Siemens 2005 Annual Report Download - page 79

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Corporate Governance Report
Compensation Report
Group Presidents Business Areas Megatrends Report of the Supervisory Board
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annual bonus and the LT bonus may not exceed 250 percent of the base amount applicable to
the variable compensation component. One half of the LT bonus is paid in cash. The other half
is paid in the form of a commitment to issue or transfer shares of Siemens AG (stock awards)
which will be settled four years after the commitment is made.
The same principles for determining the bonus apply to Managing Board members who are
not members of the Corporate Executive Committee. Their goals, however, depend primarily
on the financial performance of the corporate units they lead. In addition, the LT bonus for
those Managing Board members is paid out fully in cash.
■The third component of Managing Board remuneration for fiscal year 2005 is stock-based
compensation determined by the Chairman’s Committee of the Supervisory Board. It consists
of stock options issued under the terms of the 2001 Siemens Stock Option Plan as authorized
by shareholders at the Annual Shareholders’ Meeting of Siemens AG on February 22, 2001 (for
details on the Siemens Stock Option Plans, see the Notes to Consolidated Financial Statements,
pages 201 ff.), and of a commitment to issue or transfer shares of Siemens AG (stock awards).
The Supervisory Board may restrict or cap the exercise of stock options in the event of extraor-
dinary, unforeseen changes in the market price of the Siemens stock.
■Under the Siemens Defined Contribution Benefit Plan (BSAV), members of the Managing
Board receive contributions, the individual amounts of which are determined annually on the
basis of a percentage of their respective target annual compensation established by the Chair-
man’s Committee of the Supervisory Board. A portion of these contributions is accounted for
by funding of pension commitments earned prior to transfer to the BSAV. In addition, special
contributions may be granted on the basis of individual decisions.
Employment contracts with Managing Board members generally do not include any explicit
severance commitment in the event of an early resignation from office. Severance may be
payable, however, under an individually agreed termination arrangement.
However, members of the Managing Board who were appointed to the Managing Board before
October 1, 2002 have a contractual right to receive transitional payments for twelve months after
leaving the Managing Board. The transitional payments generally amount to the fixed salary of
the year of resignation and the average of variable bonuses paid for the last three fiscal years
before resignation. In single cases, the transitional payments equal a one-year target compensa-
tion.
In the event of a change of control – i.e., if one or several shareholders acting jointly or in con-
cert acquire a majority of the voting rights in Siemens AG and exercise a controlling influence, or
if Siemens AG becomes a dependent enterprise as a result of entering into an enterprise contract
within the meaning of § 291 of the German Stock Corporation Act (AktG), or if Siemens AG is to be
merged into an existing corporation or other entity – any member of the Managing Board has the
right to terminate the contract of employment if such change of control results in a substantial
change in position (e.g. due to a change in corporate strategy or a change in the Managing Board
member’s duties and responsibilities). If this right of termination is exercised, the Managing
Board member will receive a severance payment which amounts to the target annual compensa-
tion applicable at the time of contract termination for the remaining contractual term of office,
but at least for a period of three years. In addition, non-monetary benefits are settled by a cash
payment equal to five percent of the severance payment. No severance payments are made if the
Managing Board member receives benefits from third parties in connection with a change of
control. A right of termination does not exist if the change of control occurs within a period of
twelve (12) months prior to a Managing Board member’s retirement.