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Annual Report 2008 - AMG Advanced Metallurgical Group NV

Annual Report 2008 - AMG Advanced Metallurgical Group NV

Pensions and retirement

Pensions and retirement benefits The members of the Management Board, except for Dr. Walter, are members of the defined contribution plan at AMG’s subsidiary, Metallurg. Dr. Walter is provided pension benefits in accordance with the defined contribution plan at AMG’s German subsidiary, ALD Vacuum Technologies GmbH. Dr. Schimmelbusch, Mr. Spector and Mr. Jackson receive additional retirement benefits from Metallurg’s Supplemental Executive Retirement Plan (“SERP”). With respect to Dr. Schimmelbusch and Mr. Spector, the supplemental benefits are payable commencing at the later of age 70 or the end of their employment with AMG. The benefit to be paid will be reduced by the amounts received under their normal retirement benefit under the Metallurg pension plan. During 2007, Dr. Schimmelbusch and Mr. Spector voluntarily reduced the amount of their supplemental retirement benefit and extended the vesting period for such benefit. The benefit was one-third vested as of April 1, 2007. The unvested portion is vested ratably over 24 months commencing April 1, 2007 and ending March 31, 2009. See Note 26 to the Consolidated Financial Statements. Pursuant to Mr. Jackson’s SERP, if Mr. Jackson is employed by Metallurg or remains in Metallurg’s employment until he is 65, he is entitled, whether or not he has terminated his employment, to receive retirement benefits (reduced by amounts received under Metallurg’s pension plan). Mr. Jackson’s benefits will be reduced if his employment with Metallurg ends prior to his reaching age 65. Total costs to AMG with respect to the pension and retirement benefits of the Management Board is provided in the table above which sets forth total costs incurred in 2008 for Management Board remuneration. Other benefits All Management Board members receive benefits, which are in line with industry and individual country practice. No loans and guarantees are granted to any Management Board members. Total costs to the Company with respect to other remuneration of the Management Board is provided in the table above which sets forth total costs incurred in 2008 for Management Board remuneration. Contracts Each member of the Management Board has a contract of employment with AMG. The contract of Dr. Schimmelbusch provides for a term of four years. For the other Management Board members the contract provides for a term of three years. In case AMG terminates the contract of employment without cause, the maximum severance payment is limited to two years Base Salary and two years of target Annual Bonus. Current agreements with respect to severance payments do not comply with best practice provision II.2.7 of the existing Dutch Corporate Governance Code (dated December 9, 2003). AMG has honored existing contractual agreements and adapts to individual country practices, which differ from best practice provision II.2.7 of the existing Dutch Corporate Governance Code. In addition to the employment contracts with AMG, the members of the Management Board have a contract with one of AMG’s subsidiaries. Details of the employment contracts of the Management Board members are provided on the Company’s website under the Corporate Governance section. Proposed Remuneration Policy Commencing 2009 During 2008, the Supervisory Board, supported by Hay Group, has developed a new remuneration policy for the Management Board, which supports the overall executive compensation philosophy of the Company. By developing a new remuneration policy the Supervisory board has committed itself to the highest standards of international good corporate governance practices. Unless the Company’s interests require otherwise, the proposed remuneration policy complies with all applicable best practice provisions of the Dutch Corporate Governance Code. The Supervisory Board believes to have sound explanations for those best practice provisions it cannot comply with. 50 Report of the Supervisory Board

Executive Remuneration Philosophy The AMG group of companies competes throughout the world for business and for talent. Given its size and the diversity of its business it must compete for superior talent with corporations of considerable scale. AMG’s offerings, therefore, must provide top talent with roles which are challenging and motivating in a fast paced environment and offer very competitive reward opportunities for top talent and superior performance. Accordingly, the Executive Remuneration Philosophy must: • help secure the human capital that will achieve AMG’s short-term, medium-term and long-term objectives • reward superior performance • engender an innovative fast paced entrepreneurial environment • provide a clear linkage between executive and shareholder interests • support the business model and, in particular, a collaborative culture Remuneration Components As of 2009, the Management Board members’ remuneration shall consist of the following components: • Base Salary • Annual Bonus • Long-term Incentives • Pension and other benefits Remuneration components must support the Executive Remuneration Philosophy. AMG uses a competitive total direct compensation strategy that will help secure top talent. Total direct compensation of the Management Board consists of Base Salary, Annual Bonus and Long-term Incentives. To reward superior performance, the basic principle of the policy is to position AMG at the top quintile of Hay Group’s Industrial Market database for outstanding performance. The Hay Group Industrial Market database comprises accurate and up-to-date executive remuneration infor mation of more than 300 US organizations operating in the manufacturing sector. The US market was chosen for the reason that the majority of the Management Board members have US residency and the operational headquarters of AMG is located in the US. Base Salary Base Salary levels are part of the overall remuneration package and fit into the overall remuneration strategy to position the total direct compensation level at the top quintile of the Hay Group Industrial Market database. Annual Bonus Members of the Management Board participate in AMG’s short-term incentive plan. The shortterm incentive plan provides for an annual cash bonus which depends on three key performance metrics: • Return on Capital Employed (ROCE) • (Adjusted) Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) • Individual performance The table below provides an overview of these key performance metrics including the relative importance in determining the Annual Bonus. Key performance metrics ROCE EBITDA Growth Individual Performance Description EBIT / Capital Employed (%) EBITDA growth % Leadership and human in established target ranges in established target ranges capital development Weighting 40% 40% 20% The Annual Bonus opportunity is expressed as a percentage of Base Salary at threshold, target and maximum levels as indicated in the table below. Below threshold levels, the payout will be zero; the maximum payout will be three times target payout. Management Board position Minimum payout Target payout Maximum payout Chairman and Chief Executive Officer 0% 85% 255% Deputy Chairman 0% 75% 225% Divisional head 0% 65% 195% Chief Financial Officer 0% 65% 195% Report of the Supervisory Board 51

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