In the fiscal year 2015, the compensation system for members of the Managing Board was examined and further developed by the Supervisory Board in connection with the conclusion of new service agreements for Mark Langer and Christoph Auhagen, both members of the Managing Board. On the basis of discussions in the Supervisory Board and the proposals made by the Personnel Committee, new service agreements 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. The service contact for Claus-Dietrich Lahrs, who was Chairman of the Managing Board at that time, remained unchanged until his departure on February 29, 2016. The new service agreements concluded in the fiscal year 2016 with Bernd Hake and Ingo Wilts correspond to the new compensation system, which has been applicable since January 1, 2016.
The Managing Board’s total compensation is made up of non-performance-related (fixed) compensation components and performance-related (variable) compensation components.
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 successes of a member of the Managing Board.
Total compensation of the Managing Board in fiscal year 2016 came to EUR 3,613 thousand (2015: EUR 4,918 thousand). Of this amount, EUR 2,261 thousand was attributable to fixed salary components including fringe benefits (2015: EUR 3,690 thousand), which was paid in full in the 2016 reporting period.
A degree of target achievement of 29% for EBITDA before special items and 23% for sales was recorded for the 2014 to 2016 multiple-year bonus. This results in a payment of EUR 166 thousand, which is determined based on the weighted target achievement of 28% and included in the total compensation for the fiscal year 2016.
The annual bonus is payable within a week of the Supervisory Board approving the consolidated financial statements for the fiscal year in question.
In the fiscal year 2016, Mark Langer, the Chairman of the Managing Board, was entitled to an advance payment of the multiple-year bonus for the 2015–2017 fiscal year totaling EUR 540 thousand (2015: EUR 540 thousand advance payment toward the 2014–2016 multiple-year bonus), which will ultimately be measured by the target achievement for the 2015–2017 multiple-year period. This advance payment was offset against the advance payment amount toward the 2013–2015 multiple-year bonus exceeding the actual target achievement and totaling EUR 429 thousand. As of the reporting date, the advance payments granted toward the 2014–2016 and 2015–2017 multiple-year bonuses therefore totaled EUR 1,080 thousand (2015: EUR 5,688 thousand). The advance payments for Claus-Dietrich Lahrs and Christoph Auhagen, the members of the Managing Board who left the Company in 2016, were offset against the severance payments. Mr. Langer also received a one-time special compensation of EUR 13 thousand for the additional responsibilities that he took over from the time that Claus-Dietrich Lahrs departed as CEO until Mr. Langer was appointed CEO.
|Basic compensation||One-year variable compensation ("annual-bonus")||Multiple-year variable compensation||Fringe benefits||Total|
(since 19.05.2016 Chairman of the Managing Board)
(until 29.02.2016 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 the 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 as well as the membership in the committees are taken into account when calculating 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 past fiscal year in question.
Members of the Supervisory Board who have only been members of the Supervisory Board or a committee for part of the fiscal year are paid compensation proportionately to the duration of their office. Members of the Supervisory Board are reimbursed expenses incurred in connection with the performance of their duties. Any VAT is reimbursed by the Company if the members of the Supervisory Board are entitled to provide the Company with a separate invoice for VAT and exercise this right. The Supervisory Board received total compensation amounting to EUR 2,015 thousand for its activities in 2015. For the fiscal year 2016, the total compensation is expected to come to EUR 1,540 thousand. This figure includes a variable component of EUR 785 thousand (2015: EUR 1,332 thousand), which is measured based on 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 2016.
The goal of further developing the compensation system in 2015 was particularly to align the Managing Board’s compensation more closely to the Company’s sustainable growth by means of setting relevant objectives in the field of long-term variable compensation. At the same time, the EBITDA before special items was adopted as a target component of the short-term variable compensation so as to have a better way of responding to short-term developments. Also, during the design process, a great deal of importance was attached to the fact that above-average performance would be rewarded more comprehensively, but variable compensation would cease to be paid more quickly than before in the event of below-average performance.
The new compensation structure applies to all active members of the Managing Board. It also applies to any future appointments to the Managing Board. Since January 1, 2016, in addition to non-performance-related (fixed) compensation components, the compensation structure has provided for core performance-related compensation components in the form of a short-term incentive program (STI) and a long-term incentive program (LTI). In this regard, the average share of the fixed compensation components in the total compensation amounts to 38%, while the average share of compensation from the STI and from the LTI come to 26% and 36% respectively, whereby a target achievement of 100% each is assumed for the information for the STI and the LTI.
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 2016, and a contribution to old age benefits.
As a short-term performance-related compensation component, the STI is tied to the
development of certain quantitative targets. In accordance with the Group´s management system, the Supervisory Board has determined the following indicators as targets:
• Sales (the sales recognized in the consolidated financial statements using the exchange rates underlying the budget)
• EBITDA before special items (consolidated net income before interest, taxes, depreciation, amortization and special items)
• Trade net working capital (sum of raw and finished goods and trade receivables less trade payables)
The targets for sales and trade net working capital are weighted at 25% each. The EBITDA before special items is included in the STI’s target achievement with a weighting of 50%.
For the annual bonus of a fiscal year, the targets to be achieved are defined in a target-setting agreement between the Managing Board and the Supervisory Board at the start of the fiscal year and by March 31 at the latest. All targets may be replaced by other corporate goals or weighted differently for the respective financial year in the context of the target-setting agreement. It is therefore possible to respond to short-term developments following the completion of one performance period and at the start of another, and the Supervisory Board has the opportunity to regularly align the Managing Board’s compensation so that it is directly geared toward the Company’s strategy and its successful implementation. The Managing Board and the Supervisory Board should reach an agreement concerning the targets and their weighting in this regard. The Supervisory Board shall only make decisions at its professional discretion if this does not happen.
If the agreed targets are fully achieved on average, the respective member of the Managing Board shall be paid 100% of the contractually agreed amount. Target fulfillment that is above the maximum target of 150% or below the minimum target of 75% agreed for the individual target shall not be taken into account when calculating the average. If the average target achievement comes to 150% or more, a maximum amount (cap) of 150% is paid out. If, on the other hand, the average degree of target achievement is below 75%, no annual bonus will be paid (unlike in the previous system). Between the minimum target and the maximum target, target achievement shall be determined in each case by linear interpolation. The annual bonus is payable within a week of the Supervisory Board approving the consolidated financial statements for the fiscal year in question.
Under the new compensation system, the previous long-term variable compensation (multi-years bonus) is replaced by the LTI. Under the LTI program, the members of the Managing Board receive a defined number (“initial grant”) of virtual shares (“tranches”) at the beginning of the plan. The initial grant is based on an amount (“LTI budget”) defined in the respective service agreement or by an additional agreement. The LTI budget should roughly correspond to the fixed annual salary. The initial grant is calculated by dividing the LTI budget by the share price for the last three months preceding the initial grant. Each tranche has a three-year performance term. A one-year qualifying period follows the expiry of a tranche’s performance term. Following
the expiry of the performance term, the final number of virtual shares (“final grant”) is
calculated based on the achievement of certain target components. The final entitlement to payment is calculated by multiplying the final grant by the Company’s share price during the last three months of the qualifying period.
The Supervisory Board has defined the following as target components for the 2016 to 2018 tranche:
• Shareholder return for the HUGO BOSS share compared to the MSCI World Textiles,
Apparel & Luxury Goods Performance Index (relative total shareholder return (RTSR))
• Return on capital employed (ROCE)
• Employee satisfaction
• The Company’s performance in the field of sustainability
The “relative total shareholder return” target component is measured based on the increase in enterprise value, comprising the share performance and hypothetically reinvested dividends, compared to the MSCI World Textiles, Apparel & Luxury Goods Performance Index. The return on capital employed is based on the development of the ROCE (return on capital employed) profitability indicator versus the budget. The degree of employee satisfaction is measured by an employee survey conducted annually by an independent institute, and the resulting “Employee Trust Index” is compared with the top 100 companies. The sustainability performance is determined by the Company’s improvement in the Dow Jones Sustainability Assessment, in which the sustainability performance of listed companies is assessed by an index provider. The composition of the Dow Jones Sustainability Index (DJSI) is defined
based on this assessment. The targets for the RTSR and ROCE performance criteria each account for one third of the LTI program, while the targets for employee satisfaction and sustainability each account for one sixth.
Specific target, minimum and maximum values are defined for each target component and are used to calculate the entitlement to payment. The targets are defined by March 31 at the latest of the first year of the performance term in a target-setting agreement concluded between the Managing Board and the Supervisory Board.The Managing Board and the Supervisory Board should reach an agreement in this regard. The Supervisory Board shall only make decisions at its professional discretion if this does not happen.
A target achievement of only 50% minimum and 200% maximum is taken into account for each target component for the purposes of calculating the final grant. A one-year qualifying period follows the expiry of the performance term. The entitlement to payment is based on the Company’s share price during the last three months of the qualifying period and the amount is limited to 250% of the individual LTI budget for each member of the Managing Board (cap). Under certain circumstances (particularly when service agreements are terminated for due cause or when members of the Managing Board resign before a tranche’s term has expired), entitlements of members of the Managing Board may expire under the LTI program.
The individual LTI budget for the 2016 to 2018 period is EUR 850 thousand for Mark Langer, EUR 458 thousand for Bernd Hake and EUR 206 thousand for Ingo Wilts. In the case of Bernd Hake and Ingo Wilts, the LTI budget is determined on a pro rata basis from the start of their Managing Board activities in 2016.
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.
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