16.4.1 Compensation of the Board of Management

Objectives

The structure of the compensation system for the Board of Management of Bayer AG is aimed at ensuring performance-oriented Corporate governance comprises the long-term management and oversight of the company in accordance with the principles of responsibility and transparency. The German Corporate Governance Code sets out basic principles for the management and oversight of listed companies. and a long-term increase in the company’s value. The core elements of the system include fixed compensation, which takes into account the tasks and duties of the Board of Management members, and an incentivized component – the short-term incentive (STI) –, which depends on the attainment of the annual corporate performance targets. In addition to the compensation directly related to each year of service, there are two long-term stock-based components that are directly related to the development of Bayer’s share price over time and thus are intended to create an incentive for a sustained commitment to the company. The system is also designed to enable the company to successfully compete for highly qualified executives and to ensure statutory and regulatory compliance. Board of Management compensation is in line with the basic principles of the compensation structure for managerial employees in the Bayer Group. The appropriateness of the system and the compensation level are regularly reviewed by the Supervisory Board, which then makes any necessary adjustments.

Compensation structure until December 31, 2015

The compensation paid to the members of the Board of Management includes both non-performance-related and performance-related components. The compensation structure, based on average total annual compensation and 100% target attainment, is as follows:

Board of Management Compensation Structure (German Commercial Code)1

Board of Management Compensation Structure (German Commercial Code) (pie chart)Board of Management Compensation Structure (German Commercial Code) (pie chart)

The non-performance-related compensation comprises the fixed annual compensation along with fringe benefits. The performance-related compensation partly comprises a variable component (STI), of which 50% takes the form of short-term variable cash compensation and 50% consists of long-term cash compensation involving a grant of virtual Bayer shares that are retained for three years. The other performance-related compensation component serving as a long-term incentive is the stock-based cash compensation program Aspire, where a four-year retention period applies.

The individual performance-related components are capped at the grant date. The cap on the total compensation is 1.8 times the respective target compensation and is determined annually when the fixed compensation is set.

The members of the Board of Management also receive pension entitlements for themselves and their surviving dependents.

Non-performance-related components

Fixed annual compensation

The level of the non-performance-related, fixed annual compensation takes into account the functions and responsibilities assigned to the members of the Board of Management as well as market conditions. The fixed compensation is regularly reviewed by the Supervisory Board in light of the consumer price index and adjusted if necessary. It is paid out in twelve monthly installments.

Fringe benefits

This component mainly includes perquisites such as a company car with driver or the use of the company carpool, payments toward the cost of security equipment, and the reimbursement of the cost of annual health screening examinations. Fringe benefits are reported at cost or the amount of the pecuniary advantage gained.

Performance-related components

Short-term variable cash compensation

The short-term variable compensation (short-term incentive, or STI) is based on a set percentage of the fixed annual compensation (target value). This amount is adjusted according to the target attainments of the Bayer Group, the subgroups and the individual Board of Management member.

The Group component is determined in relation to Core earnings per share Earnings per share, plus / minus amortization and impairment losses / impairment loss reversals of intangible assets and impairment losses / impairment loss reversals on property, plant and equipment, plus special charges, minus special gains (other than amortization and impairment losses / impairment loss reversals), plus / minus the related tax effects and the share of the adjustments attributable to noncontrolling interest; this indicator facilitates the comparability of performance over time. It is not defined in the International Financial Reporting Standards. of the Group, while the subgroup components are governed by the weighted average target attainments of the HealthCare, CropScience and Covestro subgroups. The annual subgroup targets are derived from the respective business strategies and operational priorities. The target attainment for HealthCare and CropScience is mainly based on the comparison of target and actual values for the EBITDA margin before special items The EBITDA margin before special items is calculated by dividing EBITDA before special items by sales. This indicator is not defined in the International Financial Reporting Standards. and sales growth. At Covestro it is measured in terms of the Cash flow Key indicator for assessing a company’s financial strength; in addition to gross cash flow, the statement of cash flows also reports the cash flow from operating activities (net cash flow), which shows the amount of funds available from operating activities for financing investments, repaying debts or distributing dividends. The cash flows from investing and financing activities are also reported. return on investment (CFROI). Target attainment also takes into account qualitative objectives including safety, compliance and sustainability aspects.

The target attainment for the individual component of the variable compensation is determined by the Supervisory Board. One half of the STI for each year is paid out in the second quarter of the following year, while the other half is granted in the form of virtual Bayer shares.

Short-Term Variable Compensation (STI) Components

Short-Term Variable Compensation (STI) Components (graph)Short-Term Variable Compensation (STI) Components (graph)

Long-term variable cash compensation based on virtual Bayer shares

Both the number of virtual shares granted and the amount of the payment at the end of the retention period are based on the average official closing prices of Bayer shares over the last 30 trading days of the respective year in the Xetra system of the Frankfurt Stock Exchange. A cash payment with respect to the number of virtual shares held is made at the end of the three-year period according to the market price of Bayer shares at that time. In addition, the members of the Board of Management receive an amount equal to the total dividends paid on the equivalent number of real shares during the period. Payment is made in January of the year following the end of the three-year retention period. This payment is capped at 200% of the amount converted into virtual shares at the beginning of the three-year period. No option exists for the Board of Management members to extend the retention period or defer the payout. When a member leaves the Board of Management, the retention period for two-thirds of each tranche is shortened to two years. If the member leaves during a fiscal year, payment is made immediately with respect to two-thirds of any tranche that has already been retained for more than two years. The remaining one-third of each tranche continues to be subject to the three-year retention period.

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

Members of the Board of Management are eligible to participate in the annual tranches of the long-term stock-based compensation program Aspire I ("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 for as long as they continue in the service of the Bayer Group. The payments made under this program are based 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 300% of their individual Aspire Target Opportunity at the end of the performance period. The payout / performance matrix according to the absolute and relative development of Bayer’s share price is explained here.

Tranches of the Aspire Program

Tranches of the Aspire Program (bar chart)Tranches of the Aspire Program (bar chart)

When a member of the Board of Management retires, current tranches may be shortened, thus reducing their value. In this case, tranches up to the one issued in 2011 were shortened on a pro-rated basis according to the duration of the member’s active service on the Board of Management during the period of the tranche; tranches issued in 2012 or later are shortened according to the duration of the member’s active service on the Board of Management during the first year of the tranche.

Expanded Share Ownership Guidelines

On top of the requirement for participants in the Aspire program to make a personal investment in Bayer shares, the members of the Board of Management have undertaken to comply with expanded Share Ownership Guidelines. These require the Chairman of the Board of Management to build a position in Bayer shares to the value of 150% of his fixed annual compensation, and the other members to the value of 100% of their fixed annual salaries, within four years and to continue to hold them for as long as they remain Board of Management members. Half the number of virtual shares granted to them through conversion of 50% of the STI into virtual shares counts toward this position. The Board of Management members must provide documentary evidence of their compliance with this obligation for the first time at the end of the four-year position-building period and again yearly thereafter. In the event of significant changes in fixed annual compensation, the value to which shares must be held is adjusted accordingly.

Pension entitlements (retirement and surviving dependents’ pensions)

The members of the Board of Management appointed prior to 2013 are generally entitled to receive a lifelong company pension after leaving the Bayer Group, though not before the age of 60. This pension is normally paid out in the form of a monthly life annuity. Dr. Marijn Dekkers has the option to receive a capital sum in place of an annuity.

The annual pension granted equals at least 15% of final fixed annual compensation. This percentage can increase with continuing service on the Board of Management up to a maximum of 60%. The arrangements for surviving dependents basically provide for a widow’s pension amounting to 60% of the member’s pension entitlement and an orphan’s pension amounting to 15% of the member’s pension entitlement for each child up to an age that has been contractually agreed or set out under insurance conditions.

Future pension payments are annually reviewed and adjusted based on the development of consumer prices. Pension rights are suspended if a member of the Board of Management works for a competitor of Bayer AG or of another Group company before the age of 65 without the prior written consent of the Supervisory Board.

The annual pension entitlement for members of the Board of Management appointed in 2013 or thereafter is based on contributions. Bayer provides a hypothetical contribution amounting to 33% of the respective fixed compensation each year. This percentage is comprised of a 6% basic contribution and a 27% matching contribution – three times the member’s personal contribution of 9%. The total annual contribution is converted into a pension module according to the annuity table for the applicable tariff of the Rheinische Pensionskasse VVaG pension fund. The annual pension entitlement upon retirement (at 62 years of age at the earliest) is the total amount of the accumulated pension modules 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. Kemal Malik has been granted, in addition, a vested entitlement to a fixed annual pension of €80 thousand starting on his 65th birthday. This is subject to a pro-rated reduction in the event that his term of office ends prior to his 65th birthday under certain conditions.

The ultimate pension entitlement cannot be precisely determined in advance. It depends on the development of the member’s compensation, the number of years of service on the Board of Management and the return on the assets of the Rheinische Pensionskasse VVaG. We currently estimate the achievable total pension entitlement at approximately 45% of a member’s annual fixed compensation immediately prior to retirement, with roughly 38% financed by the company and 7% by the member of the Board of Management.

Certain assets are administered by Bayer Pension Trust e.V. under a contractual trust arrangement (CTA), providing substantial additional security for pension obligations resulting from direct commitments for members of the Board of Management in Germany.

Benefits upon termination of service on the Board of Management

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 amounts to 100% of the average fixed compensation for the twelve months preceding their departure. The post-contractual noncompete agreement with Dr. Marijn Dekkers was rescinded without compensation when his service contract was extended in June 2014 in line with previous practice in a similar case.

Change of control

Agreements exist with the members of the Board of Management providing for severance indemnity in certain circumstances in the event of a change in control. The amount of any possible severance indemnity in the case of early termination of service on the Board of Management as a result of a change in control is limited to the value of three years’ compensation in line with the recommendation in Section 4.2.3 of the German Corporate Governance Code. Such payments do not exceed the compensation payable for the remaining term of the service contract.

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 member has been continuously unfit for work for at least 18 months and is likely to be permanently incapable of fully performing his 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 the members appointed to the Board of Management prior to 2013, the disability pension, like the retirement pension, amounts to at least 15% of the final fixed compensation and can increase with continuing service on the Board of Management up to a maximum of 60%. For members of the Board of Management appointed in 2013 or thereafter, 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.

Compensation of the Board of Management in 2015

The aggregate compensation for the members of the Board of Management in 2015 totaled €17,918 thousand (2014: €15,648 thousand), comprising €4,662 thousand (2014: €4,561 thousand) in non-performance-related components and €13,256 thousand (2014: €11,087 thousand) in performance-related components. The pension service cost amounted to €1,847 thousand (2014: €1,385 thousand).

There were no changes in the membership of the Board of Management or the terms of office of the members in 2015.

Effective January 1, 2016, the Board of Management of Bayer AG was enlarged to eight members. In addition to the existing functions, three further functions were created that bear special responsibility for the newly defined operating divisions of the Group. The following new members were appointed to the Board of Management:

  • Dieter Weinand, responsible for the Pharmaceuticals Division
  • Erica Mann, responsible for the Consumer Health Division
  • Liam Condon, responsible for the Crop Science Division

Also effective January 1, 2016, Dr. Hartmut Klusik succeeded Michael König as the member of the Board of Management responsible for Human Resources, Technology and Sustainability.

The following table shows the total compensation of the individual members of the Board of Management who served in 2014 and / or 2015 according to the German Commercial Code:

Board of Management Compensation (German Commercial Code)

 

 

Fixed annual compensation

 

Fringe benefits

 

Short-term variable cash compensation

 

Long-term variable cash compensation based on virtual Bayer shares1

 

Long-term stock-based cash compensation (Aspire)2

 

Aggregate compensation

 

Pension service cost3

 

 

2014

2015

 

2014

2015

 

2014

2015

 

2014

2014

2015

2015

 

2014

2015

 

2014

2015

 

2014

2015

 

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

No. of shares

€ thou­sand

No. of shares

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

1

Fair value at conversion date

2

Fair value at grant date

3

Including company contribution to Bayer-Pensionskasse VVaG or Rheinische Pensionskasse VVaG

4

The increased variable compensation for Werner Baumann resulted mainly from his temporary duties as head of Bayer HealthCare in addition to his primary responsibilities as a member of the Board of Management.

5

Prof. Dr. Plischke stepped down from the Board of Management as of midnight on April 29, 2014. In return for his acceptance of the early change made to the system of variable cash compensation in 2010, Prof. Dr. Plischke in 2014 received one additional virtual Bayer share resulting from the conversion of the STI into virtual Bayer shares.

Serving members of the Board of Management as of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dr. Marijn Dekkers (Chairman)

 

1,363

1,374

 

42

40

 

1,828

1,995

 

15,809

1,828

16,739

1,995

 

414

398

 

5,475

5,802

 

722

967

Werner Baumann4

 

899

906

 

67

47

 

1,051

1,237

 

9,088

1,051

10,377

1,237

 

273

262

 

3,341

3,689

 

204

227

Johannes Dietsch

 

240

725

 

22

44

 

280

917

 

2,424

280

7,698

917

 

210

 

822

2,813

 

65

220

Michael König

 

719

725

 

222

36

 

841

917

 

7,271

841

7,698

917

 

218

210

 

2,841

2,805

 

176

211

Kemal Malik

 

659

725

 

72

40

 

771

917

 

6,665

771

7,698

917

 

210

 

2,273

2,809

 

216

222

Former members

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prof. Dr. Wolfgang Plischke5

 

238

 

18

 

280

 

2,485

287

 

73

 

896

 

2

Total

 

4,118

4,455

 

443

207

 

5,051

5,983

 

43,742

5,058

50,210

5,983

 

978

1,290

 

15,648

17,918

 

1,385

1,847

Fixed annual compensation

The fixed compensation of the members of the Board of Management was adjusted in 2015. The total fixed compensation of all the members was €4,455 thousand (2014: €4,118 thousand).

Short-term variable cash compensation

The total short-term variable cash compensation (short-term portion of the STI) for all the members of the Board of Management in 2015 totaled €5,983 thousand (2014: €5,051 thousand) after deduction of the solidarity contribution. Provisions of €5,983 thousand (2014: €4,771 thousand) were established for payment of this compensation component to the members of the Board of Management serving as of December 31, 2015. 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 2015 it amounted to 0.20% (2014: 0.27%) of each member’s total STI award.

Long-term variable cash compensation based on virtual Bayer shares

The conversion of 50% of the STI for 2015 into virtual Bayer shares was based on an average price of €119.17 (2014: €115.66).

The long-term variable cash compensation based on virtual Bayer shares that is included in the aggregate compensation according to the German Commercial Code was valued at €5,983 thousand (2014: €5,058 thousand). The aggregate compensation according to the IFRS also includes a change of €556 thousand (2014: €1,559 thousand) in the value of existing entitlements.

Provisions of €18,663 thousand (2014: €17,775 thousand) existed as of December 31, 2015, for the future cash disbursements to currently serving members of the Board of Management based on the virtual Bayer shares granted in the respective year. This amount also contains the dividend attributable to the respective prior year.

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 €1,290 thousand (2014: €978 thousand) at the respective grant date.

According to the IFRS, the aggregate compensation 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 aggregate compensation according to the IFRS also includes the change in the value of existing entitlements under ongoing Aspire tranches granted in prior years as stock-based compensation according to the IFRS.

Board of Management Compensation – Aspire Program (IFRS)

 

 

 

 

Serving members of the Board of Management as of December 31, 2015

 

Former members

 

 

 

 

 

 

Dr. Marijn Dekkers (Chairman)

Werner Baumann

Johannes Dietsch3

Michael König3

Kemal Malik3

 

Prof. Dr. Wolfgang Plischke

 

Total

 

 

 

 

€ thousand

€ thousand

€ thousand

€ thousand

€ thousand

 

€ thousand

 

€ thousand

1

The newly earned entitlements are derived from the 2012 – 2015 (2014: 2011 – 2014) tranches of the Aspire program because this compensation was or is being earned over a four-year period. They are stated at their pro-rated fair values in 2014 and 2015, respectively.

2

This line shows the change in the value of the entitlements already earned in 2012, 2013 and 2014 (2014: 2011, 2012 and 2013).

3

The Aspire entitlements earned in 2014 and 2015 and the value changes for Johannes Dietsch, Michael König and Kemal Malik relate in part to Aspire tranches granted to them before they joined the Board of Management but not yet fully earned.

Stock-based compensation entitlements earned in the respective year1

 

2015

 

980

597

225

265

263

 

 

2,330

 

2014

 

1,186

684

78

246

247

 

1,161

 

3,602

Change in value of existing entitlements2

 

2015

 

108

71

21

24

48

 

 

272

 

2014

 

272

154

18

43

56

 

144

 

687

Total

 

2015

 

1,088

668

246

289

311

 

 

2,602

 

2014

 

1,458

838

96

289

303

 

1,305

 

4,289

Provisions of €7,110 thousand (2014: €7,155 thousand) were established for the Aspire entitlements of the members of the Board of Management serving as of December 31, 2015.

Pension entitlements

The pension service cost recognized for the members of the Board of Management in 2015 according to the German Commercial Code was €1,847 thousand (2014: €1,385 thousand), while the current service cost for pension entitlements recognized according to the IFRS was €2,891 thousand (2014: €1,716 thousand).

The service cost and the settlement or present value of the pension obligations attributable to the individual members of the Board of Management are shown in the following table.

Pension Entitlements (German Commercial Code and IFRS)

 

 

German Commercial Code

 

IFRS

 

 

Pension service cost1

 

Settlement value of pension obligation as of December 31

 

Service cost for pension entitlements

 

Present value of defined benefit pension obligation as of December 31

 

 

2014

2015

 

2014

2015

 

2014

2015

 

2014

2015

 

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

 

€ thou­sand

€ thou­sand

1

Including company contribution to Bayer-Pensionskasse VVaG or Rheinische Pensionskasse VVaG

2

Prof. Dr. Plischke stepped down from the Board of Management as of midnight on April 29, 2014.

Serving members of the Board of Management as of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

Dr. Marijn Dekkers

 

722

967

 

8,256

11,014

 

877

1,418

 

12,812

14,106

Werner Baumann

 

204

227

 

5,738

7,022

 

259

385

 

10,701

10,131

Johannes Dietsch

 

65

220

 

2,160

2,681

 

85

355

 

4,133

3,995

Michael König

 

176

211

 

1,626

2,371

 

222

361

 

3,259

3,559

Kemal Malik

 

216

222

 

231

516

 

273

372

 

1,343

1,700

Former members

 

 

 

 

 

 

 

 

 

 

 

 

Prof. Dr. Wolfgang Plischke2

 

2

 

 

 

Total

 

1,385

1,847

 

18,011

23,604

 

1,716

2,891

 

32,248

33,491

The difference between the pension service cost according to the German Commercial Code and the service cost for pension entitlements according to the 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 the IFRS.

Benefits upon termination of service on the Board of Management

It was agreed with Michael König that he be granted benefits of €1,131 thousand in connection with the mutually agreed early termination effective December 31, 2015, of his service contract, which originally ran until March 31, 2016. These benefits comprised fixed compensation, short-term variable compensation components (STI), Aspire and pension contributions – each for the period January 1 to March 31, 2016 –, along with the fair value of the accelerated vested portions of the existing Aspire tranches. The fixed compensation and short-term variable compensation component, together amounting to €375 thousand, will be paid during the first half of 2016. The payments from the Aspire tranches will be made upon expiration of each tranche based on the respective Aspire program parameters. In addition, a two-year non-compete agreement ending on December 31, 2017, exists with Michael König under his service contract. The resulting compensatory payment of €725 thousand per year will be made to him in monthly installments.

The aggregate compensation according to the IFRS is shown in the following table:

Board of Management Compensation according to IFRS

 

 

2014

 

2015

 

 

€ thousand

 

€ thousand

Fixed annual compensation

 

4,118

 

4,455

Fringe benefits

 

443

 

207

Total short-term non-performance-related compensation

 

4,561

 

4,662

Short-term performance-related cash compensation

 

5,051

 

5,983

Total short-term compensation

 

9,612

 

10,645

Stock-based compensation (virtual Bayer shares) earned in the respective year

 

5,058

 

5,983

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

 

1,559

 

556

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

 

3,602

 

2,330

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

 

687

 

272

Total stock-based compensation (long-term incentive)

 

10,906

 

9,141

Service cost for pension entitlements earned in the respective year

 

1,716

 

2,891

Total long-term compensation

 

12,622

 

12,032

Severance indemnity in connection with the termination of a service contract

 

 

1,131

Aggregate compensation (IFRS)

 

22,234

 

23,808

Compensation structure effective January 1, 2016

The structure of the compensation package for the Board of Management of Bayer AG and the compensation level are intended to be sustainable, performance-based and appropriate. To ensure this, the Supervisory Board regularly reviews the compensation system and adjusts it as necessary. The most recent comprehensive review of the system, which the Supervisory Board performed in the third quarter of 2015, revealed a need for adjustments, mainly in view of the new divisional structure and the increase in the number of members of the Board of Management from five to eight. The review also showed that adjustments were necessary in light of the target positioning in relation to the other DAX companies. The review and the new compensation structure are based on an expert report from an independent compensation consultant.

The target percentages for the short- and long-term variable compensation are in the future the same for all the members of the Board of Management. The new structure featuring 100% fixed compensation, 100% target amount for the short-term variable compensation and 150% for the long-term variable compensation is intended to provide even greater encouragement for performance-oriented governance geared to long-term success.

In the future, the short-term variable compensation of the Board of Management will still be based on the attainment of targets set for three sub-components – a Group component, a segment component and an individual performance component – each of which will be given a weighting of one-third when evaluating the performance of each member of the Board. The Group component, which is based on the core earnings per share of the Group (including Covestro), and the individual performance sub-components based on the responsibilities of each member of the Board are basically unchanged. The segment component will be incentivized based on the average performance of the operating segments, with Pharmaceuticals having a 50% weighting, Consumer Health 20% and Crop Science (including Animal Health) 30%. In the case of the Board members responsible for an operating segment, however, this one-third is incentivized based on the profitability of the respective business only. In light of the legal and economic independence of Covestro and its stock market flotation in October 2015, it is no longer included in the evaluation of the segment-based component.

In addition, a new stock-based cash compensation program is being introduced from 2016. In the future the target amounts – expressed in numbers of virtual shares – will be derived from the contractually agreed target percentage and the individual STI payment factors of the Board members in the year prior to the issuance of the respective tranche. The cash payment amounts will be determined after four years based on the share price then applicable, the performance of the Bayer share relative to the EuroStoxx 50 and the dividends paid in the meantime. The cap on the payments to be made under this long-term compensation program newly introduced from 2016 is 250%, compared to 300% under the predecessor program. Thus the new compensation system maintains consistency between the Board of Management and other management levels. In the case of the Board of Management, however, an additional payment hurdle related to the EuroStoxx 50 has been introduced for the LTI plan.

To reduce complexity and enhance transparency, the long-term variable cash compensation component based on the conversion of part of the STI into virtual Bayer shares is now discontinued and the Share Ownership Guidelines have been simplified. Caps continue to apply to each variable cash compensation component and to the maximum total cash compensation for a given year in line with the recommendation in the German Corporate Governance Code.

The contribution-based pension has been adjusted in line with market conditions. Until now, Bayer has provided to the members of the Board of Management appointed in 2013 or thereafter a hypothetical contribution amounting to 33% of the respective fixed compensation each year. This hypothetical contribution has now been increased to 42% of the respective fixed compensation, and, as in the past, is converted into a pension module according to the annuity table for the applicable tariff of the Rheinische Pensionskasse VVaG pension fund.