Further development of the remuneration system effective as of January 1, 2019

Change to the annual bonus as a short-term and medium-term component of the remuneration

At its meeting in December 2018, the Supervisory Board decided to further develop the remuneration system for the Board of Management in view of the fundamental technical changes in our industry and the associated changes in the competitive environment, as well as changing customer behavior, the need for significant investments in new technologies, and the expectations of our shareholders. The main focus was on the implementation of the new corporate strategy: safeguarding the Group’s future by expanding our business model as an automaker and a provider of mobility services. In times of comprehensive transformation, it is especially important to align the incentives in the remuneration system with the necessary investments in the future. In this connection, further aims were to achieve a higher degree of transparency, reduce the complexity of the methods used and more precisely define the collective non-financial aims and criteria. The implementation will affect the short-term and medium-term remuneration component, the annual bonus. Because the Supervisory Board and the Board of Management consider it important to have a uniform basic incentive structure, the Board of Management has also decided to make a corresponding adjustment for all management levels. As a result, the short-term and medium-term variable remuneration component (the annual bonus) for the Board of Management and for managers will be calculated according to uniform goals/criteria and a uniform system starting with the 2019 financial year. This uniform approach is already being used to calculate the long-term variable remuneration component (Performance Phantom Share Plan = PPSP). (See graphic B.49)

Daimler AR2018 B.49 Annual bonus

Financial target

The financial target is oriented toward the operating result of the Daimler Group (EBIT). The target value of EBIT for each financial year is derived on the basis of the desired medium-term return, which is set by the Supervisory Board and is especially ambitious, oriented toward the competitive environment, and derived from the growth targets. The starting point of the calculation is the revenue of financial year 2018 (to date: financial year 2013).

The range of possible target achievement is between 0 % and 200 %. The lower limit of this range is 50 % of the EBIT target value; the upper limit is approximately 117 % of the EBIT target value. If the actually achieved EBIT value is at or under the lower limit of the range, the target achievement degree is always 0 %. The total absence of a bonus is therefore possible. If the actually achieved EBIT value is at or above the upper limit of the range, the target achievement degree is always 200 %. The range of target achievement develops linearly within the range. (See graphic B.50)

Daimler AR2018 B.50 Financial Target

Non-financial targets

The non-financial targets, which are oriented toward sustainability and are for the first time uniform at all management levels, are divided into four categories. Each category is weighted equally and receives an addition or a deduction of up to 2.5 percentage points to or from the degree of achievement of the financial target. After the end of the financial year, the degree of target achievement is calculated by comparing the target value and the actual value. On this basis, an addition to or a deduction from the degree of financial target achievement of up to a total amount of 10 percentage points is possible.

Specifically: Achievement of the Group-level targets regarding the further development and permanent establishment of integrity is measured on the basis of certain standardized questions in our global employee survey. This measurement is based on the achieved approval rate of any question and the average approval rate achieved across all questions (integrity indicator). The relevant degree of target achievement at the Group level (in %) is derived from these figures. (See graphic B.51)

B.51 Integrity

Degree of target achievement Addition or deduction Integrity indicator Approval rate of any question
Excellent 2.5 % 81–100 75 %
Good 2.0 % 71–80 65 %
Average 1.0 % 61–70 60 %
Low -2.5 % 60  

Quality and/or customer satisfaction targets (quality KPIs of all divisions) are defined by the individual divisions for each financial year. With regard to vehicles, a comparison of the target number and the actual number of claims during a predefined period of time (MIS xx) is carried out. With regard to services, this comparison is carried out by means of a customer satisfaction index. The relevant degree of target achievement (in %) at the Group level is derived as a weighted average of the individual divisional degrees of target achievement (in %). (See table B.52)

B.52 Quality

Degree of target achievement Addition or deduction of all divisions
Excellent 2.5 % Target overachieved 1
Good 2.0 % Target achieved 1
Average 1.0 % Underperformed 1
Low -2.5 % Target not achieved 1

1 The amount to which the addition or deduction deviates from the respective target value is defined according to the specific division and product.

The degree of the employees’ commitment to the company (engaged employees) is calculated on the basis of their answers to certain standardized questions in our global employee survey. These answers, together with the response rate achieved in the employee survey, are used to derive the degree of achievement (in %) of the targets defined at the Group level for the maintenance and enhancement of a high degree of satisfaction and motivation among the employees. (See table B.53)

B.53 Employee engagement

Degree of target achievement Addition or deduction Engaged employees Response rate
Excellent 2.5 % > 35 % > 70 %
Good 2.0 % > 30 % > 65 %
Average 1.0 % > 25 % > 60 %
Low -2.5 % < 25 % < 60 %

A target for the proportion of women in executive positions (Aspirational Guidelines) was defined at the Group level for a period of several years on the basis of Daimler’s in-house guidelines for the proportion of women in management positions (Gender Diversity Aspirational Guidelines), which go beyond the legally obligatory targets. A comparison of the target figures with the actual figures at the end of a financial year is used to derive the degree of target achievement (in %). (See table B.54)

B.54 Diversity

Degree of target achievement Addition or deduction Gender Diversity Aspirational Guidelines
Excellent 2.5 % Target overachieved 10 %
Good 2.0 % Target achieved < 10 %
Average 1.0 % Underperformed
Low -2.5 % Target not achieved

A higher degree of transparency will be achieved in the future, thanks to the increased quantification of the non-financial targets and the publication of the degree of target achievement in the Remuneration Report.

Transformation targets

Transformation targets will replace the previous shared performance value for the Board of Management as a whole, which was derived from the Board of Management members’ individual target agreements and degrees of target achievement. Especially during the transformation phase, these transformation targets will refer to quantitative as well as qualitative aspects and will be assessed and evaluated correspondingly by the Supervisory Board.

In order to take into account the implementation of the future-oriented measures for the technological and sustainable realignment of the Group, the divisions will annually define key performance indicators and target values for the future-oriented CASE fields — Connected, Autonomous, Shared & Services, Electric. After the end of a financial year, a comparison of the target values and the actual values will be conducted for each division. The Supervisory Board will derive the Board of Management’s shared degree of target achievement from the divisions’ degree of target achievement as well as the strategic, organizational and structural contribution of the Board of Management as a whole, taking into account the economic environment and the competitive situation and positioning of the Group. It will be possible to add or deduct 25 percentage points to/from the degree to which the financial target has been achieved.

This criteria-based consideration of the future-oriented CASE fields will be based on assessments of the success of product-related, technical and economic activities/progress. Furthermore, it should be possible to assess the progress of sustainability/Environment Social Governance (ESG) aspects and the success of strategic M&A activities. The defined key performance indicators are used for measuring the degree to which the transformation targets have been achieved. They also support the corresponding activities, corrections or implementation steps of the Group’s sustainability strategy (for example, investment volume, growth of revenue from digital services, activation and connectivity rates of digital services, proportion of alternative drive systems, emission targets, development discipline, development progress of products and digital services, number of online contracts, proportion of digital self-services, revenue from mobility services).

The description of the transformation criteria and the publication of target achievement figures in the Remuneration Report will ensure a higher degree of transparency in the future.

No change in the other components of the remuneration system

The remainder of the remuneration system, in particular the composition of the remuneration of the Board of Management from the non-performance-related base salary, the annual bonus as a short-term and medium-term variable component with deferral and the long-term variable component PPSP also remain unchanged, as does the relationship between the individual components of the remuneration. The current design of the PPSP, with the four-year duration of the plan, the measurement of the success targets compared to a defined and regularly monitored group of competitors that face the same strategic challenges, and the linkage with the absolute development of the share price, is already oriented toward the long-term success of the company.

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Board of Management remuneration in 2018
Principles of Board of Management remuneration