlements (German Commercial Code and IFRS)

 

 

German Commercial Code

 

IFRS

 

 

Pension service cost1

 

Settlement value of pension obligation as of December 312

 

Current service cost for pension entitlements

 

Present value of defined benefit pension obligation as of December 31

 

 

2017

2018

 

2017

2018

 

2017

2018

 

2017

2018

 

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

1

Including company contribution to Bayer-Pensionskasse VVaG, Rheinische Pensionskasse VVaG and a pension fund outside Germany

2

The pension obligations of foreign subsidiaries and Bayer pension funds are included at present value according to IFRS.

Serving members of the Board of Management as of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Werner Baumann (Chairman)

 

809

874

 

9,044

11,217

 

1,290

1,254

 

13,544

15,075

Liam Condon

 

320

348

 

2,345

3,063

 

563

539

 

4,038

4,618

Dr. Hartmut Klusik

 

305

331

 

5,302

6,141

 

435

433

 

7,285

7,769

Kemal Malik

 

310

315

 

2,186

2,606

 

493

448

 

2,697

3,110

Wolfgang Nickl

 

133

 

148

 

206

 

207

Stefan Oelrich

 

19

 

21

 

27

 

28

Heiko Schipper

 

178

 

3,312

 

142

 

3,331

Former members

 

 

 

 

 

 

 

 

 

 

 

 

Johannes Dietsch

 

305

141

 

3,951

 

483

87

 

5,919

Erica Mann

 

257

204

 

7,492

 

275

75

 

7,532

Dieter Weinand

 

240

202

 

700

 

368

278

 

988

Total

 

2,546

2,745

 

31,020

26,508

 

3,907

3,489

 

42,003

34,138

The difference between the pension service cost according to the German Commercial Code and the service cost for pension entitlements according to IFRS arises from the difference in the valuation principles used in calculating the settlement value according to the German Commercial Code and the present value of the defined benefit pension obligation according to IFRS.

Benefits upon termination of service on the Board of Management

It was agreed with Erica Mann in December 2017 that she be granted a severance package worth €1,978 thousand in light of the mutually agreed early termination of her service contract, effective March 31, 2018, which originally was to run until December 31, 2018. This package primarily comprises severance payments for fixed compensation, short-term variable compensation components, Aspire and payments for pension entitlements, each for the period April 1, 2018, through December 31, 2018. Erica Mann’s entitlements under the company pension plan and the Aspire program were set at the levels they would have reached if she had been eligible to participate until December 31, 2018. The severance payment for her fixed compensation and the short-term variable compensation component, together amounting to €1,172 thousand, was paid in April 2018. The payments from the Aspire tranches will be made upon expiration of each tranche based on the respective Aspire program parameters. A noncompete agreement ending on December 31, 2018 existed with Erica Mann.

Johannes Dietsch concluded his service on the Board of Management as of May 31, 2018, when his contract expired. A two-year noncompete agreement ending on May 31, 2020, exists with Johannes Dietsch under his service contract. The resulting compensatory payment of €761 thousand per year is being made to him in monthly installments.

The contract with Dieter Weinand was early terminated effective October 31, 2018, by mutual agreement without any severance payments or compensatory payments.

The following table shows the present values of the contractually agreed compensatory payments for members of the Board of Management resulting from noncompete agreements as of December 31, 2018. For currently serving members of the Board of Management, it is assumed that payments will commence when their current contracts expire. Expected inflation-based adjustments to fixed annual compensation are taken into account in the calculation.

Compensatory Payments in Event of Contract Termination

 

 

Fixed annual compensation 2018

 

End of current contract

 

Present value of potential compensatory payments as of Dec. 31, 2018

 

 

 

 

€ thou­sand

 

€ thou­sand

 

€ thou­sand

 

 

1

Noncompete agreement waived by mutual consent

Serving members of the Board of Management

 

 

 

 

 

 

 

 

Werner Baumann

 

1,511

 

April 30, 2021

 

3,178

 

 

Liam Condon

 

819

 

Dec. 31, 2023

 

1,782

 

 

Dr. Hartmut Klusik

 

768

 

Dec. 31, 2019

 

1,562

 

 

Kemal Malik

 

794

 

Jan. 31, 2022

 

1,698

 

 

Wolfgang Nickl

 

768

 

April 25, 2021

 

1,616

 

 

Stefan Oelrich

 

819

 

Oct. 31, 2021

 

1,722

 

 

Heiko Schipper

 

768

 

Feb. 28, 2021

 

1,616

 

 

 

 

 

 

 

 

 

 

 

 

 

Average fixed compensation in last 12 months

 

Stepped down on

 

Present value of potential compensatory payments as of Dec. 31, 2018

 

Expense 2018

 

 

€ thou­sand

 

€ thou­sand

 

€ thou­sand

 

€ thou­sand

Former members of the Board of Management

 

 

 

 

 

 

 

 

Johannes Dietsch

 

761

 

May 31, 2018

 

1,078

 

444

Erica Mann1

 

 

March 31, 2018

 

 

Dieter Weinand1

 

 

Oct. 31, 2018

 

 

Aggregate Board of Management compensation (IFRS)

The aggregate Board of Management compensation according to IFRS is shown in the following table.

Board of Management Compensation according to IFRS

 

 

2017

 

2018

 

 

€ thou­sand

 

€ thou­sand

Fixed annual compensation

 

6,148

 

6,387

Fringe benefits

 

266

 

1,825

Total short-term non-performance-related compensation

 

6,414

 

8,212

Short-term performance-related cash compensation

 

4,890

 

6,937

Total short-term compensation

 

11,304

 

15,149

Change in value of existing entitlements to stock-based compensation (virtual Bayer shares)

 

538

 

(978)

Stock-based compensation (Aspire) earned in the respective year

 

9,082

 

6,660

Change in value of existing entitlements to stock-based compensation (Aspire)

 

(641)

 

(3,768)

Total stock-based compensation (long-term incentive)

 

8,979

 

1,914

Service cost for pension entitlements earned in the respective year

 

3,907

 

3,489

Total long-term compensation

 

12,886

 

5,403

Severance indemnity in connection with the termination of a service contract

 

1,978

 

Aggregate compensation (IFRS)

 

26,168

 

20,552

Compare to Last Year