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Compensation of the Board of Management

(fiscal 2017)

Structure of the compensation

The structure of the compensation system and the level of
compensation for the members of the Board of Management are
determined by the Supervisory Board, after preparation by the
Presidial Committee. The appropriateness of the compensation
is regularly reviewed. The criteria for determining the appropriateness
of the compensation for an individual Board of Management
member include, in particular, his duties, his personal performance,
the economic situation, and the success and sustainable growth of
the LANXESS Group. Consideration is also given to compensation
at comparable companies and the company’s overall compensation
structure, including as well the ratio between the compensation
of the Board of Management and that of LANXESS’s senior
executives and the rest of the workforce, both overall and in terms
of time. The compensation structure is also designed to be competitive
in the international market for highly qualified executives
and provide the motivation to successfully work toward sustainable
corporate development. Two of the three variable components
are measured according to corporate performance over several
years, and thus set long-term incentives. Additionally, all members of
the Board of Management have specific holding requirements with
respect to LANXESS shares. The CEO is committed to invest and hold one
and a half times of his annual gross base salary and the other board members
one time their annual gross base salaries in LANXESS shares over a period
of four years. This emphasizes their confidence in the strategy and the
sustainable success of LANXESS.

The compensation system that was introduced for members
of the Board of Management in 2010 was approved by the Annual
Stockholders’ Meeting of LANXESS AG on May 28, 2010, with a
majority of 99.10% of the capital represented.

Components of the compensation

The components of the compensation for members of the
Board of Management are the annual base salary; the short-term and
long-term variable components, which are the Annual Performance
Payment, the Long-Term Stock Performance Plan and the Long-
Term Performance Bonus; and a retirement pension. The three
variable components are linked to LANXESS’s annual performance
and to its corporate success over a number of years. The average
compensation mix of 34% annual base salary and 66% variable
compensation components, assuming 100% target attainment, is
strongly aligned with the company’s performance and long-term
value creation. The present service contracts for members of the
Board of Management set out the annual base salary and caps on
the amounts for the variable compensation components. They do
not provide for a separate cap on total compensation, even taking
into account a possible discretionary bonus.