Compensation Report 2005
Remuneration Board of Management 2005 with long-term incentive effect
Remuneration of the members of the Board of Management includes fixed and variable components, and amounted in the business year 2005 to €6,631,847, including non-cash benefits and share-based compensation. Of this amount, €3,644,575 was fixed, €2,750,000 was performance-related, and €237,272 was tied to the calculated annual value of the matching stock program. The amount of the performance-related compensations (45% of the total remuneration) depends on the development of two performance data: the operating cashflow and the operating profit (adjusted EBITDA). These key figures reflect the business situation, the success and future prospects of the company. Allocations to provisions for pension obligations to the members of the Board of Management, with the exception of the President and CEO, amounted to €2,577,664 in the year 2005.
Matching Stock Program
A matching stock program (MSP) was established in 2005 as a long-term, incentive and risk-based compensation element, with a term of eight year. Under this program, the members of the Board of Management as well as a large group of top-level management staff will receive a compensation the amount of which depends on the development of the market value of the MTU shares. In accordance with the conditions of the MSP, each participant is obliged to purchase MTU shares with their own funds, up to a predefined maximum investment volume and at the current share price (MSP shares). These shares are credited to the MSP participants in a blocked security deposit for the duration of their participation in the MSP. On the date of the initial notice and thereafter 5 times in 12-month intervals; MTU Aero Engines Holding AG will allocate six virtual, so-called phantom shares for each MSP share owned. These phantom share options are considered "exercised" two years after their allocation, if certain performance goals are reached: The MTU share's average unweighted closing price in Xetra trading on the Frankfurt Stock Exchange during the 60 trading days prior to allocation of the respective tranches of the phantom shares.
When phantom share options are exercised, the difference between the stock market price of the MTU shares of the date of exercise and the stock market price of the MTU share on the date of allocation is paid by MTU Aero Engines Holding AG to the MSP participants in cash (plus a premium of 10%). The MSP participants are obliged to invest this money in turn in MTU shares, which are credited to them in a blocked security deposit with a two-year ban on sale. In total, the use of personal funds, linkage to the share price and long-term participation in the MSP offer the necessary incentive to create long-term shareholder value as called for in the Corporate Governance Code.