Siemens 2005 Annual Report Download - page 78

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Fit4MoreLetter to our Shareholders Managing Board
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Compensation Report
The Compensation Report outlines the principles used for determining the compensation of the
Managing Board of Siemens AG and sets out the level and structure of Managing Board remuner-
ation.
In addition, the report describes the policies and levels of compensation paid to Supervisory
Board members and gives details of stock ownership by members of the Managing and Super-
visory Boards.
The Compensation Report is based on the recommendations and suggestions of the German
Corporate Governance Code and comprises data that, in accordance with the requirements of the
German Commercial Code (HGB) as amended by the new Act on the Disclosure of Managing
Board Remuneration (VorstOG), are an integral part of the Notes to Consolidated Financial State-
ments pursuant to § 314 of the HGB or of Management’s discussion and analysis pursuant to § 315
of the HGB.
Therefore, the information explained in the Compensation Report is not additionally presented
in the Notes to Consolidated Financial Statements or in Management’s discussion and analysis.
1. Managing Board remuneration
The Chairman’s Committee of the Supervisory Board is responsible for determining the remuner-
ation of the members of the Managing Board. The Committee comprises Dr. Heinrich v. Pierer
(Chairman of the Supervisory Board), and Dr. Josef Ackermann and Ralf Heckmann (both Deputy
Chairmen of the Supervisory Board).
The remuneration of the members of the Managing Board of Siemens AG is based on the Com-
pany’s size and global presence, its economic and financial position, and the level and structure
of managing board compensation at comparable companies in and outside Germany. In addition,
the compensation reflects each Managing Board member’s responsibilities and performance. The
level of Board compensation is designed to be competitive in the international market for highly
qualified executives in a high-performance culture.
The Managing Board remuneration is performance-related. In fiscal year 2005 it had four
components: (i) a fixed salary, (ii) a variable bonus that the Chairman’s Committee may adjust by
up to 20 percent of the amount of target attainment, (iii) stock-based compensation, and (iv) a
pension benefit arrangement. The fixed salary and the bonus are based on target aggregate com-
pensation that comprises 50 percent fixed and 50 percent variable remuneration. The target com-
pensation is reviewed every two to three years on the basis of an analysis of the compensation
paid by international peer companies to their top managers. The last review was conducted on
April 1, 2003.
The remuneration of the Managing Board members is composed as follows:
■The fixed compensation is paid as a monthly salary.
■The variable bonus is based on the level of the Company’s attainment of certain EVA targets
and other financial goals, if any, that are set at the start of the fiscal year by the Chairman’s
Committee of the Supervisory Board (for details on EVA as a performance measure, see Man-
agement’s discussion and analysis, on pages 106 ff.). One half of the bonus is paid as an annu-
al bonus and is contingent upon achieving the Company-wide EVA target established for the
fiscal year. The other half is granted as a long-term bonus (LT bonus), the amount of which
depends on the average attainment of EVA targets over a three-year period. In any year, the