Siemens 2006 Annual Report Download - page 90

Compensation Report
86
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
remuneration.
In addition, the report describes the policies and levels of compensation paid to Super-
visory Board members and gives details of stock ownership by members of the Managing
and Supervisory Boards.
The 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 Ger-
man Commercial Code (HGB) as amended by the 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 this 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 remu-
neration of the members of the Managing Board. The Committee comprises Prof. 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
Company’s size and global presence, its economic and financial position, and the level and
structure of managing board compensation paid by peer companies. In addition, the compen-
sation reflects each Managing Board member’s responsibilities and performance. The level of
Board compensation is designed to be competitive in the market for highly qualified execu-
tives and to provide incentives in a high-performance culture.
In fiscal year 2006, the Managing Board remuneration had four components: (i) a fixed
annual salary, (ii) a variable bonus which the Chairman’s Committee may adjust upward or
downward by up to 20 percent of the amount of target attainment, (iii) stock-based compensa-
tion, and (iv) a pension benefit contribution. With regard to fixed salary and bonus, an annual
target compensation is determined, consisting of 50% fixed and 50% variable components.
The target compensation is reviewed every two to three years on the basis of an analysis of the
compensation paid by peer companies to their top managers. The last review was conducted as
of April 1, 2006. In the course of this review, the target compensation was adjusted upward by
approximately 20%. In addition, the composition of the total compensation was changed with
the goal of giving greater importance to stock-based compensation, excluding the payment of
the LT bonus in the form of a commitment to issue or transfer shares (see below), in the
future. Therefore, this compensation component was raised. The granting of stock options is
no longer planned. Overall the average compensation was adjusted upward by approximately
30%. This adjustment is not obvious in the Managing Board remuneration reported in this
section as the values were reduced by the amount of increase related to the target compensa-
tion for one year and the proposed amount of increase of the stock-based compensation for
fiscal year 2006, in connection with the hardship fund to provide financial support for employ-
ees of BenQ Mobile in Germany (see below).
Compensation Report