2011 Annual Report - OTCIQ.com

182 Corporate Governance Report
Compensation Plan for Members of the Board of
Management
In accordance with the principles of the version of the Code
dated May 26, 2010, which incorporates VorstAG’s provisions
and in some cases defines them in greater detail, the Supervisory
Board must approve the Executive Committee’s proposal
for the Board of Management’s compensation plan and
reviews the plan regularly.
At its meeting on March 8, 2011, the Supervisory Board passed
a resolution approving the compensation plan described below.
Components of the Compensation Plan
The compensation of Board of Management members is composed
of a fixed annual base salary paid on a monthly basis,
an annual bonus, and a long-term variable component.
These components account for approximately the following
percentages of total compensation:
• Base salary 30 percent
• Annual target bonus
(with 100% target attainment) 40 percent
• Long-term compensation
(value at issuance) 30 percent
Annual Bonus
The annual bonus mechanism for the year under review was
established by a resolution of the Supervisory Board dated
March 8, 2011, and took effect on January 1, 2011. Section 87 of
the VorstAG version of the AktG requires that a management
board’s compensation package must be geared towards a sustainable
business performance. To implement this requirement,
the Supervisory Board and Board of Management members
agreed in 2009 that the Board of Management’s annual
bonus mechanism would adopt a multi-year performance metric
effective 2010. This modification affects the company performance
portion of the annual bonus.
The amount of the bonus is determined by the degree to
which certain performance targets are attained. The targetsetting
system consists of company performance targets,
individual performance targets, and a value-added factor based
on return on average capital employed (“ROACE”). Board of
Management members who fully attain their performance
target receive the target bonus agreed to in their contracts.
The first step in calculating the total annual bonus is to
determine to what degree the operating-earnings target has
been attained. The second step is for the Supervisory Board, at
its discretion, to determine the degree to which the individualperformance
portion of the annual bonus has been attained.
The third step is for both target-attainment portions to be
weighted (70 percent operating-earnings target, 30 percent for
the individual-performance target) and added together. Finally,
this subtotal is multiplied by a value-added factor.
The metric used for the operating-earnings target is EBITDA.
The EBITDA target for a particular financial year is the plan
figure approved by the Supervisory Board. If E.ON’s actual
EBITDA is equal to the EBITDA target, this constitutes
100-percent attainment. If it is 30 percentage points or more
below the target, this constitutes 0-percent achievement.
If it is 30 percentage points or more above the target, this
constitutes 200-percent attainment. Linear interpolation is
used to translate intermediate EBITDA figures into percentages.
The metric used for the value-added target is ROACE. The
ROACE target is the prior-year weighted-average cost of capital
(“WACC”) plus a premium, stipulated by the Supervisory
Board, to increase leverage. The premium for the 2011 financial
year was 2 percentage points. In view of altered long-term
returns expectations for much of the energy industry and for
E.ON (particularly because of the forced shutdown of some
nuclear power stations in Germany and the altered regulatory
environment), the Supervisory Board resolved to set the
premium at 1.25 percentage points beginning with the 2012
financial year. If E.ON’s actual ROACE is equal to the ROACE
target, this constitutes 100-percent attainment. If it is 2 (effective
2012: 1.25) percentage points or more lower, this constitutes
50-percent attainment. If it is 2 (effective 2012: 1.25) percentage
points or more higher, this constitutes 150-percent
attainment. Linear interpolation is used to translate intermediate
ROACE figures into percentages.
Extraordinary events and changes in E.ON’s portfolio (acquisitions
and disposals of significant assets or government
interventions such as the forced shutdown of some nuclear
power stations in Germany) are not factored into the determination
of target attainment.