The management compensation report summarizes the principles applied when establishing the level of compensation to be awarded to members of the Board of Management of MTU Aero Engines Holding AG, and explains how benefits received by members of the Board of Management are calculated and structured. This report furthermore describes the schedule of fees paid to members of the Supervisory Board.

The management compensation report is based on the recommendations of the German Corporate Governance Code and contains statements which, pursuant to the requirements of the German Commercial Code (HGB) and the International Financial Reporting Standards (IFRSs), form part of the notes to the financial statements or the management report. It therefore forms part of the attested consolidated financial statements. Consequently, information presented in the management compensation report will not be repeated in the notes or management report.

Board of Management compensation is decided upon by the Personnel Committee of the Supervisory Board of MTU Aero Engines Holding AG. The members of this committee in the financial year 2008 were the chairman of the Supervisory Board, Klaus Eberhardt, the deputy chairman of the Supervisory Board, Josef Hillreiner, plus Harald Flassbeck (until April 30, 2008), Michael Leppek (since April 30, 2008) and Jürgen M. Geißinger.

The compensation awarded to members of the Board of Management of MTU Aero Engines Holding AG takes into account the size of the company, the global reach of its activities, its business and financial situation, and the level and structure of management compensation paid out by comparable companies in Germany and abroad. It furthermore takes into account the duties of each member of the Board of Management and their respective contributions to the company’s overall performance, and the length of time for which they have served on the board. Compensation levels are calculated in such a way as to match the competitive standards of the international recruitment market for highly qualified business executives, and so as to represent an adequate incentive to achieve results.

The compensation received by members of the Board of Management is based on a performance-related remuneration scheme. In the financial year 2008, it was made up of the following four components:

The contractual agreements with members of the Board of Management make no provision for further payments after termination of contract. Solely in the event of premature termination of contract without serious cause, members of the Board of Management are entitled to receive a payment equivalent to the fixed basic compensation that would have otherwise been awarded for the remaining term of their contract. In accordance with the recommendations of the German Corporate Governance Code, two Board of Management contracts contain a clause limiting such severance payments to no more than the value of two years’ compensation (severance payment cap).

Board of Management contracts make no provision for any compensatory payments in the event that a board member’s term of office should be prematurely terminated as the result of a change of control.

In the financial year 2008, total cash benefits paid to members of the Board of Management amounted to € 5.4 million (2007: € 5.9 million). Of this sum, € 2.9 million (2007: € 3.4 million) concerned non-performance-related payments and € 2.5 million (2007: € 2.5 million) was performance-related. The cumulative expense came to a total of € 6.3 million (2007: € 6.8 million).

Details of the compensation entitlement of the individual members of the Board of Management in the financial year 2008 are presented below:

Non-performance-related and performance-related cash benefits were paid out as follows in 2008:

The defined benefit obligation (DBO) of all pension provisions accorded to members of the Board of Management at December 31, 2008 amounted to € 1.9 million in total (2007: € 1.6 million), as stated in Note 31. to the financial statements. The slight increase in the present value of defined benefit obligations is due to the application of a higher discount at the current market rate of 5.75 % for 2008, compared with a rate of 5.25 % for 2007.

The table below lists the number and cash-equivalent value of phantom stock granted and allocated to members of the Board of Management under the Matching Stock Program (MSP) as the share-based component of their compensation. The cash-equivalent value of this stock has been calculated using the Black-Scholes pricing model. The expense relating to phantom stock granted to members of the Board of Management under the MSP is reported in the balance sheet on the basis of the fair value estimated at the time of its allocation, making allowance for the specific conditions relating to the exercise of the phantom stock rights. It should be noted that the terms under which equity instruments are issued have been amended (for a more detailed explanation of the exercise conditions and the subsequent amendment as a result of a modification to the terms of issue that became effective in financial year 2007, please refer to Note 30.4. to the consolidated financial statements).

A total of 411,456 shares of phantom stock from the Matching Stock Program had been granted to the Board of Management as of December 31, 2008. Of these, a total of 332,808 phantom stocks (2007: 314,592) were not yet exercisable at the end of financial year 2008 and will remain so for the remaining term of the Matching Stock Program. The average weighted exercise price for the phantom stocks that were not yet exercisable at December 31, 2008 was € 34.98 per phantom stock (2007: € 30.17). A year-by-year breakdown is presented in the following table:

No loan facilities have been granted by the company to members of the Board of Management.

The pension obligations to former members of the Board of Management have changed as follows:

The rules governing Supervisory Board compensation are laid down in the articles of association of MTU Aero Engines Holding AG.

Pursuant to Section 12 of the articles of association of MTU Aero Engines Holding AG, members of the Supervisory Board receive a fixed payment of € 30,000, payable at the end of the financial year; this sum is tripled in the case of the chairman of the Supervisory Board, and multiplied by one-and-a-half in the case of the deputy chairman. The chairs of the Audit and Personnel Committees respectively receive a further fixed payment of € 10,000, and the other members of these committees each receive a fixed payment of € 5,000. Members of the Supervisory Board receive an attendance fee of € 3,000 for each meeting of the Supervisory Board and its committees, subject to an upper limit of € 3,000 per day. Expenses incurred in connection with the exercise of their office are reimbursed, as is the value-added tax payable on the fees.

The compensation for members of the Supervisory Board is established relative to the size of the company and as a function of the duties and responsibilities of the respective members. The members of the Supervisory Board receive a fixed payment for their work. The chairman and deputy chairman of the Supervisory Board receive additional payments, as do the chairs and members of the Audit Committee and Personnel Committee.

The following compensation was awarded to the individual members of the Supervisory Board in the financial year 2008:

The members of the Supervisory Board do not receive any share-based compensation.