Compensation Report

The following compensation report forms part of the combined management report and of the audited consolidated financial statements.

Compensation System for the Executive Board

On the basis of preparatory input from the Executive Committee, the full Supervisory Board is responsible for determining the individual compensation paid to members of Wacker Chemie AG’s Executive Board.

In accordance with the Executive Board compensation system in effect since January 1, 2010, the Executive Board’s compensation comprises the following key components:

(I) A fixed annual salary:
The fixed annual salary is paid in equal monthly installments.

(II) A variable, performance-related bonus:
The amount of the variable bonus (long-term bonus), which is paid annually and in arrears, depends on the achievement of agreed annual Group targets set by the Supervisory Board for all Executive Board members. The bonus is calculated based on target achievement in the reporting year, as well as on average overall target achievement in the two years prior to the reporting year. The targets are based on the following key indicators: , , target return, and . The computational target bonus in the event of 100-percent target achievement during the evaluation period depends on the Executive Board member in question and amounts to either 180 percent or 140 percent of the average annual base salary in the last year of the evaluation period. The maximum bonus, too, depends on the specific Board member and amounts to either 220 percent or 180 percent of the average annual base salary in the last year of the evaluation period. The Supervisory Board thus has the discretion to increase or reduce the calculated bonus by as much as 30 percent, taking into account all circumstances and the Executive Board member’s individual performance. The Executive Board members are obligated to purchase Wacker Chemie AG shares for an amount equal to 15 percent of their annual gross bonus and to hold those shares for at least two years. First of all, the annual gross bonus is calculated, 15 percent of which is invested in shares. Any taxes payable are deducted from the remaining 85 percent of the annual gross bonus and the net amount disbursed to the Executive Board members. As a result, around 30 percent of the annual net bonus is accounted for by the stock component and has a forward-looking, multiyear assessment basis. The exact percentage depends on each Executive Board member’s personal tax situation.

(III) A contribution to retirement benefits:
The members of the Executive Board are entitled to payment of an annual retirement pension should the event insured against occur, i.e. reaching retirement age or suffering permanent occupational disability. Before said event occurs, Dr. Rudolf Staudigl has a basic entitlement to the premature payment of an annual pension if he leaves the Executive Board against his will without good cause or if he, of his own accord, ceases his activity for good cause and the company is responsible for said cause. The amount of the pension is calculated on the basis of the last pensionable fixed annual salary received and the length of Executive Board membership. A percentage of the pensionable base salary is defined as a basic amount and adjusted by means of an annual percentage rate of increase for each year of service. Entitlement to a pension presupposes at least five years of service on the Executive Board. The increases in the annual salaries of Dr. Rudolf Staudigl and Auguste Willems that took effect on April 1, 2016 were agreed as additional fixed, non-pensionable salary components and thus have no influence on the calculation of their pensions – though they do have an effect on the calculation of their long-term bonuses (see (II) above).

The company grants the members of the Executive Board appropriate insurance coverage, in particular D&O insurance, with a deductible as stipulated in the German Stock Corporation Act (AktG).

If they leave the company, Executive Board members are subject to a 12-month obligatory waiting period, during which they are paid competitive-restriction compensation. The competitive-restriction compensation is calculated as 50 percent of the member’s latest overall annual compensation (average of the last three years). Any pension received is set off against the competitive-restriction compensation.

If Executive Board membership is prematurely terminated without good cause, the contracts with Executive Board members specify that any compensatory payments shall be limited to a maximum of two full annual salaries (in the case of Dr. Rudolf Staudigl, Auguste Willems and Dr. Tobias Ohler) or one full annual salary (in the case of Dr. Christian Hartel). This is referred to as the severance pay cap.

Business Value Contribution (BVC)
BVC is a financial performance measurement that determines the value created by the WACKER Group and its units once all capital costs have been deducted. BVC is the difference between profit (EBIT) and cost of capital (WACC x CE). BVC is a profit variable that is adjusted to allow for extraordinary effects (e. g. sale of parts of the company). This makes it an ideal tool for measuring business performance.
Cash Flow
Cash flow represents the movement of cash and cash equivalents into or out of a business activity during a finite period. Net cash flow is the sum of cash flow from operating activities (excluding changes in advance payments received) and cash flow from long-term investing activities (before securities), including additions due to finance leases.
ROCE
Return on capital employed is the profitability ratio relating to the capital employed. ROCE is defined as earnings before interest and taxes (EBIT) divided by capital employed. Investment income from Siltronic AG and the corresponding carrying amount in equity are not included when ROCE is calculated. ROCE clearly indicates how profitably the capital required for business operations is being employed. ROCE is influenced not only by profitability, but also by capital intensity with regard to noncurrent assets required for business operations and to working capital. ROCE is reviewed annually as part of our planning process and is a key criterion for managing our capital expenditure budget.