examined and further developed by the Supervisory Board in connection with the conclusion of new service contracts for Mark Langer and Christoph Auhagen, both members of the Managing Board. On the basis of discussions in the Supervisory Board and of the proposals made by the Personnel Committee, new service contracts were concluded in October 2015 with the Managing Board members Mark Langer and Christoph Auhagen with effect from January 1, 2016, which provide for a compensation system that is partly new in its conception.
compensation system, comprises a non-performance-related (fixed) compensation component and a performance-related (variable) compensation component. The compensation structure is partly geared toward the sustainable growth of the Company by factoring in compensation components with a multiple-year assessment basis. The total compensation of individual members of the Managing Board is specified by the Supervisory Board based on a performance assessment, taking into account any payments made by Group companies. Criteria for determining the appropriateness of the compensation are the responsibilities of the individual member of the Managing Board, their personal performance, the economic situation, the performance and outlook of the Company, as well as the level of compensation usually paid, taking into account peer companies and the compensation structure in place in other areas of the company. At its professional discretion, the Supervisory Board can make decisions as regards special payments for the outstanding achievements or success of a member of the Managing Board.
Total compensation of the Managing Board in fiscal year 2015 came to EUR 4,918 thousand (2014: EUR 4,434 thousand). Of this amount, EUR 3,690 thousand was attributable to fixed salary components including fringe benefits (2014: EUR 3,682 thousand), which was paid in full in the 2015 reporting period.
An amount of EUR 644 thousand (2014: EUR 752 thousand) is accounted for by the annual bonus agreed for fiscal year 2015. A total of EUR 584 thousand (2014: EUR 0 thousand) is accounted for by the multiple-year bonus for the period 2013– 2015. The annual bonus for 2015 and the multiple-year bonus for 2013– 2015 will be paid out in fiscal year 2016 within a week of the Supervisory Board approving the consolidated financial statements for 2015.
In fiscal year 2015, the Managing Board received advance installments of the multiple-year bonus for fiscal year 2014 totaling EUR 2,844 thousand (2014: EUR 2,844 thousand advance installments of the multiple-year bonus 2013), which will ultimately be measured by the target realization for the multiple-year period 2014– 2016. As of the reporting date, the advances towards the multiple-year bonuses for 2013– 2015 and 2014– 2016 total EUR 5,688 thousand (2014: EUR 2,844 thousand).
|Basic compensation||One-year variable compensation ("annual-bonus")||Multiple-year variable compensation ("multiple-year bonus 2013-2015")||Fringe benefits||Total|
(since 01.08.2008 Chairman of the Managing Board)
The compensation of the members of the Supervisory Board set by the Annual Shareholders’ Meeting is governed by Art. 12 of Articles of Association of HUGO BOSS AG. The compensation is based on the company size and the scope of work of Supervisory Board members. Compensation of Supervisory Board members is split into fixed and variable components. The variable component is measured based on the amount of earnings per share in the consolidated financial statements. The position of chairman of the Supervisory Board and that of the deputy chairman are taken into account in the calculation of the compensation. The fixed and variable compensation is paid out after the end of the Annual Shareholders’ Meeting that decides on the exoneration of the Supervisory Board for the fiscal year in question.
The Supervisory Board received compensation for its activities in 2014 amounting to EUR 2,184 thousand. For fiscal year 2015, total compensation is expected to come to EUR 2,087 thousand. This figure includes a variable component of EUR 1,332 thousand (2014: EUR 1,454 thousand), which is calculated on the basis of the expected earnings per share in the consolidated financial statements.
Details on this topic may be found in the Compensation Report of our Annual Report 2015.
During year 2015 the compensation system was further developed and enhanced. The purpose was to direct the compensation of the Executive Board even more than before towards a sustainable growth of the company by way of a respective goal setting in relation to the long-term variable compensation. At the same time, the EBITDA was now taken over as a performance goal for the short-term variable compensation in order to enable a better reaction to short-term developments by way of a respective goal setting. Also, importance was attached to the fact that on the one hand an above-average performance will trigger a higher compensation but on the other hand lower-than-average will – earlier than under the previous arrangements – result in a complete forfeiture of the variable compensation.
The new compensation structure shall apply to all acting members of the Executive Board. It shall also apply in case of new appointments to the Executive Board in the future. As from January 1, 2016, in addition to the fixed compensation components the compensation structure includes as core elements modified variable compensation components in the form of a short-term incentive program (STI) and a long-term incentive program (LTI). The average share of the fixed compensation elements compared to the total compensation is 36%, the average share of compensation under the STI is 28% and the average share of the compensation under the LTI is 36%, provided that for purposes of such information it was assumed with respect to the STI and the LTI that goals have been achieved by 100%.
The fixed compensation elements remain substantially unchanged and also under the new system include a fixed base salary as well as certain ancillary benefits as explained in the compensation report part of the annual report 2015, and a contribution to old age benefits.
The STI as the short-term variable compensation component is, corresponding to the previous annual bonus, dependent on the development of certain quantitative goals. The goal component are now Sales (sales as shown in the group accounts using the exchange rates underlying the budget), EBITDA (group results before interest, taxes, depreciation and special effects) as well as Trade Net Working Capital (sum of raw materials and finished goods as well as trade receivables, minus trade payables), while the previous annual bonus under the old compensation system was solely dependent on Trade Net Working Capital. For purposes of the STI, the goals for Sales and Trade Net Working Capital have a weight of 25% each, while EBITDA has a weight of 50%.
For the annual bonus of a business year, the goals to be achieved are determined at the beginning of a business year, and until March 31 at the latest, by way of a goal agreement between the Executive Board and the Supervisory Board. As in the past, all goals may be replaced by other goals and different weights may be determined, so that at the end of a performance period and at the beginning of the next performance period one can react to short-term developments and the Supervisory Board has the possibility to align, on a regular basis, the executive compensation with the strategy of the company and the success of its implementation. To the extent the Executive Board and the Supervisory Board cannot come to a mutual agreement on the goals and the relative weight thereof, the Supervisory Board must – as in the past – decide in its professional discretion.
In case of a full achievement of the agreed goals, the respective Executive Board member would receive 100% of the amount agreed in the service contract. Goal achievements which exceed a maximum target of 150% or which fall short of the minimum target of 75%, will not be considered for purposes of calculating the average goal achievement. If the average goal achievement arrives at 150% or more, a maximum amount (cap) of 150% will be paid out; if, however, the average goal achievement falls short of 75%, there will, unlike under the previous system, be no pay-out of an annual bonus. Between the minimum target and the maximum target the goal achievement will be determined by linear interpolation. The company will as from the annual reports for the business years 2016 onwards publish the degree of goal achievement for the individual goal components for the respective previous business year. As in the past, the annual bonus will be due and payable within one week after approval of the group account for the respective business year by the Supervisory Board.
Under the new compensation system, the previous long-term variable compensation (multi-years bonus) is replaced by the LTI. The LTI program provides that the Executive Board members shall receive in the beginning of the plan a defined number ("Initial Grant") of virtual shares ("Tranches"). The Initial Grant is determined by the amount set forth in the respective service agreement or a separate agreement ("LTI-Budget"), divided by the share price of the last three months before the Initial Grant. Each Tranche has a three years performance period. After the end of the performance period of a Tranche, there is a one year waiting period. At the end of the performance period the final number of virtual shares ("Final Grant") will be determined depending on the achievement of certain goal components, and the final pay-out entitlement results from the Final Grant multiplied by the share price of the company during the last three months before the end of the waiting period. As goal components, the Relative Total Shareholder Return (RTSR), the Return on Capital Employed (ROCE), the employee satisfaction and the performance of the company with respect to sustainability have been determined. The Relative Total Shareholder Return is measured by the value increase of the company, consisting of the share price development and the hypothetically re-invested dividends, in comparison to the MSCI World Textiles, Apparel and Luxury Goods Performance Index. The Return on Capital Employed (ROCE) is measured against the budget. The degree of employee satisfaction is measured as part of an annual employee poll which is carried out by an independent institute. The performance with respect to sustainability is determined by the performance of the company in a market-wide evaluation of the sustainability performance of stock-listed companies as carried out by an index provider. Within the LTI, the goals for Relative Total Shareholder Return and Return on Capital Employed have a weight of 1/3 each, while the goals for employee satisfaction and sustainability have a weight of 1/6 each.
For each goal component certain targets, minimum targets and maximum targets are determined, which are considered for the calculation of the pay-out amount. Until March 31 of the first year of the performance period of a Tranche at the latest, the respective goals for the respective Tranche under the LTI program shall be determined in a target agreement between the Executive Board and the Supervisory Board. If the Executive Board and the Supervisory Board cannot mutually agree, the Supervisory Board shall, as with respect to the previous multi-annual bonus, decide in its professional discretion.
For purposes of calculating the Final Grant, only goal achievements of at least 50% and no more than 200% are considered for each goal component. Given that there is a one year waiting period following the end of the performance period, and the final pay-out is dependent on the share price of the company during the last three months before the end of the waiting period, the pay-out entitlement for each individual member of the Executive Board is limited to 250% of his individual LTI-Budget (cap). In addition, the so-called separation-cap recommended in Section 4.2.3 of the German Corporate Governance Code in the respective applicable version (or a successor regulation) shall apply under the conditions provided for therein, to the extent the corporate bodies of the company have not declared non-compliance in the respective compliance declaration. Under certain conditions (in particular in case of a termination of the service agreements for cause) the entitlement of the Executive Board members under the LTI program may be forfeited. The company will, as from the business years as from 2016 onwards, report on the degree of goal achievement for the respective goal components for the respective previous business year.
The enhancement of the compensation system was developed together with a compensation advisor, the independence of which has been assuered by the company and the Supervisory Board.
HUGO BOSS AG
Phone: +49 7123 94-0
Fax: +49 7123 94-80259