Compensation of the Managing Board and Supervisory Board

Compensation of the Managing Board

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.

The compensation system in place since January 1, 2016 aligns the Managing Board’s compensation more closely than previously to the Company’s sustainable growth by means of setting relevant objectives in the field of long-term variable compensation. At the same time, sales, EBITDA before special items and trade net working capital are the target components of short-term variable compensation. This is intended to ensure a better response 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.

Since January  1, 2016, in addition to non-performance-related (fixed) compensation components, the compensation structure has provided for core performance-related (variable) 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 target compensation amounts to 35%, while the average share of compensation from the STI and from the LTI come to 26% and 39% respectively, whereby a target achievement of 100% each is assumed for the information for the STI and the LTI

The fixed compensation components consist of a fixed basic compensation, fringe benefits and contributions to retirement benefits. The fixed basic compensation is paid as a monthly salary. The members of the Managing Board also receive fringe benefits to a small extent which they individually pay tax on as per the applicable tax regulations if they derive any financial advantage from private use of the same. The fringe benefits primarily include private use of the company car, supplementary payments to health and nursing care insurance, the conclusion of and contributions to accident and directors’ and officers’ (D&O) liability insurance as well as, to a small extent, other equipment and services needed to fulfill their duties as members of the Managing Board. In accordance with Sec. 93 (2) Clause 3 AktG [“Aktiengesetz”: German Stock Corporation Act], the deductible for the D&O insurance is 10% of the relevant loss, but no more than one-and-a-half times the fixed annual compensation. 

Compensation of members of the Managing Board for fiscal year 2017 under GAS 17 (in TEUR)

   Basic compensationFringe benefitsSpecial compensationSTIMultiple-year variable compensationTotal

Mark Langer (since May 19, 2016 Chairman of the Managing Board)

850302007209222,722

Bernd Hake (since March 1, 2016)

550121404435761,721

Yves Müller (since Dec. 1, 2017)

54303749143

Ingo Wilts (since Aug. 15, 2016)

6507804645491,741
Total 20172,1041233401,6642,0966,327

Compensation of members of the Managing Board for fiscal year 2017 under GAS 17 (in TEUR)

 Basic compensationFringe benefitsSpecial compensationSTIMultiple-year variable compensationTotal
Mark Langer (since May 19, 2016 Chairman of the Managing Board)829411308341,718
Bernd Hake (since March 1, 2016) 4641700233714
Ingo Wilts (since Aug. 15, 2016) 24740113160524
Claus-Dietrich Lahrs (until Feb. 29, 2016 Chairman of the Managing Board) 3009000309
Christoph Auhagen (until April 22, 2016) 33315000348
Total 20162,17487131131,2283,613

Variable and other compensation

  • Short-term variable compensation – short-term incentive program (STI)

    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. The Supervisory Board thus 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. 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.

    If the target were achieved in full (100%) for the 2017 STI, a total amount of EUR 1,502 thousand would be paid out (Mark Langer EUR 650 thousand, Bernd Hake EUR 400 thousand, Yves Müller EUR 33 thousand (on a pro rata basis) and Ingo Wilts EUR 419 thousand). 

    For fiscal year 2017, the average degree of target achievement is 111% and thus above the minimum target of 75%. The annual bonus is thus paid out in the amount of EUR 1.664 thousand (Mark Langer EUR 720 thousand, Bernd Hake EUR 443 thousand, Yves Müller EUR 37 thousand (on a pro rata basis) and Ingo Wilts EUR 464 thousand). 

  • Long-term variable compensation – long-term incentive program (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 or at the start of their activity. 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 and the 2017 to 2019 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 on 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 in relation to fiscal year 2016 is EUR 850 thousand for Mark Langer, EUR 458 thousand for Bernd Hake and EUR 206 thousand for Ingo Wilts. In the case of Mr. Hake and Mr. Wilts, the LTI budget is determined from the start of their Managing Board activities in 2016 on a pro rata basis.

    The individual LTI budget in relation to fiscal year 2017 is EUR 900 thousand for Mark Langer, EUR 592 thousand for Bernd Hake, EUR 54 thousand for Yves Müller and EUR 564 thousand for Ingo Wilts. In the case of Yves Müller, the LTI budget is determined on a pro rata basis from the start of his Managing Board activities in 2017.

  • Other compensation components

    Advance payments of EUR 540 thousand made to Mark Langer, Chairman of the Managing Board are outstanding as at December 31, 2017. These will be offset against the bonus payments for fiscal year 2017 and definitively settled.

Compensation of the Supervisory 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, that of the Deputy Chairman and membership of 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  1,561  thousand for its activities in 2016. For 2017, the total compensation is expected to come to EUR 1,493 thousand. This figure includes a variable component of EUR 738 thousand (2016: EUR 785 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 2017.

Further information

Declaration of Compliance

The Managing Board and Supervisory Board dealt with the fulfillment of the specifications of the German Corporate Governance Code (DCGK) at length in fiscal year 2017, and have provided a Declaration of Compliance as the result.

Corporate governance

Listed stock corporations are obligated to provide a corporate governance statement in accordance with § 289a of the German Commercial Code (HGB). In addition to the Declaration of Compliance, this includes information on corporate governance practices and a description of the work method of the Managing Board and Supervisory Board.

Strategy

Consistent proximity to the customer—this goal is at the heart of the corporate strategy. To be able to offer our customers the best service, HUGO BOSS is global, digital, agile and sustainable. These qualities result in the fields of action where we are further developing.

Risk Management

HUGO BOSS views the responsible handling of risks as an important part of good corporate governance. This enables risks to be detected and assessed at an early stage and risk positions to be controlled through corresponding measures.

Tax Strategy

HUGO BOSS management knows that paying taxes plays an important role in the global economic and social relationships of the company. In addition to compliance with tax regulations, adequate risk management is also obligatory.

Articles of Association & Bylaws

Here you can download the Articles of Association and the Bylaws of the Managing and Supervisory Boards of HUGO BOSS AG as PDF files.