Compensation Report 2006
Remuneration Board of Management 2006
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 include the Chairman of the Supervisory Board, Johannes Huth and the Deputy Chairman of the Supervisory Board, Josef Hillreiner (previously Günter Sroka, until December 31, 2006).
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 type and level 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 2006, it was made up of the following four components:
(1) a fixed basic sum, paid on a monthly basis,
(2) a variable bonus, which is dependent on achieving specific business targets and is contractually limited to a sum not exceeding either 83% or 100% of the fixed portion of the compensation,
(3) share-based compensation under the matching stock program (MSP) established for a wide section of the company’s executive management and covering the period 2005 – 2009. Under this scheme, shares of phantom stock are allocated to subscribers in equal tranches each year for a period of five years. The allocation of these phantom stocks is subject to the condition that subscribers hold their own long-term investment in the company’s shares. At the end of the respective vesting period, which runs for two years after allocation of each tranche, and on condition that the exercise thresholds have been met, the share-based compensation can be redeemed in exchange for the exercise of the phantom stock rights
(4) contributions to a performance-linked defined benefit pension plan for members of the Board of Management with the exception of the Chief Executive Officer.
The contractual agreements with members of the Board of Management make no provision for further compensatory payments in the event of premature departure. Such payments may, however, be accorded under the terms of an individually negotiated termination agreement. The company has not entered into any change-of control agreements
In financial year 2006, total cash benefits paid to members of the Board of Management amounted to €6.7 million (2005: €6.4 million). Of this sum, €3.8 million (2005: €3.6 million) concerned nonperformance-related payments and €2.9 million (2005: €2.8 million) was performance-related. The cumulative expense came to a total of €7.6 million (2005: €9.2 million). If this figure is adjusted to allow for the exceptional effect of a reduction in the present value of defined benefit obligations, the cumulative expense remained close to the previous year’s level.
Details of the compensation paid to the individual members of the Board of Management in financial year 2006 are presented in the Annual Report.
Benefits payable after termination of contract
The defined benefit obligation (DBO) of all pension provisions accorded to members of the Board of Management at December 31, 2006, amounted to €3.0 million (2005: €3.7 million), as stated in Note 25. to the financial statements. The lower figure for 2006 is attributable to the departure of Dr. Michael Süß, Munich, in the year under review.
Share based compensation
The pdf-file lists the number and cash-equivalent value of shares in phantom stock acquired by members of the Board of Management as the share-based component of their compensation. The cash-equivalent value of the phantom 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). In total, 714,240 shares of phantom stock were granted to the Board of Management when the program was launched on June 6, 2005, for allocation in five equal tranches over the period 2005 – 2009 (at December 31, 2006, this figure stood at 636,000 shares of phantom stock). This corresponds to 32.8% (30.4% at December 31, 2006) of all shares of phantom stock issued to company executives.
Provisions established to cover current and projected pension obligations to former members of the Board of Management
At December 31, 2006, the provisions established to cover pension obligations to former member of the Board of Management Dr. Klaus Steffens, Bernried, amounted to €2.4 million (Dec. 31, 2005: €2.4 million). At December 31, 2006, the provisions established to cover pension obligations to former member of the Board of Management Dr. Michael Süß, Starnberg, amounted to €1.7 million (Dec. 31, 2005: €2.2 million).
Further information about the Board of Management compensation can be found in the Annual Report 2006 (page 118-121).