Principles of Board of Management remuneration
The remuneration system for the Board of Management aims to remunerate its members commensurately with their areas of activity and responsibility and in compliance with applicable law. The adequate combination of non-performance-related and performance-related components of remuneration is designed to create an incentive to secure the Group’s long-term success. The fixed component of remuneration is paid as a base salary; the variable components are intended to reflect, clearly and directly, the joint performance of the members of the Board of Management as a whole, as well as the long-term performance of the Group. The interests of all stakeholders, in particular those of the shareholders as the owners of the Company and those of the employees, are harmonized through the focus on the Group’s long-term success.
For each upcoming financial year, the Presidential Committee at first prepares a review by the Supervisory Board of the system and level of remuneration on the basis of a comparison with competitors. The main focus is on checking for appropriateness, based on a horizontal and a vertical comparison. In the horizontal comparison, the following aspects are given particular attention in relation to a group of comparable companies in Germany:
- the effects of the individual fixed and variable components, that is, the methods behind them and their performance parameters;
- the relative weighting of the components, that is, the relationship between the fixed base salary and the short-term and long-term variable components;
- and the target remuneration consisting of base salary, annual bonus and long-term variable remuneration, also with consideration of entitlement to a retirement pension and fringe benefits.
The vertical comparison focuses on the ratio of Board of Management remuneration to the remuneration of the senior executives and the entire workforce of
In the event of significant changes in the relationship between the remuneration of the Board of Management and the comparison groups the Supervisory Board establishes the causes, and in the absence of objective reasons for the deviation adjusts the remuneration of the Board of Management as necessary.
In carrying out this review, the Presidential Committee and the Supervisory Board consult independent external advisors.
If the review results in a need for changes to the remuneration system for the Board of Management, the Presidential Committee submits the relevant proposals to the entire Supervisory Board for its approval.
On the basis of the approved remuneration system, the Supervisory Board decides at the beginning of the year on the base and target remuneration for the individual members of the Board of Management as well as on total remuneration limits. It also decides on the relevant performance parameters and the respective targets that are to be used in the bonus calculations for the upcoming financial year. Furthermore, individual targets and compliance goals are decided upon for each member of the Board of Management and additional non-financial goals related to sustainability are drawn up for the Board of Management as a whole. Both the individual goals, including the compliance goals, and the non-financial goals for the Board of Management as a whole are taken into consideration along with the financial performance parameters after the end of the financial year when the annual bonus is decided upon by the Supervisory Board.
For the long-term variable component of remuneration, which is referred to as the Performance Phantom Share Plan (PPSP), the Supervisory Board sets an amount to be granted for the upcoming financial year in the form of an absolute amount in euros and sets the respective performance targets.
After the end of each year, the achievement of both financial and non-financial targets by the Board of Management as a whole is measured in order to determine the amount of the annual bonus. The degree of achievement of individual targets by members of the Board of Management is used as the basis for measuring target achievement for the Board of Management as a whole. The Presidential Committee then calculates the annual bonus and submits its proposal to the Supervisory Board for its approval.
All members of the Supervisory Board and thus all members of the Presidential Committee are obligated, pursuant to the procedural rules of the Supervisory Board and its committees, to disclose any conflicts of interest to the Supervisory Board. For its part, in its report to the Annual Meeting the Supervisory Board informs of any conflicts of interest that have arisen and of how they have been dealt with (see Report of the Supervisory Board). In the case of significant and not merely temporary conflicts of interest the Supervisory Board member in question is required to resign. Furthermore, the Supervisory Board has set targets for a minimum number of independent members of the Supervisory Board and of members without potential conflicts of interest. Further details of the contents of and compliance with these targets are provided in the Declaration on Corporate Governance. (See Corporate Governance Report)
The system of Board of Management remuneration i
The fixed base salary and the annual bonus each comprise approximately 3
As before, only 5
The maximum amounts of remuneration of Board of Management members are limited, both overall and with regard to the variable components.
As in the prior year, the maximum amounts of remuneration of the members of the Board of Management were set for financial yea
B.43 Maximum limit of total remuneration1 2018
|Maximum limit of total remuneration1 2018|
|Chairman of the Board of Management||1.5 times the target |
|Members of the Board of Management||1.9 times the target |
|Base salary i |
+ target bonus = 10
+ PPSP value when granted fo
|Target remuneration1 2018|
Base salary i
|Total remuneration1 i |
|The possible cap on the amount exceeding the maximum limit takes place with the payment of the PPSP fo |
1 Excluding fringe benefits and retirement benefit commitments in all cases.
The individual components of the remuneration system are as follows:
The base salary is fixed remuneration relating to the entire year, oriented towards the area of responsibility of each Board of Management member and paid out in twelve monthly installments. (See graphic B.44)
The annual bonus is variable remuneration, the level of which is primarily linked to the operating profit of the Daimler Group (EBIT). For the past financial year, the annual bonus was also linked to the target for the financial year determined by the Supervisory Board (derived from the level of return targeted for the medium term and the growth targets), the actual result compared with the prior year, the combined performance of the Board of Management members, additional non-financial sustainability-related targets for the Board of Management as a whole and, as a possible individual reduction component, the non-achievement of compliance targets. With the actual-actual comparison, achievement of EBIT at the prior-year level constitutes target achievement of 10
Primary reference parameters:
0 %relates to a comparison of actual EBIT i n 2018with EBIT targeted fo r 2018.
0 %relates to a comparison of actual EBIT i n 2018with actual EBIT i n 2017.
Amount with 10
0 % target achievement (target annual bonus):
Range of possible target achievement:
0 to 20
For the other primary performance parameter, which also relates to half of the annual bonus, “comparison of actual EBIT in the financial year with actual EBIT in the prior year,” the limits of the unchanged possible range of 0 to 20
In addition, the Supervisory Board uses individual target agreements as a basis for measuring the target achievement for individual Board of Management members and then uses this target achievement value to measure the overall target achievement of the Board of Management as a whole. This overall target achievement result can lead to an addition or reduction of up to 2
As was the case in previous years, further qualitative targets were agreed upon with the individual members of the Board of Management with regard to the sustained implementation and permanent establishment of the compliance management system. The complete or partial non-achievement of individual compliance targets can be reflected by a deduction of up to 2
In this context, agreements were reached with the members of the Board of Management allowing for the partial reduction or complete elimination of the annual bonus for any member who clearly violates our Integrity Code. If it is not possible to reduce a future bonus payment, or a payment that has yet to be made, the Board of Management member in question will be required to pay back the amount of the bonus reduction. The Supervisory Board has the final decision on all such bonus reductions.
The total amount to be paid out from the annual bonus is limited to 2.35 times the base salary of the respective financial year.
The Performance Phantom Share Plan (PPSP) is a variable element of remuneration with long-term incentive effects. At the beginning of the plan, the Supervisory Board specifies a grant value (absolute amount in euros) in the context of setting the individual annual target remuneration. This amount is divided by the relevant average price of Daimler shares calculated over a predefined long period of time, which results in the preliminary number of phantom shares allocated.
Also at the beginning of the plan, performance targets are set for a period of three years (performance period). Depending on the achievement of these performance targets with a possible range of
After another plan year has elapsed (retention period), the amount to be paid out is calculated from this final number of phantom shares and the applicable share price at that time. The share price relevant for the payout under this plan is also relevant for allocating the preliminary number of phantom shares for the plan newly issued in the respective year. (See graphic B.47 and B.48)
Performance parameters for Pla
0 %relates to the Group’s return on sales in a three-year comparison with a group of competitors comprising listed vehicle manufacturers with an automotive component of more than 7 0 %by revenue and an investment-grade credit rating (BMW, Ford, GM, Honda, Hyundai, Isuzu, Kia, Mazda, Nissan, Paccar, Subaru, Suzuki, Toyota, Volvo and Volkswagen). For the measurement of success, the competitors’ average return on sales is calculated over a period of three years. Target achievement occurs to the extent to which Daimler’s return on sales deviates by a maximum of +/-2 percentage points from 10 5 %of the calculated average of the competitors.
- Target achievement of 10
0 %only occurs when the average return on sales of the Daimler Group reaches 10 5 %of the revenue-weighted average return on sales of the group of competitors. Maximum target achievement of 20 0 %occurs if Daimler’s return on sales exceeds 10 5 %of the revenue-weighted average of the competitors by 2 percentage points or more. An additional limitation was implemented starting with PPSP 2015: If a target achievement of between 19 5 %and 20 0 %occurs, the maximum target achievement calculated from the performance parameter of return on sales compared to the group of competitors will only be deemed to be 20 0 %if the actual return on sales for Daimler’s automotive business reaches at least the strategic target for return on sales (currently 9 %) in the third year of the performance period. Otherwise, target achievement will be limited to 19 5 %.
- Target achievement of
0 %occurs if Daimler’s return on sales is 2 percentage points or more lower. In the deviation range of +/- 2 percentage points, target achievement varies in proportion to the deviation.
- Target achievement of 10
0 %relates to “relative share performance”, i.e. the performance of Daimler’s share in a three-year comparison with the performance of the defined group of competitors (index). If the performance of Daimler’s share (in percent) is the same as that of the index (in percent), target achievement is deemed to be 10 0 %. If the performance of Daimler’s share (in percent) is 50 percentage points or more below (above) the performance of the index, target achievement is deemed to be 0 %(20 0 %). In the deviation range of +/- 50 percentage points, target achievement varies in proportion to the deviation.
Range of possible target achievement:
0 to 20
Value upon allocation:
Determined annually by the Supervisory Board; fo
Value of the phantom shares on payout:
During the four-year period between the allocation of the preliminary phantom shares and the payout of the plan proceeds, the phantom shares earn a dividend equivalent in the amount of the actual dividend paid on ordinary Daimler shares.
The value of the phantom shares to be paid out depends on target achievement measured according to the criteria described above and on the share price relevant for the payout. This share price is limited to 2.5 times the share price at the beginning of the plan. In addition, the amount to be paid out is limited to 2.5 times the absolute euro amount specified at the beginning of the plan, which is relevant for the preliminary number of phantom shares allocated. This maximum amount includes the dividend equivalent paid out during the four-year plan period.
The terms governing the PPSP include a provision that allows for the partial reduction or complete elimination of the annual bonus for any member of the Board of Management who clearly violates the Integrity Code that applies to all employees and Board of Management members, or any other professional obligations, prior to the payout of the plan proceeds. The Supervisory Board has the final decision on all such bonus reductions.
Guidelines for share ownership
As a supplement to these three components of remuneration, “Stock Ownership Guidelines” exist for the Board of Management. These guidelines require the members of the Board of Management to invest a portion of their private assets in Daimler shares over several years and to hold those shares until the end of their Board of Management membership. The number of shares to be held is set between 20,000 and 75,000. In fulfillment of the guidelines, up to 2
Appropriateness of Board of Management remuneration
In accordance with Section 87 of the German Stock Corporation Act (AktG), the Supervisory Board of