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 in its version of June 24, 2014.

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 and structure 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.

For more on the Supervisory Board and its committees, see
Supervisory Board
Report of the Supervisory Board

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. Fixed salary

2. Annual variable compensation

3. Share-price-based, long-term incentive (LTI) program

4. Nonmonetary compensation and other additional compensation

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 actual annual variable compensation (variable bonus) is based on the performance of the entire Board of Executive Directors 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 (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, too, by the structure of the LTI program as well as by the upper limit on the options’ exercise value. Because the exercise period spans multiple years, it can occur that gains allocated from several LTI program years all accumulate into one year; there can also be years in which no gains are allocated.

4. Included in nonmonetary compensation and other additional compensation (fringe benefits) are the following: delegation allowances, accident insurance premiums and other similar benefits, and benefits from means of transport and security measures provided by the company. The members of the Board did not receive loans or advances from the company in 2014.

The members of the Board are covered by loss liability insurance concluded by the company (D&O insurance) which includes a deductible.

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 salary 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 variable 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 according to Heubeck Richttafeln, 2005G (modified), and an assumed pension increase (at least 1% 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% 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.

Amount of total compensation

The tables below show the granted and allocated compensation as well as service cost of each member of the Board of Executive Directors in accordance with Section 4.2.5(3) of the German Corporate Governance Code (GCGC) in its version of June 24, 2014.

Compensation granted in accordance with the German Corporate Governance Code (GCGC)

The table “Compensation granted in accordance with GCGC” shows: fixed salary, fringe benefits, annual variable target compensation, LTI program measured at fair value at the grant date, and service cost. The individual compensation components are supplemented by individually attainable minimum and maximum compensation.

Furthermore, a reconciliation statement for total compensation to be reported is provided below the table “Compensation granted in accordance with GCGC” due to the disclosures required by Section 314(1)(6a) of the German Commercial Code (HGB) in connection with the German Accounting Standard Number 17 (GAS 17).

The fixed salary and annual variable target compensation were both raised on January 1, 2014, for the first time since January 1, 2011.

Compensation granted in accordance with the German Corporate Governance Code (GCGC) (in thousand €)

 

 

Dr. Kurt Bock

Dr. Martin Brudermüller

Dr. Hans-Ulrich Engel

 

 

Chairman of the Board of Executive Directors

Vice Chairman of the Board of Executive Directors

 

 

 

2013

2014

2014
(min)

2014
(max)

2013

2014

2014
(min)

2014
(max)

2013

2014

2014
(min)

2014
(max)

Fixed salary

 

1,200

1,300

1,300

1,300

7981

8641

8641

8641

5551

6161

6161

6161

Fringe benefits

 

124

173

173

173

5712

7542

7542

7542

8142

8122

8122

8122

Total

 

1,324

1,473

1,473

1,473

1,369

1,618

1,618

1,618

1,369

1,428

1,428

1,428

Annual variable target compensation

 

2,400

2,600

0

4,000

1,596

1,729

0

2,660

1,200

1,300

0

2,000

Multiple-year variable compensation

 

1,282

1,299

0

4,191

852

864

0

2,787

641

649

0

2,095

LTI program 2013 (2013–2021)

 

1,282

852

641

LTI program 2014 (2014–2022)

 

1,299

0

4,191

864

0

2,787

649

0

2,095

Total

 

5,006

5,372

1,473

9,664

3,817

4,211

1,618

7,065

3,210

3,377

1,428

5,523

Service cost

 

943

820

820

820

679

587

587

587

545

482

482

482

Total compensation in accordance with GCGC

 

5,949

6,192

2,293

10,484

4,496

4,798

2,205

7,652

3,755

3,859

1,910

6,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation reporting of total compensation pursuant to Section 314(1)(6a) HGB in connection with GAS 17

 

 

 

 

 

 

 

 

 

 

 

 

 

less granted annual variable target compensation

 

(2,400)

(2,600)

 

 

(1,596)

(1,729)

 

 

(1,200)

(1,300)

 

 

plus allocated actual annual variable compensation

 

2,794

2,680

 

 

1,858

1,782

 

 

1,397

1,340

 

 

less service cost

 

(943)

(820)

 

 

(679)

(587)

 

 

(545)

(482)

 

 

Total compensation

 

5,400

5,452

 

 

4,079

4,264

 

 

3,407

3,417

 

 

 

 

Sanjeev Gandhi

Michael Heinz

Dr. Andreas Kreimeyer

 

 

Since December 1, 2014

 

 

 

 

2013

2014

2014
(min)

2014
(max)

2013

2014

2014
(min)

2014
(max)

2013

2014

2014
(min)

2014
(max)

Fixed salary

 

54

54

54

600

650

650

650

600

650

650

650

Fringe benefits

 

5

5

5

125

168

168

168

97

96

96

96

Total

 

59

59

59

725

818

818

818

697

746

746

746

Annual variable target compensation

 

108

0

167

1,200

1,300

0

2,000

1,200

1,300

0

2,000

Multiple-year variable compensation

 

641

649

0

2,095

641

649

0

2,095

LTI program 2013 (2013–2021)

 

641

641

LTI program 2014 (2014–2022)

 

649

0

2,095

649

0

2,095

Total

 

167

59

226

2,566

2,767

818

4,913

2,538

2,695

746

4,841

Service cost

 

37

37

37

520

445

445

445

534

478

478

478

Total compensation in accordance with GCGC

 

204

96

263

3,086

3,212

1,263

5,358

3,072

3,173

1,224

5,319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation reporting of total compensation pursuant to Section 314(1)(6a) HGB in connection with GAS 17

 

 

 

 

 

 

 

 

 

 

 

 

 

less granted annual variable target compensation

 

(108)

 

 

(1,200)

(1,300)

 

 

(1,200)

(1,300)

 

 

plus allocated actual annual variable compensation

 

112

 

 

1,397

1,340

 

 

1,397

1,340

 

 

less service cost

 

(37)

 

 

(520)

(445)

 

 

(534)

(478)

 

 

Total compensation

 

171

 

 

2,763

2,807

 

 

2,735

2,735

 

 

 

 

Dr. Harald Schwager

Wayne T. Smith

Margret Suckale

 

 

 

 

 

 

 

2013

2014

2014
(min)

2014
(max)

2013

2014

2014
(min)

2014
(max)

2013

2014

2014
(min)

2014
(max)

1

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

2

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

Fixed salary

 

600

650

650

650

600

650

650

650

600

650

650

650

Fringe benefits

 

160

106

106

106

4752

5832

5832

5832

76

71

71

71

Total

 

760

756

756

756

1,075

1,233

1,233

1,233

676

721

721

721

Annual variable target compensation

 

1,200

1,300

0

2,000

1,200

1,300

0

2,000

1,200

1,300

0

2,000

Multiple-year variable compensation

 

641

649

0

2,095

503

649

0

2,095

257

649

0

2,095

LTI program 2013 (2013–2021)

 

641

503

257

LTI program 2014 (2014–2022)

 

649

0

2,095

649

0

2,095

649

0

2,095

Total

 

2,601

2,705

756

4,851

2,778

3,182

1,233

5,328

2,133

2,670

721

4,816

Service cost

 

523

457

457

457

546

477

477

477

442

391

391

391

Total compensation in accordance with GCGC

 

3,124

3,162

1,213

5,308

3,324

3,659

1,710

5,805

2,575

3,061

1,112

5,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation reporting of total compensation pursuant to Section 314(1)(6a) HGB in connection with GAS 17

 

 

 

 

 

 

 

 

 

 

 

 

 

less granted annual variable target compensation

 

(1,200)

(1,300)

 

 

(1,200)

(1,300)

 

 

(1,200)

(1,300)

 

 

plus allocated actual annual variable compensation

 

1,397

1,340

 

 

1,397

1,340

 

 

1,397

1,340

 

 

less service cost

 

(523)

(457)

 

 

(546)

(477)

 

 

(442)

(391)

 

 

Total compensation

 

2,798

2,745

 

 

2,975

3,222

 

 

2,330

2,710

 

 

The table below shows the options granted to the Board of Executive Directors on July 1 of both reporting years. Sanjeev Gandhi was not yet a member of the Board at this time.

Number of options granted

 

 

2014

2013

Dr. Kurt Bock

 

41,412

54,240

Dr. Martin Brudermüller

 

27,536

36,072

Dr. Hans-Ulrich Engel

 

20,704

27,120

Michael Heinz

 

20,704

27,120

Dr. Andreas Kreimeyer

 

20,704

27,120

Dr. Harald Schwager

 

20,704

27,120

Wayne T. Smith

 

20,704

21,276

Margret Suckale

 

20,704

10,880

Total

 

193,172

230,948

Compensation allocated in accordance with the German Corporate Governance Code (GCGC)

The “Compensation allocated in accordance with the GCGC” shown for 2013 and 2014 is comprised of the fixed and variable compensation components actually allocated, plus the service cost calculated for each member of the Board of Executive Directors in the reporting years even though this does not actually represent payment in the narrower sense.

Compensation allocated in accordance with the German Corporate Governance Code (GCGC) (in thousand €)

 

 

Dr. Kurt Bock

Dr. Martin Brudermüller

Dr. Hans-Ulrich Engel

 

 

Chairman of the Board of Executive Directors

Vice Chairman of the Board of Executive Directors

 

 

 

2014

2013

2014

2013

2014

2013

1

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

2

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

3

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

4

At the end of the regular term of the LTI program 2006, exercise gains which were realized in 2010 or 2011 were allocated to Dr. Kurt Bock and Dr. Hans-Ulrich Engel in 2014 in accordance with the special conditions of the U.S. LTI program.

Fixed salary

 

1,300

1,200

8642

7982

6162

5552

Fringe benefits

 

173

124

7543

5713

8123

8143

Total

 

1,473

1,324

1,618

1,369

1,428

1,369

Actual annual variable compensation1

 

2,680

2,794

1,782

1,858

1,340

1,397

Multiple-year variable compensation

 

2,8254

9,561

1,8974

1,155

LTI program 2006 (2006–2014)

 

2,8254

1,8974

LTI program 2007 (2007–2015)

 

2,701

LTI program 2008 (2008–2016)

 

3,530

1,155

LTI program 2009 (2009–2017)

 

3,330

LTI program 2010 (2010–2018)

 

Total

 

6,978

4,118

3,400

12,788

4,665

3,921

Service cost

 

820

943

587

679

482

545

Total compensation in accordance with GCGC

 

7,798

5,061

3,987

13,467

5,147

4,466

 

 

Sanjeev Gandhi

Michael Heinz

Dr. Andreas Kreimeyer

 

 

Since December 1, 2014

 

 

 

 

2014

2013

2014

2013

2014

2013

1

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

Fixed salary

 

54

650

600

650

600

Fringe benefits

 

5

168

125

96

97

Total

 

59

818

725

746

697

Actual annual variable compensation1

 

112

1,340

1,397

1,340

1,397

Multiple-year variable compensation

 

437

2,828

LTI program 2006 (2006–2014)

 

LTI program 2007 (2007–2015)

 

LTI program 2008 (2008–2016)

 

LTI program 2009 (2009–2017)

 

2,828

LTI program 2010 (2010–2018)

 

437

Total

 

171

2,158

2,122

2,523

4,922

Service cost

 

37

445

520

478

534

Total compensation in accordance with GCGC

 

208

2,603

2,642

3,001

5,456

 

 

Dr. Harald Schwager

Wayne T. Smith

Margret Suckale

 

 

 

 

 

 

 

2014

2013

2014

2013

2014

2013

1

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

2

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

Fixed salary

 

650

600

650

600

650

600

Fringe benefits

 

106

160

5832

4752

71

76

Total

 

756

760

1,233

1,075

721

676

Actual annual variable compensation1

 

1,340

1,397

1,340

1,397

1,340

1,397

Multiple-year variable compensation

 

6,268

LTI program 2006 (2006–2014)

 

LTI program 2007 (2007–2015)

 

1,475

LTI program 2008 (2008–2016)

 

1,463

LTI program 2009 (2009–2017)

 

3,330

LTI program 2010 (2010–2018)

 

Total

 

2,096

8,425

2,573

2,472

2,061

2,073

Service cost

 

457

523

477

546

391

442

Total compensation in accordance with GCGC

 

2,553

8,948

3,050

3,018

2,452

2,515

Accounting valuation of multiple-year variable compensation (LTI programs)

While the options granted had resulted in an expense for BASF in 2013, they led to income in 2014, except in the case of Dr. Andreas Kreimeyer. This income refers to the total of all options from the LTI programs 2006 to 2014 and is calculated as the difference in the value of the options on December 31, 2014, compared with the value on December 31, 2013, considering the options exercised and granted in 2014. The value of the options is based primarily on the development of the BASF share price and its relative performance compared with the benchmark index specified for the LTI programs 2006 to 2014. Because the value of options on December 31, 2014, was lower than that of December 31, 2013, a gain rather than an expense arose for 2014.

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

The gains for 2014 relating to all options issued were as follows: Dr. Kurt Bock €97 thousand (2013: expense of €1,870 thousand); Dr. Martin Brudermüller €333 thousand (2013: expense of €1,773 thousand); Dr. Hans-Ulrich Engel €90 thousand (2013: expense of €1,593 thousand); Michael Heinz €146 thousand (2013: expense of €477 thousand); Dr. Harald Schwager €388 thousand (2013: expense of €1,716 thousand); Wayne T. Smith €165 thousand (2013: expense of €312 thousand); and Margret Suckale €145 thousand (2013: expense of €390 thousand). For Dr. Andreas Kreimeyer, the expense for 2014 amounted to €446 thousand (2013: expense of €1,477 thousand).

Pension benefits

The values for service cost incurred in 2014 contain service cost for BASF Pensionskasse VVaG and Performance Pension. Service cost for the members of the Board of Executive Directors is shown individually in the tables “Compensation granted in accordance with GCGC” and “Compensation allocated in accordance with GCGC.”

The present value of pension benefits (defined benefit obligation) is an accounting figure for the entitlements that the Board members have accumulated in their years of service at BASF. The defined benefit obligations up to and including 2014 are as follows: Dr. Kurt Bock €18,571 thousand (2013: €13,154 thousand); Dr. Martin Brudermüller €13,259 thousand (2013: €9,070 thousand); Dr. Hans-Ulrich Engel €10,165 thousand (2013: €7,165 thousand); Sanjeev Gandhi €1,193 thousand; Michael Heinz €8,295 thousand (2013: €5,313 thousand); Dr. Andreas Kreimeyer €14,582 thousand (2013: €11,275 thousand); Dr. Harald Schwager €9,680 thousand (2013: €6,707 thousand); Wayne T. Smith €1,933 thousand (2013: €935 thousand); and Margret Suckale €3,290 thousand (2013: €2,148 thousand). The increase in the defined benefit obligations compared with the previous year was largely attributable to the lower discount rate.

End-of-service benefits

In the event that a member of the Board of Executive Directors retires from employment before the age of 60, either because their appointment was not extended or was revoked for an important reason, they are entitled to pension benefits if they have served on the Board for at least ten years or if the time needed to reach legal retirement age is less than ten years. The company is entitled to offset compensation received for any other work done against pension benefits until the legal retirement age is reached.

The following applies to end of service due to a change-of-control event: A change-of-control event, in terms of this provision, occurs when a shareholder informs BASF of a shareholding of at least 25%, or the increase of such a holding.

If a Board member’s appointment is revoked within one year following a change-of-control event, the Board member will receive the contractually agreed payments for the remaining contractual term of office as a one-off payment (fixed salary and annual variable target compensation). The Board member may also receive the fair value of the option rights acquired in connection with the LTI program within a period of three months or may continue to hold the existing rights under the terms of the program. For the determination of the accrued pension benefits from the “Board Performance Pension,” the time up to the regular expiry of office is taken into consideration.

There is a general limit on severance pay (severance payment cap) for all Board members. Accordingly, payments made to a Board member upon premature termination of their contract, without serious cause, may not exceed the value of two years’ compensation, including fringe benefits, nor compensate more than the remaining term of the contract. The severance payment cap is to be calculated on the basis of the total compensation for the past full financial year and, if appropriate, also the expected total compensation for the current financial year. If the appointment to the Board of Executive Directors is prematurely terminated as the result of a change of control, the payments may not exceed 150% of the severance compensation cap.

Former members of the Board of Executive Directors

Total compensation for previous Board members and their surviving dependents amounted to €6.5 million in 2014 (2013: €10.5 million). This figure also contains payments that previous Board members have themselves financed through the deferred compensation program and the gain or expense for 2014 relating to options that previous members of the Board still hold from the time of their active service period.

The continuation of the options that have not yet been exercised at the time of retirement, along with the continuation of the associated holding period for individual investment in BASF shares under the conditions of the program, is intended in order to particularly emphasize how sustainability is incorporated into the compensation for the Board members. Pension provisions for previous Board members and their surviving dependents amounted to €143.5 million (2013: €131.8 million).