Compensation of the Board of Executive Directors

This report meets the disclosure requirements of the German Commercial Code, supplemented by the additional requirements based on the German Act on Disclosure of Management Board Remuneration (Vorstandsvergütungs-Offenlegungsgesetz) as well as the German Act on the Appropriateness of Management Board Remuneration (Gesetz zur Angemessenheit der Vorstandsvergütung), and is aligned with the recommendations of the German Corporate Governance Code as amended on May 13, 2013.

Based on a proposal by the Personnel Committee, the Supervisory Board determines the amount and structure of compensation of members of the Board of Executive Directors. The amount of compensation is determined by the company’s size, complexity and financial position, as well as the performance of the Board of Executive Directors. Internal and external appropriateness of the Board’s compensation is reviewed by external auditors on a regular basis. Globally operating companies based in Europe serve as an external reference. For internal comparison, compensation is considered in total as well as over time, especially for senior executives.

Principles

The compensation of the Board of Executive Directors is designed to promote sustainable corporate development. It is marked by a pronounced variability in relation to the performance of the Board of Executive Directors and BASF Group’s return on assets.

The compensation of the Board of Executive Directors comprises:

  1. A fixed salary,
  2. Annual variable compensation (variable bonus),
  3. A share-price-based, long-term incentive (LTI) program,
  4. Nonmonetary compensation and other additional compensation, and
  5. Company pension benefits.

The compensation components are shown in detail below:

  1. The fixed salary is a set amount of yearly compensation paid out in even installments. It is regularly reviewed by the Supervisory Board and adjusted, if necessary.
  2. The annual variable compensation (variable bonus) is based on the performance of the entire Board and the return on assets. The return on assets is also used to determine the variable compensation of all other employee groups.

    In order to assess the sustainable performance of the Board of Executive Directors, each year the Supervisory Board sets a target agreement with the entire Board of Executive Directors that primarily contains medium and long-term goals.

    The Supervisory Board assesses the goal achievement of the current year and the previous two years. A performance factor with a value between 0 and 1.5 is determined on the basis of the goal achievement ascertained by the Supervisory Board. The variable bonus for the prior fiscal year is payable after the Annual Shareholders’ Meeting.

    Board members, like other employee groups, may contribute a portion of their annual variable bonus into a deferred compensation program. For members of the Board of Executive Directors, as well as for all other senior executives of the German BASF Group, the maximum amount that can be contributed to this program is €30,000. Board members have taken advantage of this offer to varying degrees.
  3. A share-price-based, long-term incentive program (the LTI program) exists for members of the Board of Executive Directors. It is also offered to all other senior executives of BASF Group. Members of the Board of Executive Directors are subject to a stricter set of rules than are contained in the general program conditions: They are required to participate in the program with at least 10% of their variable bonus. This mandatory investment consisting of BASF shares is subject to a holding period of four years. For any additional voluntary investment of up to 20% of the variable bonus, the general holding period of two years applies. Members of the Board of Executive Directors may only exercise their options at least four years after they have been granted (vesting period). This compensation component is limited by the structure of the LTI program as well as by the upper limit on the options’ exercise value.
     
    More on share ownership by members of the Board of Executive Directors

    More on the LTI progam
    Personnel expenses, compensation and social benefits
    Share-price-based compensation program and BASF incentive share program
  4. Included in nonmonetary compensation and other additional compensation are the following: delegation allowances, accident insurance premiums and other similar benefits, and the personal use of, or benefit from, communication equipment, means of transport and security measures made available by the company. The members of the Board did not receive loans or advances from the company in 2013.

    The members of the Board are covered by loss liability insurance concluded by the company (D&O insurance) which includes a deductible.
     
    More on the D&O insurance of the Board of Executive Directors
  5. As part of the pension benefits granted to the Board of Executive Directors (“Board Performance Pension”), company pension benefits are intended to accrue annual pension units. The method used to determine the amount of the pension benefits generally corresponds to that used for the other senior executives of the German BASF Group. The method is designed such that both the performance of the company and the progression of the individual Board member’s career significantly affect the pension entitlement.

    The annual pension benefits accruing to Board members in a given reporting year (pension unit) are composed of a fixed and a variable component. The fixed component is calculated by multiplying the annual fixed compensation above the Social Security Contribution Ceiling by 32% (contribution factor). The variable component of the pension unit is the result of multiplying the fixed component with a factor that is dependent on the return on assets in the reporting year and the performance factor, which is also decisive for the bonus. The amount resulting from the fixed and the variable component is converted into a pension unit (lifelong pension) using actuarial factors based on an actuarial interest rate (5%), the probability of death, invalidity and bereavement (Heubeck Richttafeln, 2005G) and an assumed pension increase (at least 1.0% per annum).

    The sum of the pension units accumulated over the reporting years determines the respective Board member’s pension benefit in the event of a claim. This is the amount that is payable upon retirement. Pension benefits take effect at the end of service after completion of the member’s 60th year of age, or on account of disability or death. Pension payments are reviewed on a regular basis and adjusted by at least 1.0% each year.

    The pension units also include survivor benefits. Upon the death of an active or former member of the Board, the surviving spouse receives a survivor pension amounting to 60% of the Board member’s pension entitlement. The orphan pension amounts to 10% for each half-orphan, 33% for an orphan, 25% each for two orphans and 20% each for three or more orphans of the pension entitlement of the deceased (former) Board member. Total survivor benefits may not exceed 75% of the Board member’s pension entitlement. If the survivor pensions exceed the upper limit, they will be proportionately reduced.

    Board members are members of the BASF Pensionskasse VVaG, as are generally all employees of BASF SE. Contributions and benefits are determined by the Statutes of the BASF Pensionskasse VVaG and the General Conditions of Insurance.

Based on the principles listed above, individual Board members received the following compensation:

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Total compensation of the Board of Executive Directors (thousand €)

 

Non-performance-related

 

Performance-related

 

 

 

Options granted

 

 

 

Year

Fixed
salary

Non-monetary compen­sation and other additional compen­sation

 

Variable bonus1

 

Total cash compen­sation

 

Number

Market value at option grant date2

 

Total compen­sation (cash compen­sation plus options granted)

1

The basis for the variable bonus is the return on assets adjusted for special items and the performance factor. This includes all contributions made to the deferred compensation program.

2

Fair values reported in 2013 for options granted are based on the binomial model (previous year: Monte Carlo Simulation). Had this binomial model been applied to calculate the fair value of option rights granted in 2012, the results would have been as follows: Dr. Kurt Bock €1,200 thousand, Dr. Martin Brudermüller €883 thousand, Dr. Hans-Ulrich Engel €726 thousand, Michael Heinz €554 thousand, Dr. Andreas Kreimeyer €726 thousand, Dr. Harald Schwager €726 thousand, Wayne T. Smith €230 thousand, and Margret Suckale €559 thousand.

3

Payment is made in local currency based on a theoretical net salary in Germany.

4

Includes payments to cover additional costs of transfers, such as assumption of prevailing local rental fees

5

Prior-year figures include compensation for a member who left the Board of Executive Directors in 2012.

Dr. Kurt Bock
Chairman

2013

1,200

124

 

2,794

 

4,118

 

54,240

1,282

 

5,400

2012

1,200

142

 

3,174

 

4,516

 

56,004

770

 

5,286

Dr. Martin Brudermüller
Vice Chairman

2013

7983

5714

 

1,858

 

3,227

 

36,072

852

 

4,079

2012

8683

7194

 

2,111

 

3,698

 

41,184

566

 

4,264

Dr. Hans-Ulrich Engel

2013

5553

8144

 

1,397

 

2,766

 

27,120

641

 

3,407

2012

5883

7734

 

1,587

 

2,948

 

33,876

466

 

3,414

Michael Heinz

2013

600

125

 

1,397

 

2,122

 

27,120

641

 

2,763

2012

600

335

 

1,587

 

2,522

 

25,860

355

 

2,877

Dr. Andreas Kreimeyer

2013

600

97

 

1,397

 

2,094

 

27,120

641

 

2,735

2012

600

93

 

1,587

 

2,280

 

33,876

466

 

2,746

Dr. Harald Schwager

2013

600

160

 

1,397

 

2,157

 

27,120

641

 

2,798

2012

600

104

 

1,587

 

2,291

 

33,876

466

 

2,757

Wayne T. Smith
(since April 27, 2012)

2013

600

4754

 

1,397

 

2,472

 

21,276

503

 

2,975

2012

375

3144

 

1,076

 

1,765

 

10,748

148

 

1,913

Margret Suckale

2013

600

76

 

1,397

 

2,073

 

10,880

257

 

2,330

2012

600

139

 

1,587

 

2,326

 

26,092

359

 

2,685

Total

2013

5,553

2,442

 

13,034

 

21,029

 

230,948

5,458

 

26,487

Total

2012

5,6295

2,6505

 

14,8125

 

23,0915

 

289,4685

3,9805

 

27,0715

The options granted resulted in an expense in 2013. This personnel expense refers to the sum of all options from the LTI programs 2005 to 2013. It is calculated as the difference in the value of the options on December 31, 2013, compared with the value on December 31, 2012, considering the options exercised and granted in 2013. The value of the options is based primarily on the development of the BASF share price and its outperformance compared with the benchmark indices specified for the LTI programs 2005 to 2013.

The personnel expenses reported below are purely accounting figures which do not equate with the actual cash gains should options be exercised. Each member of the Board may decide on the timing and scope of the exercise of options of the individual years, while taking into account the general terms and conditions and ceilings of the LTI program.

The personnel expenses for the year 2013 relating to all options issued were as follows: Dr. Kurt Bock €1,870 thousand (2012: €4,525 thousand); Dr. Martin Brudermüller €1,773 thousand (2012: €5,355 thousand); Dr. Hans-Ulrich Engel €1,593 thousand (2012: €3,741 thousand); Michael Heinz €477 thousand (2012: €1,661 thousand); Dr. Andreas Kreimeyer €1,477 thousand (2012: €3,134 thousand); Dr. Harald Schwager €1,716 thousand (2012: €3,839 thousand); Wayne T. Smith €312 thousand (2012: €698 thousand); and Margret Suckale €390 thousand (2012: €532 thousand).