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 the Disclosure of Management Board Remuneration (VorstOG) as well as the German Act on the Appropriateness of Management Board Remuneration (VorstAG), and is aligned with the recommendations of the German Corporate Governance Code (GCGC) in the version dated December 16, 2019. The existing system of compensation for the Board of Executive Directors was amended as of January 1, 2020, by resolution of the Supervisory Board in order to meet the changed requirements from the 2020 fiscal year onward arising from the German Act Implementing the Second E.U. Shareholder Rights Directive (ARUG II), which also entered into force on January 1, 2020, and from the German Corporate Governance Code (GCGC) in the version dated December 16, 2019. The amended compensation system for members of the Board of Executive Directors was approved by the Annual Shareholders’ Meeting on June 18, 2020. Significant changes apply to the variable compensation and the pension benefits. The amended and simplified system of compensation for members of the Board of Executive Directors has been applicable since January 1, 2020, for all service contracts for members of the Board of Executive Directors.

Principles

The compensation of the Board of Executive Directors is determined by the company’s size, complexity and financial position, as well as the performance of the Board of Executive Directors as a whole (Gesamtvorstand). It is designed to contribute to sustainable corporate development and the achievement of strategic corporate goals. The long-term strategic goals communicated as part of BASF’s strategy form the key performance indicators for the short-term and long-term variable compensation and thus foster the sustainable development of the company.

  • The strategic target “yield” refers to an annual return on capital employed (ROCE) above the cost of capital percentage. The ROCE serves as the key performance indicator for determining the performance bonus (short-term incentive, STI).
  • The strategic targets “growth,” “profitability” and “CO2-neutral growth until 2030” are represented in the new long-term incentive (LTI) program. The final number of performance share units (PSUs) is determined based on the level of target achievement for the three strategic targets over the entire four-year period of the LTI program.

By taking into account the total shareholder return (development of the share price and dividend), the new LTI enables both members of the Board of Executive Directors and shareholders to participate in the sustainable development of the company.

The compensation of the Board of Executive Directors is marked by a pronounced variability in relation to the performance of the Board of Executive Directors as a whole and the BASF Group’s success. The external and internal appropriateness of the Board’s compensation is reviewed by an independent external auditor on a regular basis. DAX companies in Germany and globally operating companies in the rest of Europe1 serve as an external reference.

For internal comparison, the compensation of senior executives and employees of BASF SE is considered in total as well as over time.

Based on a proposal by the Personnel Committee, the Supervisory Board determines the structure and amount of compensation of members of the Board of Executive Directors. In the event of significant amendments, but at least every four years, the compensation system resolved by the Supervisory Board is presented to the Annual Shareholders’ Meeting for approval.

In very exceptional cases (such as a severe economic crisis), the Supervisory Board can temporarily deviate from the components of the compensation system (procedures and rules on the compensation structure and amount as well as relating to the individual compensation components) for the Board of Executive Directors, if this is in the interest of the long-term well-being of the company.

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

1 The European peer group for the 2019 appropriateness review comprised the following companies: ABB, Air Liquide, Akzo Nobel, BAE Systems, Bayer, BHP, BMW, BP, Continental, Daimler, DSM, E.ON, EDF, Henkel, Linde, Rolls Royce, Royal Dutch Shell, Siemens, Solvay, Thyssenkrupp, Total, Volkswagen.

Overview of compensation system

Non-performance-related
compensation

1. Fixed salary
Annual amount €800,000a
Payment in equal instalments
2. Fringe benefits
Annual target €50,000b
Cap €100,000bcorresponds to 200% of the annual target amount
3. Company pension benefits
Annual target €500,000a

Fixed annual pension contribution

Performance-related
compensation

4. Short-term incentive (STI) with one-year performance period
Annual target €1,000,000a
Cap €2,000,000acorresponds to 200% of the annual target amount

Payment after the Annual Shareholders’ Meeting for the past fiscal year

5. Long-term incentive (LTI) Performance Share Plan with four-year performance period
Annual target €1,400,000a
Cap €2,800,000acorresponds to 200% of the annual target amount

Payment after the Annual Shareholders’ Meeting following the four-year performance period

  1. Two times this value for the chair of the Board of Executive Directors and 1.33 times this value for the vice chair
  2. The amount represents the target or maximum amount for the 2020 fiscal year for regularly granted fringe benefits. If one-off fringe benefits and/or transfer-related fringe benefits are granted in individual cases, the maximum amounts specified for this also apply.

Since January 1, 2020, the compensation system for the Board of Executive Directors contains the components listed in the overview with the target and maximum amounts valid for the 2020 fiscal year.

Components of the compensation system also include a withholding and clawback clause for variable compensation components as well as a Share Ownership Guideline, which obliges members of the Board of Executive Directors to hold a defined number of shares for the length of their Board mandate and beyond.

The relative proportions of the individual compensation components in the target total remuneration of members of the Board of Executive Directors are:

Relative proportions of the compensation components in annual target total remunerationa
Relative proportions of the compensation components in annual target total remuneration (graphic)

a In individual cases, slight deviations are possible due to rounding.

Individual compensation components

1. Fixed salary

The fixed salary is a set amount of yearly compensation paid out in equal installments. It is regularly reviewed by the Supervisory Board and adjusted, when appropriate.

The annual fixed salary for a member of the Board of Executive Directors has been €800,000 since January 1, 2017. The fixed salary for the chair of the Board of Executive Directors is two times the value for a Board member, and 1.33 times this value for the vice chair.

2. Nonmonetary compensation and other additional compensation (fringe benefits)

Members of the Board of Executive Directors receive various fringe benefits, in some instances event-related fringe benefits. The regularly provided fringe benefits include accident insurance premiums, transportation and benefits from the provision of security measures by the company. The one-time, event-related fringe benefits include, inter alia, security measures at the member’s private residence upon initial appointment to the Board of Executive Directors. The delegation-related fringe benefits for members of the Board of Executive Directors who are based abroad include fringe benefits to cover additional costs of transfers, such as assumption of prevailing local rental costs and school fees at the assignment location, or the granting of a basic allowance and the assumption or reimbursement of additional taxes. The fringe benefits granted by the company are capped.

The members of the Board are covered by a directors’ and officers’ liability insurance (D&O insurance) concluded by the company, which includes a deductible. This policy provides for the level of deductibles for the Board of Executive Directors as prescribed by section 93(2) sentence 3 of the German Stock Corporation Act.

3. Company pension benefits

The previous pension benefits granted to members of the Board of Executive Directors (Board Performance Pension, deferred compensation program and basic coverage under BASF Pensionskasse) were discontinued as of January 1, 2020, and replaced by a new defined contribution pension.

Company pension benefits

  • Defined contribution pension commitment in the form of an external capital investment model
  • Pension entitlement: retirement, disability and surviving dependents’ pensions
  • Possibility to opt out in favor of an annual pension allowance

Since January 1, 2020, the company offers members of the Board of Executive Directors a defined contribution pension commitment in the form of a capital investment model. The company grants the members of the Board of Executive Directors a fixed annual pension plan contribution:

  • For the purpose of building retirement assets (retirement capital), the company pays pension contributions into an investment model to be chosen by the company. The pension account is managed by an external provider. The performance of the paid-in contributions is determined by the returns generated by the investment model. However, each member of the Board of Executive Directors is guaranteed a benefit of least 80% of the amount of the pension contributions paid by the company.
  • The pension benefits include disability and survivor benefits. The disability capital corresponds to the value of the pension account at the time the disability occurs, but at least to 80% of the sum of the pension contributions paid by the company. The surviving dependents capital corresponds to the value of the pension account at the time of death of the member of the Board of Executive Directors, but at least to 80% of the sum of the pension contributions paid by the company.
  • Members of the Board of Executive Directors can choose a pension allowance for private retirement savings instead of the defined contribution pension commitment. In this case, the defined annual pension contribution amount is paid in equal monthly installments as a gross amount to the member of the Board of Executive Directors. In this case, there is no further claim to benefits following the conclusion of the Board mandate, since the annual pension contribution is paid as a gross amount to the Board member in equal monthly installments during the term of the mandate.

For future entitlements from the new defined contribution pension commitment in the form of a capital investment model, the following applies:

  • The pension benefit is paid as a capital payment, possibly in as many as 10 installments. Moreover, there is the possibility of choosing an annuity (lifetime pension payment).
  • For conversion into an annuity, the actuarial parameters relevant at this point in time are used.
  • If the member of the Board of Executive Directors dies while receiving the annuity, the surviving spouse receives a survivor benefits pension corresponding to 60% of the annuity. The same applies for civil partners.
  • Current pensions are increased annually by 1% as of January 1.

4. Short-term incentive (STI)

Short-term incentive (STI)

  • One-year performance period
  • The amount of the STI is based on the achievement of set operational and strategic targets as well as the BASF Group’s ROCE.
  • The payout is limited to 200% of the target amount (cap).
  • The payment occurs after the Annual Shareholders’ Meeting following the fiscal year.

For each fiscal year, an STI with a one-year performance period is granted. The STI is based on the achievement of operational and strategic goals as well as the return on capital employed (ROCE), which is relevant for the compensation of all employees. The actual STI amount is paid out after the Annual Shareholders’ Meeting in the following year.

With the ROCE as the key performance indicator for the variable compensation, the short-term variable compensation is directly linked to the company’s operating success and aligned with the BASF Group’s financial goal of earning a premium on the cost of capital. The ROCE of the particular fiscal year serves as the key performance indicator for the success of the company when determining the STI. ROCE is the ratio of income from operations (EBIT) of the segments in relation to the average operating assets of the segments, plus the customer and supplier financing not included there.

The target ROCE for the variable compensation is one percentage point above the cost of capital percentage for the fiscal year, which is determined using the weighted average cost of capital (WACC) approach in accordance with the capital asset pricing model. A ROCE factor is assigned to each relevant ROCE value. If the ROCE is two percentage points or more below the target ROCE, the ROCE factor will decline at a faster rate. The ROCE factor will increase at a slower rate if the ROCE is two percentage points or more above the target ROCE.

ROCE factor
ROCE factor (graphic)

The ROCE factor is 1.0 if the ROCE achieved in the fiscal year is one percentage point above the weighted cost of capital percentage (based on the WACC in accordance with the capital asset pricing model) for that year, meaning an appropriate premium on the cost of capital was earned.

In calculating ROCE, adjustments are made for negative and positive special items resulting from acquisitions and divestitures (for example, integration costs in connection with acquisitions and gains or losses from the divestiture of businesses) when these exceed a corridor of plus or minus 1% of the average cost of capital basis. An adjustment of the ROCE (in the first 12 months after closing) therefore only occurs in cases of exceptionally high special items resulting from acquisitions and divestitures.

The Supervisory Board sets a maximum amount for the STI (cap). The current cap is €2,000,000 for a member of the Board of Executive Directors. The maximum amount for the chair of the Board of Executive Directors is two times this value, and 1.33 times this value for the vice chair.

For the fiscal year 2020, the target ROCE was 10% with a cost of capital percentage of 9%. This figure is reviewed and communicated annually. In order to assess the sustainable performance of the Board of Executive Directors, each year the Supervisory Board sets a target agreement with the Board of Executive Directors as a whole. The target agreement contains:

  • One-year operational targets, primarily earnings, financial and operational excellence targets. This includes, for example, EBIT before special items.
  • One-year strategic targets relating to the further development of BASF, primarily targets for growth, portfolio optimization, investment and R&D strategy, digitalization, sustainability and BASF corporate values.

These targets are in line with the outlook published in the forecast. A performance factor with a value between 0 and 1.5 is determined on the basis of the target achievement ascertained by the Supervisory Board. A target achievement rate of 100% equates to a value of 1.0 for the performance factor.

Target achievement and performance factor
Target achievement and performance factor (graphic)

The payout of the STI is determined as follows:

Payout of the STI (graphic)

The payout is limited to 200% of the target amount (cap).

5. Long-term incentive (LTI)

The LTI plan incentivizes the achievement of strategic goals and takes into consideration the development of the BASF share and dividend (Total Shareholder Return) over a period of four years. The LTI is also offered with slight variations to senior executives of the BASF Group.

Long-term incentive (LTI)

  • Four-year performance period
  • The payout amount is determined by the achievement of three agreed strategic targets (growth, profitability, sustainability) and the performance of the BASF share plus the dividends paid (total shareholder return).
  • The payout is limited to 200% of the target amount (cap).
  • The payout occurs in May following the Annual Shareholders’ Meeting after the end of the four-year performance period.
LTI-Plan, Grant and payout (graphic)

Grant: For each fiscal year, an LTI plan with a four-year performance period will be granted. The target amount will be converted into a preliminary number of virtual performance share units (PSUs). To undertake this conversion, the target amount is divided by the average price of the BASF share in the fourth quarter of the year prior to the beginning of the respective plan.

Targets and target achievement: At the beginning of the four-year performance period, the Supervisory Board defines three strategic targets. Depending on the achievement of these strategic targets over the four-year performance period, the number of PSUs can increase or decline. To determine this, the number of provisional PSUs at the end of the four years is multiplied by the weighted target achievement rate for the three strategic targets.

Payout: The final number of PSUs determined in this way is multiplied by the average share price of the BASF share in the fourth quarter of the last year of the four-year performance period plus the cumulative dividend payments in the four fiscal years of the performance period. The payout amount of the LTI therefore reflects not only the achievement of the strategic targets but also the development of BASF’s total shareholder return. The actual LTI amount is paid out after the Annual Shareholders’ Meeting in the year following the end of the four-year performance period. The payout is limited to 200% of the target amount (cap).

Determination of target achievement: For each of the three strategic targets, at the beginning of the four-year performance period the Supervisory Board defines a target value, which corresponds to a target achievement of 100%, as well as a minimal value, a maximum value and a target achievement curve.

For each strategic target, the target achievement rate is determined on an annual basis. At the end of the four-year performance period, the arithmetic mean of the four annual target achievement rates is calculated. The resulting average target achievement rates for the individual strategic targets are combined according to the defined weighting to reach a weighted target achievement. The preliminary number of PSUs is multiplied by the weighted target achievement in order to determine the final number of PSUs.

For the LTI plan 2020 (performance period 2020–2023) the following targets as communicated by the BASF corporate strategy (see BASF Report 2019, Our Targets) apply:

Strategic target 1: Grow sales volumes faster than global chemical production every year
Target 1: Unser Absatz wächst jährlich stärker als die globale Chemieproduktion (graphic)
  • The target is 100% achieved if BASF grows 0.1 percentage points faster than global chemical production (target value).
  • If this target value is undercut by two percentage points or more, the target achievement is 0% (minimum value).
  • If the target value is exceeded by two percentage points or more, the target achievement is 200% (maximum value).
  • Intermediate values are determined by linear interpolation.
  • The target achievement for the entire performance period 2020–2023 is calculated as the arithmetic mean of the degree of target achievements of each of the four years.
Strategic target 2: Increase EBITDA before special items by 3% to 5% per year
Target 2: Wir steigern unser EBITDA vor Sondereinflüssen um 3 % bis 5 % pro Jahr (graphic)
  • With an EBITDA before special items increase by 4% (i.e., in the middle of the communicated target corridor of 3% to 5%), the target achievement is 100% (target value).
  • If EBITDA before special items increases by 7% or more, the target achievement is 200% (maximum value).
  • Intermediate values are determined by linear interpolation.
  • The starting point for setting the four-year targets is the EBITDA before special items in the year before the start of the four-year performance period.
  • The target achievement for the entire performance period 2020–2023 is calculated as the arithmetic mean of the degree of target achievements of each of the four years.
Strategic target 3: Grow CO2-neutrally until 2030
Target 3: Wir wachsen bis 2030 CO2-neutral (graphic)
  • With emissions of 21.9 million metric tons of CO2 equivalents per year, the target achievement is 100% (target value).
  • With emissions of 24.9 million metric tons of CO2 equivalents per year or more, the target achievement is 0 (minimum value).
  • With emissions of 18.9 million metric tons of CO2 equivalents per year or less, the target achievement is 200% (maximum value).
  • Intermediate values are determined by linear interpolation.
  • The target achievement for the entire performance period 2020–2023 is calculated as the arithmetic mean of the degree of target achievements of each of the four years.

Share Ownership Guideline

For the duration of their mandate, members of the Board of Executive Directors are obligated to hold a defined number of shares in the company. The number of shares that must be held for a longer term is determined at the beginning of the Board of Executive Directors mandate (for current members of the Board of Executive Directors as of January 1, 2020) and generally corresponds to a value representing 150% of the member’s annual gross fixed salary on that date. The conversion into a number of shares to be held is carried out using the average price of the BASF share in the fourth quarter of the year prior to the start of the first-time share ownership guideline.

The number of shares to be held rises accordingly with any increase in the amount of fixed salary. The share ownership obligation ends two years after the end of the mandate of the member of the Board of Executive Directors (post-mandate share ownership obligation). When members are first appointed to the Board of Executive Directors, they have until the end of the fourth calendar year following the initial appointment to fulfill this share ownership obligation (built-up phase). The built-up phase also applies for members of the Board of Executive Directors who were members as of January 1, 2020, regardless of when they were first appointed, with the stipulation that the share ownership obligation be fulfilled by December 31, 2023.

Members of the Board of Executive Directors must acquire the shares with after-tax net income. It was confirmed to the Supervisory Board that, taking into account the build-up phase, all members of the Board of Executive Directors held the required number of BASF shares or ADRs1 as of December 31, 2020.

Withholding and clawback clause

The withholding and clawback provisions remain unchanged for the STI and LTI. In the event that a Board member commits a serious infringement of the Code of Conduct of BASF Group or of the duty of care as a member of the management of the company, this provision allows for a reduction or cancellation of not yet paid variable compensation as well as the clawback of variable compensation paid out since January 1, 2018. In the years 2019 and 2020, no use was made of the possibility to claw back, reduce or cancel the not yet paid variable compensation.

1 BASF ADRs (American Depositary Receipts); four BASF ADRs correspond to one BASF share.

Maximum compensation

The total compensation is capped in accordance with the recommendation of the German Corporate Governance Code (GCGC). By establishing a maximum amount (cap) for the STI and the LTI, the amount of both variable compensation components is limited. The maximum compensation levels based on the current target compensation for members of the Board of Executive Directors are presented in the following overview:

Member of the Board of Executive Directors

Vice chair of the Board of Executive Directors

Chair of the Board of Executive Directors

 

Target compen­sation

Maximum compen­sation

Target compen­sation

Maximum compen­sation

Target compen­sation

Maximum compen­sation

Fixed salary

800,000

800,000

1,064,000

1,064,000

1,600,000

1,600,000

Regularly provided fringe benefits

50,000

100,000a

50,000

100,000a

50,000

100,000a

Retirement benefits

500,000

500,000

665,000

665,000

1,000,000

1,000,000

STI amount

1,000,000

2,000,000b

1,330,000

2,660,000b

2,000,000

4,000,000b

LTI amount

1,400,000

2,800,000b

1,862,000

3,724,000b

2,800,000

5,600,000b

Total compensation 2020

3,750,000

6,200,000c

4,971,000

8,213,000c

7,450,000

12,300,000c

a

This amount represents the maximum amount (200% of the target amount) in the fiscal year 2020 for regularly provided fringe benefits. For event-related fringe benefits, an additional maximum amount has been defined: €500,000 for a member of the Board of Executive Directors, €533,000 for the vice chair of the Board of Executive Directors and €600,000 for the chair of the Board of Executive Directors. For delegation-related fringe benefits, a maximum amount for a member of the Board of Executive Directors has been set at €3,000,000.

b

Corresponds to 200% of the annual target amount

c

From options rights granted in 2020 as a component of the 2019 compensation for the Board of Executive Directors, an additional maximum amount of €1,453,500 for a member of the Board of Executive Directors, €1,933,155 for the vice chair of the Board of Executive Directors and €2,907,000 for the chair of the Board of Executive Directors may be allocated.

The compensation for the Board of Executive Directors was last increased effective January 1, 2017. In the event that the Supervisory Board resolves to adjust the compensation amount prior to the next scheduled say on pay on the compensation system by the Annual Shareholders’ Meeting in 2024, the following maximum compensation amounts would not be exceeded:

Member of the Board of Executive Directors

Vice chair of the Board of Executive Directors

Chair of the Board of Executive Directors

Maximum compensation until next say on pay on the compensation system by the Annual Shareholders’ Meeting

7,500,000a

9,975,000a

15,000,000a

a

This amount contains the maximum amount (200% of the target amount) for regular fringe benefits. For event-related fringe benefits, an additional maximum amount has been defined: €500,000 for a member of the Board of Executive Directors, €533,000 for the vice chair of the Board of Executive Directors and €600,000 for the chair of the Board of Executive Directors. For delegation-related fringe benefits, a maximum amount for a member of the Board of Executive Directors has been set at €3,000,000.

BOP2020

Long-term, share price-based incentive program (LTI program)

LTI program BASF option program (BOP)

  • The BASF option program was granted for the last time in 2020 and was replaced by the new LTI.
  • Absolute performance threshold: BASF share price gains at least 30% compared with the base price for the LTI program concerned
  • Relative performance threshold: BASF shares outperform the MSCI World Chemicals Index and no share price loss compared with the base price on the option grant date
  • Share ownership guideline: mandatory individual investment in BASF shares with a holding obligation of 10% of the actual performance bonus (gross), plus up to an additional 20% of the actual performance bonus (gross)
  • Term: eight years
  • Exercise first possible: four years after the grant date (vesting period)
  • Maximum exercise gain (cap): five times the individual investment

By resolution of the Supervisory Board, the BASF option program (BOP) was replaced by the new LTI as of January 1, 2020. The BOP is based on the STI paid out for the previous year and can therefore be considered delayed compensation for the preceding fiscal year. It was therefore offered for the last time in 2020, based on the performance bonus for 2019.

To take part in the program, each participant must prove an individual investment in BASF shares and hold the shares for this purpose for a defined period of time (holding period). The individual investment can amount to a maximum of 30% of the participant’s performance bonus (gross) for the previous year.

The members of the Board of Executive Directors are obligated to invest at least 10% of their individual performance bonus (gross) for the previous year in the LTI program each year (share ownership obligation). This mandatory investment is subject to a holding period of four years. For any further additional voluntary investment of up to 20% of the performance bonus (gross) for the previous year, the general holding period of two years applies.

Four options are granted for each BASF share brought into the LTI program as an individual investment. After a four-year vesting period, there is a four-year exercise period during which the members of the Board of Executive Directors can exercise these options if performance thresholds are met. During the exercise period, the exercising of options is prohibited during certain periods (closed periods). Each member of the Board of Executive Directors can individually decide on the timing and extent of the exercising of options. Once the options are exercised, the computed value of the options is paid out in cash (cash settlement).

Each option consists of right A (absolute performance threshold) and right B (relative performance threshold), whose value is determined by different performance targets.

At least one of the two conditions must be met in order for the option to be exercised:

  • Performance threshold, right A: BASF share price increases at least 30% compared with the base price on the option grant date for the LTI program concerned. The value of right A is calculated as the difference between the market price of BASF shares on the exercise date and the base price on the option grant date. It is limited to 100% of the base price (cap). The base price for an LTI program is the volume-weighted average share price in Deutsche Börse AG’s electronic trading system (Xetra) on the first trading day after the Annual Shareholders’ Meeting of BASF SE in the year in which the LTI program is granted. The base price for the LTI program granted in 2020 was €51.26 (2019: €68.21).
  • Performance threshold, right B: The cumulative percentage performance of the BASF share exceeds that of the MSCI World Chemicals Index (outperformance) and the price of the BASF share on the exercise date equals at least the base price. The value of right B is calculated as the base price of the option multiplied by twice the outperformance of BASF shares on the exercise date. It is limited to the closing price on the date of exercise minus the computed nominal value of BASF shares.

In total, the maximum exercise gain (cap) is limited to five times the individual investment.

For more information on the LTI program, see:
Compensation and benefits
Note 30

Provisions relating to the previous multi-year variable compensation components and to the previous pension plan

The still-running deferral components from the performance bonus 2018 (2018–2021) and 2019 (2019–2022) will be continued as planned and paid out in accordance with the terms of the previous program. To assess the strategic performance, the Supervisory Board will therefore determine a separate strategic performance factor (SPF) for each of the years 2020, 2021 and 2022. This SPF will serve exclusively to determine the average SPFs necessary for the deferral components of the performance bonus in accordance with the terms of the program.

The option rights granted under the previous BASF option program (BOP) and not yet exercised can continue to be exercised in accordance with the specified terms of the BOP for the Board of Executive Directors. Members of the Board of Executive Directors had the opportunity to participate for the last time in the BASF option program as of July 1, 2020, based on their performance bonus (gross) for the year 2019. The existing applicable minimum investment of 10% and the additional voluntary investment of up to 20% of the performance bonus (gross) for the previous year remain in effect unchanged. The option rights hereby granted are a component of the compensation for the Board of Executive Directors for the fiscal year 2019 and were granted in accordance with the previous program’s terms as of July 1, 2020. Owing to the maximum program duration of eight years, exercise gains from the option program may be allocated to members of the Board of Executive Directors up until June 30, 2028, at the latest.

The pension entitlements acquired until December 31, 2019, under the previous pension benefits are maintained as vested rights and upon retirement, disability or death can be accessed by the member of the Board of Executive Directors or by the surviving dependents as a company pension or retirement capital in accordance with the previous rules.

Targets and determination of target achievement for the variable compensation components 2020

Performance bonus (short-term incentive, STI) 2020

The STI is based on an annual target agreement between the Supervisory Board and the Board of Executive Directors as well as on the return on capital employed (ROCE). These targets are in line with the outlook for 2020 published in the forecast. The amount of the STI is calculated by multiplying the target amount by the performance factor derived from the target achievement and by the ROCE factor. If the ROCE is below the threshold of 4%, the compensation system stipulates that the Supervisory Board determines the ROCE factor by special resolution, either as zero or a value larger than zero. If the ROCE factor is zero, the STI would also be zero, regardless of the achievement of the agreed operational and strategic targets.

In the year 2020, BASF Group’s ROCE was 1.7% and thus below the target of earning a premium on the cost of capital as well as below the threshold for the ROCE. The main reasons for this were the slowdown in business – particularly in the second quarter – and the negative impact on earnings resulting from impairments to fixed assets.

As required by the compensation system, the Supervisory Board determined an ROCE factor of 0.3 by special resolution. This corresponds to the value that would be achieved with an ROCE of 4% and equates to half the level of 2019. The following factors were relevant in this decision:

The economic conditions in 2020 developed in an unforeseeable and exceptional way due to the coronavirus pandemic. The Board of Executive Directors reacted quickly, energetically and effectively, ensured the protection of employees and steered BASF well through this difficult phase with a focus on costs and liquidity.

At the same time, the Board of Executive Directors demonstratively took on social responsibility by, for example, producing and donating disinfectant for clinics and doctors’ offices and by procuring masks. The Supervisory Board wants to expressly recognize these achievements. Moreover, efforts to advance BASF’s strategic further development were unabated. Finally, the operational and strategic targets were largely achieved. Despite the decline in earnings, based on the target agreement, the performance factor amounts to 0.95:

  • The EBIT target was clearly missed.
  • The free cash flow target was not reached.
  • The targets from the Excellence Program were exceeded.
  • A further improvement in customer and employee satisfaction was achieved.
  • Sales of products that make a substantial contribution to sustainability (Accelerators) increased.
  • The target for investments in growth focus areas was met.
  • Synergies from acquisitions and joint ventures were above the target level.

Based on the defined parameters, the performance bonus for a full-year member of the Board of Executive Directors is calculated as shown below. In light of the exceptional circumstances and the achievements of the Board of Executive Directors in 2020, the Supervisory Board considers this bonus to be appropriate and fair. The Supervisory Board did not make use of the possibility, in very exceptional cases (such as a severe economic crisis), to temporarily deviate from the components of the compensation system for the Board of Executive Directors.

Performance-Bonus (Short-Term-Incentive, STI) 2020 (graphic)

LTI target achievement for the performance year 2020

The rates of target achievement for the first year of the four-year performance period 2020–2023 of the 2020 LTI program were as follows:

Strategic targets for the LTI 2020 (2020–2023)

 

 

Target / benchmark 2020

Actual
2020

Target achievement in %

Grow sales volumes faster than global chemical production every year

(in %)

–0.4

–0.5

90a

Increase EBITDA before special items by 3% to 5% per year

(in %)

4.0

–9.5b

0

CO2-neutral growth, i.e., emissions no greater than 21.9 million metric tons CO2 equivalents

(in million metric tons of CO2 equivalents)

21.9

20.8

137

Weighted target achievement

(in %)

 

 

76

a

In 2020, BASF’s sales volumes (–0.5%) declined at a faster rate than global chemical production (–0.4% as of February 15, 2021). The target would have been 100% achieved if BASF’s sales volumes had declined by 0.1 percentage points less than global chemical production.

b

Based on the original baseline value for EBITDA before special items of €8,217 million for 2019

The degrees of target achievement determined for 2020 are fixed. At the end of the four-year performance period, they are added together to one arithmetic mean with the degrees of target achievement in the following years.

SPF2020 for the deferral components from the performance bonus programs 2018 and 2019

The still-running deferral components from the performance bonus 2018 (2018–2021) and 2019 (2019–2022) will be continued as planned in accordance with the terms of the previous program and will be paid out. To assess the strategic performance, the Supervisory Board will therefore determine a separate strategic performance factor (SPF) for each of the years 2020, 2021 and 2022. For the performance bonus 2018 (2018–2021) as well as the performance bonus 2019 (2019–2022), the Supervisory Board determined an SPF2020 of 1.0.

Comparison of the previous and new compensation systems for the Board of Executive Directors

The new compensation system for the Board of Executive Directors reduces complexity by discontinuing one component of the compensation (performance bonus, part 2). The defined annual target amounts for the pension contribution and for the new LTI also increase transparency. This new system did not result in an increase compared with the average total target compensation for 2017–2019.

 

Compensation system for the Board of Executive Directors until the end of 2019

New compensation system for the Board of Executive Directors as of 2020

Annual variable compensation

Performance bonus

  • The key performance indicator for the company’s success is the return on capital employed (ROCE).
  • Relevant performance factors are the operational performance factor (OPF) for the current fiscal year and the strategic performance factors (SPF) for the current and the following three fiscal years.
  • 50% paid out at the end of the current fiscal year and 50% after the end of the four-year performance period

Performance bonus, short-term incentive (STI)

  • The key performance indicator for the company’s success is the return on capital employed (ROCE).
  • A performance factor is assigned based on the assessment of the achievement of operational and strategic targets in the past fiscal year.
  • The actual STI amount is paid out following the Annual Shareholders’ Meeting subsequent to the current fiscal year.

Long-term incentive program (LTI)

  • Long-term, share price-based incentive program
  • Performance period of up to eight years
  • Mandatory individual investment of 10% of the performance bonus (gross); up to an additional 20% of the performance bonus (gross) can be invested on a voluntary basis
  • Long-term compensation program in the form of a performance share plan
  • The new LTI plan incentivizes the achievement of strategic goals and takes into consideration the development of the BASF share and dividend (total shareholder return) over a period of four years.
  • New, longer-term mandatory share ownership guideline as a component of service contracts for members of the Board of Executive Directors stipulating a shareholding worth 150% of the member’s fixed compensation

Company pension benefits

  • The variable component of the pension unit is the result of multiplying the fixed pension component with a performance factor based on the relevant ROCE in the reporting year concerned, as well as the performance factors relevant to the performance bonus.
  • The pensionable age for Board members (Board Performance Pension) was raised from 60 to 63 years for new members appointed to the Board of Executive Directors after January 1, 2017.
  • Option to choose between payment of pension entitlements in the form of a lifelong pension or a lump sum
  • The previous company pension benefits granted to members of the Board of Executive Directors (Board Performance Pension, deferred compensation program and basic coverage under BASF Pensionskasse) are discontinued as of January 1, 2020.
  • Effective January 1, 2020, the company offers members of the Board of Executive Directors a defined contribution pension commitment in the form of a capital investment model.
  • The company grants the members of the Board of Executive Directors a fixed annual pension plan contribution.
  • A members of the Board of Executive Directors has the option to instead choose a pension allowance for private retirement savings, which is then paid out in equal monthly installments.

Withholding and clawback clause

  • Withholding and clawback clause for the performance bonus and the LTI program
  • No change, withholding and clawback clause applies for the performance bonus (STI) and the LTI program

Amount of total compensation in reporting year 2020

The tables below, which are based on the sample tables in the German Corporate Governance Code in the version dated February 7, 2017 (GCGC 2017), show the granted and allocated compensation as well as service cost of each member of the Board of Executive Directors.

Compensation granted in accordance with the German Corporate Governance Code (GCGC 2017)

The table “Compensation granted in accordance with the German Corporate Governance Code (GCGC) 2017” shows: fixed salary, fringe benefits, performance bonus, LTI programs measured at fair value as of the grant date and/or the target value and pension benefits. 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 the German Corporate Governance Code (GCGC) 2017” due to the disclosures required by section 314(1) no. 6a of the German Commercial Code (HGB) in connection with the German Accounting Standard 17 (GAS 17).

Compensation granted in accordance with the German Corporate Governance Code (GCGC 2017) (Thousand €)

 

Dr. Martin Brudermüller

Dr. Hans-Ulrich Engel

 

Chairman of the
Board of Executive Directors

Vice Chairman of the
Board of Executive Directors

 

2019

2020

2020 (min.)

2020 (max.)

2019

2020

2020 (min.)

2020 (max.)

Fixed salary

1,600

1,600

1,600

1,600

1,064

1,064

1,064

1,064

Fringe benefits

60

56

56

700

69

62

62

633

Regularly provided fringe benefits

60

56

56

100

69

62

62

100

Event-related fringe benefits

600

533

Delegation-related fringe benefitsa

Total

1,660

1,656

1,656

2,300

1,133

1,126

1,126

1,697

One-year variable compensation

1,600

2,000

0

4,000

1,064

1,330

0

2,660

50% of the 2019 performance bonus (2019–2022)

1,600

1,064

Short-term incentive 2020

2,000

0

4,000

1,330

0

2,660

Multiple-year variable compensation

2,346

3,348

0

8,507

1,577

2,226

0

5,657

50% of the 2019 performance bonus (2019–2022), deferral component

1,600

1,064

LTI program 2019 (2019–2027)

746

513

LTI program 2020 (2020–2028)b

548

0

2,907

364

0

1,933

LTI performance share plan 2020 (2020–2023)

2,800

0

5,600

1,862

0

3,724

Total

5,606

7,004

1,656

14,807

3,774

4,682

1,126

10,014

Company pension benefits

573

1,000

1,000

1,000

366

665

665

665

Service cost

573

366

Pension contribution/pension allowance

1,000

1,000

1,000

665

665

665

Total compensation in accordance with GCGC 2017

6,179

8,004

2,656

15,807

4,140

5,347

1,791

10,679

 

 

 

 

 

 

 

 

 

Reconciliation reporting of total compensation pursuant to section 314(1) no. 6a HGB in connection with GAS 17

 

 

 

 

 

 

 

 

Less granted 2019 performance bonus (2019–2022), (one-year component and deferral components)

–3,200

 

 

–2,128

 

 

Less granted short-term incentive 2020

–2,000

 

 

–1,330

 

 

Less difference between target amount and market value at grant date for LTI performance share plan 2020 (2020–2023)

–69

 

 

–46

 

 

Less voluntary relinquishment of salary (20% of fixed salary) in second quarter of 2020

–80

 

 

–53

 

 

Plus allocated actual annual variable compensation (performance bonus, part 1)

969

 

 

644

 

 

Plus allocated actual annual variable compensation (short-term incentive 2020)

570

 

 

379

 

 

Plus allocated multiple-year variable actual compensation LTI 2012 (2012–2020)

 

 

 

 

Less service cost

–573

 

 

–366

 

 

Less pension contribution/pension allowance

–1,000

 

 

–665

 

 

Total compensation

3,375

5,425

 

 

2,290

3,632

 

 

a

Figures only reported under 2020 (min.)/2020 (max.) if delegation-relation fringe benefits were granted in the year 2020.

b

Members of the Board of Executive Directors had the opportunity to participate for the last time in the BASF option program as of July 1, 2020, based on their performance bonus (gross) for the year 2019. The option rights granted are a component of the compensation for the Board of Executive Directors for the fiscal year 2019.

Compensation granted in accordance with the German Corporate Governance Code (GCGC 2017) (Thousand €)

 

Saori Dubourg

Michael Heinz

 

 

 

 

2019

2020

2020 (min.)

2020 (max.)

2019

2020

2020 (min.)

2020 (max.)

Fixed salary

800

800

800

800

800

800

800

800

Fringe benefits

356

494

494

600

36

40

40

600

Regularly provided fringe benefits

59

62

62

100

36

40

40

100

Event-related fringe benefits

297

432

432

500

500

Delegation-related fringe benefitsa

Total

1,156

1,294

1,294

1,400

836

840

840

1,400

One-year variable compensation

800

1,000

0

2,000

800

1,000

0

2,000

50% of the 2019 performance bonus (2019–2022)

800

800

Short-term incentive 2020

1,000

0

2,000

1,000

0

2,000

Multiple-year variable compensation

1,001

1,674

0

4,254

1,221

1,674

0

4,254

50% of the 2019 performance bonus (2019–2022), deferral component

800

800

LTI program 2019 (2019–2027)

201

421

LTI program 2020 (2020–2028)b

274

0

1,454

274

0

1,454

LTI performance share plan 2020 (2020–2023)

1,400

0

2,800

1,400

0

2,800

Total

2,957

3,968

1,294

7,654

2,857

3,514

840

7,654

Company pension benefits

704

500

500

500

387

500

500

500

Service cost

704

387

Pension contribution/pension allowance

500

500

500

500

500

500

Total compensation in accordance with GCGC 2017

3,661

4,468

1,794

8,154

3,244

4,014

1,340

8,154

 

 

 

 

 

 

 

 

 

Reconciliation reporting of total compensation pursuant to section 314(1) no. 6a HGB in connection with GAS 17

 

 

 

 

 

 

 

 

Less granted 2019 performance bonus (2019–2022), (one-year component and deferral components)

–1,600

 

 

–1,600

 

 

Less granted short-term incentive 2020

–1,000

 

 

–1,000

 

 

Less difference between target amount and market value at grant date for LTI performance share plan 2020 (2020–2023)

–34

 

 

–34

 

 

Less voluntary relinquishment of salary (20% of fixed salary) in second quarter of 2020

–40

 

 

–40

 

 

Plus allocated actual annual variable compensation (performance bonus, part 1)

485

 

 

485

 

 

Plus allocated actual annual variable compensation (short-term incentive 2020)

285

 

 

285

 

 

Plus allocated multiple-year variable actual compensation LTI 2012 (2012–2020)

 

 

 

 

Less service cost

–704

 

 

–387

 

 

Less pension contribution/pension allowance

–500

 

 

–500

 

 

Total compensation

1,842

3,179

 

 

1,742

2,725

 

 

a

Figures only reported under 2020 (min.)/2020 (max.) if delegation-relation fringe benefits were granted in the year 2020.

b

Members of the Board of Executive Directors had the opportunity to participate for the last time in the BASF option program as of July 1, 2020, based on their performance bonus (gross) for the year 2019. The option rights granted are a component of the compensation for the Board of Executive Directors for the fiscal year 2019.

Compensation granted in accordance with the German Corporate Governance Code (GCGC 2017) (Thousand €)

 

Dr. Markus Kamieth

Wayne T. Smith

 

 

 

 

2019

2020

2020 (min.)

2020 (max.)

2019

2020

2020 (min.)

2020 (max.)

Fixed salary

800

800c

800c

800c

800c

800c

800c

800c

Fringe benefits

46

593

593

3,600

340

323

323

3,600

Regularly provided fringe benefits

46

36

36

100

28

19

19

100

Event-related fringe benefits

500

500

Delegation-related fringe benefitsa

557

557

3,000

312

304

304

3,000

Total

846

1,393

1,393

4,400

1,140

1,123

1,123

4,400

One-year variable compensation

800

1,000

0

2,000

800

1,000

0

2,000

50% of the 2019 performance bonus (2019–2022)

800

800

Short-term incentive 2020

1,000

0

2,000

1,000

0

2,000

Multiple-year variable compensation

1,221

1,674

0

4,254

1,312

1,736

0

4,254

50% of the 2019 performance bonus (2019–2022), deferral component

800

800

LTI program 2019 (2019–2027)

421

512

LTI program 2020 (2020–2028)b

274

0

1,454

336

0

1,454

LTI performance share plan 2020 (2020–2023)

1,400

0

2,800

1,400

0

2,800

Total

2,867

4,067

1,393

10,654

3,252

3,859

1,123

10,654

Company pension benefits

699

500

500

500

491

500

500

500

Service cost

699

491

Pension contribution/pension allowance

500

500

500

500d

500d

500d

Total compensation in accordance with GCGC 2017

3,566

4,567

1,893

11,154

3,743

4,359

1,623

11,154

 

 

 

 

 

 

 

 

 

Reconciliation reporting of total compensation pursuant to section 314(1) no. 6a HGB in connection with GAS 17

 

 

 

 

 

 

 

 

Less granted 2019 performance bonus (2019–2022), (one-year component and deferral components)

–1,600

 

 

–1,600

 

 

Less granted short-term incentive 2020

–1,000

 

 

–1,000

 

 

Less difference between target amount and market value at grant date for LTI performance share plan 2020 (2020–2023)

–34

 

 

–34

 

 

Less voluntary relinquishment of salary (20% of fixed salary) in second quarter of 2020

–40

 

 

–40

 

 

Plus allocated actual annual variable compensation (performance bonus, part 1)

485

 

 

485

 

 

Plus allocated actual annual variable compensation (short-term incentive 2020)

285

 

 

285

 

 

Plus allocated multiple-year variable actual compensation LTI 2012 (2012–2020)

 

 

431

 

 

Less service cost

–699

 

 

–491

 

 

Less pension contribution/pension allowance

–500

 

 

–500

 

 

Total compensation

1,752

3,278

 

 

2,137

3,501

 

 

a

Figures only reported under 2020 (min.)/2020 (max.) if delegation-relation fringe benefits were granted in the year 2020.

b

Members of the Board of Executive Directors had the opportunity to participate for the last time in the BASF option program as of July 1, 2020, based on their performance bonus (gross) for the year 2019. The option rights granted are a component of the compensation for the Board of Executive Directors for the fiscal year 2019.

c

Payment was made partly in local currency abroad based on a theoretical net salary in Germany.

d

Wayne T. Smith opted for the pension allowance for private retirement savings.

Compensation allocated in accordance with the German Corporate Governance Code (GCGC 2017)

The “Compensation allocated in accordance with the German Corporate Governance Code (GCGC) 2017” presented comprises the fixed and variable compensation components actually allocated, plus the pension benefits granted to each member of the Board of Executive Directors in the reporting years (2020: pension contribution; 2019: service cost for previous pension plan) even though these do not actually represent payment in the narrower sense.

Allocation in accordance with GCGC 2017 (Thousand €)

 

Dr. Martin Brudermüller

Dr. Hans-Ulrich Engel

 

Chairman of the
Board of Executive Directors

Vice Chairman of the
Board of Executive Directors

 

2019

2020

2019

2020

Fixed salarya

1,600

1,520

1,064

1,011

Fringe benefits

60

56

69

62

Regularly provided fringe benefits

60

56

69

62

Event-related fringe benefits

Delegation-related fringe benefits

Total

1,660

1,576

1,133

1,073

One-year variable compensation

969

570

644

379

Performance bonus 2019 (2019–2022), part 1b

969

644

Short-term incentive 2020c

570

379

Multiple-year variable compensation

LTI 2011 (2011–2019)

LTI 2012 (2012–2020)

LTI 2013 (2013–2021)

LTI 2014 (2014–2022)

LTI 2015 (2015–2023)

LTI 2016 (2016–2024)

Total

2,629

2,146

1,777

1,452

Company pension benefits

573

1,000

366

665

Service cost

573

366

Pension contribution/pension allowance

1,000

665

Total compensation in accordance with GCGC 2017

3,202

3,146

2,143

2,117

a

The members of the Board of Executive Directors each voluntarily relinquished 20% of their fixed annual salary for the period from April 1 until June 30, 2020.

b

The basis for the performance bonus, part 1, is the ROCE factor and the average of the operating performance factor (OPF) and the strategic performance factor (SPF) in the year the performance bonus was granted. This includes contributions made to the deferred compensation program. 50% of the actual performance bonus is paid out; the remaining 50% of the actual performance bonus is not paid out for another three years (deferral component).

c

The basis for the short-term incentive (STI) is the ROCE factor and the performance factor in year the STI is granted. 100% of the actual STI is paid out.

Allocation in accordance with GCGC 2017 (Thousand €)

 

Saori Dubourg

Michael Heinz

 

 

 

 

2019

2020

2019

2020

Fixed salarya

800

760

800

760

Fringe benefits

356

494

36

40

Regularly provided fringe benefits

59

62

36

40

Event-related fringe benefits

297

432

Delegation-related fringe benefits

Total

1,156

1,254

836

800

One-year variable compensation

485

285

485

285

Performance bonus 2019 (2019–2022), part 1b

485

485

Short-term incentive 2020c

285

285

Multiple-year variable compensation

LTI 2011 (2011–2019)

LTI 2012 (2012–2020)

LTI 2013 (2013–2021)

LTI 2014 (2014–2022)

LTI 2015 (2015–2023)

LTI 2016 (2016–2024)

Total

1,641

1,539

1,321

1,085

Company pension benefits

704

500

387

500

Service cost

704

387

Pension contribution/pension allowance

500

500

Total compensation in accordance with GCGC 2017

2,345

2,039

1,708

1,585

a

The members of the Board of Executive Directors each voluntarily relinquished 20% of their fixed annual salary for the period from April 1 until June 30, 2020.

b

The basis for the performance bonus, part 1, is the ROCE factor and the average of the operating performance factor (OPF) and the strategic performance factor (SPF) in the year the performance bonus was granted. This includes contributions made to the deferred compensation program. 50% of the actual performance bonus is paid out; the remaining 50% of the actual performance bonus is not paid out for another three years (deferral component).

c

The basis for the short-term incentive (STI) is the ROCE factor and the performance factor in year the STI is granted. 100% of the actual STI is paid out.

Allocation in accordance with GCGC 2017 (Thousand €)

 

Dr. Markus Kamieth

Wayne T. Smith

 

 

 

 

2019

2020

2019

2020

Fixed salarya

800

760d

800d

760d

Fringe benefits

46

593

340

323

Regularly provided fringe benefits

46

36

28

19

Event-related fringe benefits

Delegation-related fringe benefits

557

312

304

Total

846

1,353

1,140

1,083

One-year variable compensation

485

285

485

285

Performance bonus 2019 (2019–2022), part 1b

485

485

Short-term incentive 2020c

285

285

Multiple-year variable compensation

431

LTI 2011 (2011–2019)

LTI 2012 (2012–2020)

431e

LTI 2013 (2013–2021)

LTI 2014 (2014–2022)

LTI 2015 (2015–2023)

LTI 2016 (2016–2024)

Total

1,331

1,638

1,625

1,799

Company pension benefits

699

500

491

500

Service cost

699

491

Pension contribution/pension allowance

500

500f

Total compensation in accordance with GCGC 2017

2,030

2,138

2,116

2,299

a

The members of the Board of Executive Directors each voluntarily relinquished 20% of their fixed annual salary for the period from April 1 until June 30, 2020.

b

The basis for the performance bonus, part 1, is the ROCE factor and the average of the operating performance factor (OPF) and the strategic performance factor (SPF) in the year the performance bonus was granted. This includes contributions made to the deferred compensation program. 50% of the actual performance bonus is paid out; the remaining 50% of the actual performance bonus is not paid out for another three years (deferral component).

c

The basis for the short-term incentive (STI) is the ROCE factor and the performance factor in year the STI is granted. 100% of the actual STI is paid out.

d

Payment was made partly in local currency abroad based on a theoretical net salary in Germany.

e

In 2020, at the end of the regular term of the LTI program 2012, exercise gains that were realized in 2017 were allocated to Wayne T. Smith in accordance with the special conditions of the U.S. LTI program.

f

Wayne T. Smith opted for the pension allowance for private retirement savings.

The members of the Board of Executive Directors each voluntarily relinquished 20% of their fixed salary for the period from April 1, 2020, until June 30, 2020.

The table below shows the options granted to the Board of Executive Directors on July 1 of both reporting years. Option rights under the BASF option program were granted for the last time in 2020.

Number of options granted

 

2020

2019

Dr. Martin Brudermüller

45,368

44,024

Saori Dubourg

22,684

11,880

Dr. Hans-Ulrich Engel

30,168

30,268

Michael Heinz

22,684

24,880

Dr. Markus Kamieth

22,684

24,880

Wayne T. Smith

22,684

24,880

Total

166,272

160,812a

a

In the 2019 fiscal year, 24,880 option rights were granted to Sanjeev Gandhi, who left the Board of Executive Directors as of December 31, 2019.

In 2020, members of the Board of Executive Directors were for the first time granted Performance Share Units (PSUs) under the new LTI program. The following table shows the number of PSUs granted as of January 1.

Number of performance share units (PSUs) granted

 

2020

2019

Dr. Martin Brudermüller

41,268

Saori Dubourg

20,634

Dr. Hans-Ulrich Engel

27,443

Michael Heinz

20,634

Dr. Markus Kamieth

20,634

Wayne T. Smith

20,634

Total

151,247

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

In 2020, the option rights granted resulted in an expense. This expense refers to the total of all option rights from the LTI programs 2012 to 2020 and is calculated as the difference in the fair value of the option rights on December 31, 2020, compared with the fair value on December 31, 2019, considering the option rights exercised and granted in 2020. The fair value of the option rights is based primarily on the development of the BASF share price and its relative performance compared with the benchmark index, the MSCI World Chemicals Index.

The expenses reported below are purely accounting figures that do not equate with the actual gains should options be exercised. Each member of the Board of Executive Directors 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 outstanding option rights held by the members of the Board of Executive Directors resulted in the following expenses in 2020: Dr. Martin Brudermüller: expense of €266 thousand (2019: expense of €464 thousand); Dr. Hans-Ulrich Engel: expense of €152 thousand (2019: expense of €339 thousand); Saori Dubourg: expense of €136 thousand (2019: expense of €66 thousand); Michael Heinz: expense of €172 thousand (2019: expense of €334 thousand); Dr. Markus Kamieth: expense of €203 thousand (2019: expense of €124 thousand); and Wayne T. Smith: expense of €914 thousand (2019: expense of €298 thousand).

In 2020, the performance share units granted as part of the new LTI resulted in an expense. This expense refers to the total of all performance share units from the LTI program 2020 and is calculated as the difference in the fair value of the performance share units on December 31, 2020, compared with the fair value on December 31, 2019. The fair value of the performance share units is based primarily on the expected development of the BASF share price and the dividend as well as assumptions relating to the expected weighted level of target achievement for the three strategic targets in the four-year performance period.

The expenses reported below are purely accounting figures that do not equate with the actual inflows from the LTI at the end of the four-year performance.

The performance share units granted to the members of the Board of Executive Directors resulted in the following expenses in 2020 (2019: not applicable): Dr. Martin Brudermüller: expense of €642 thousand; Dr. Hans-Ulrich Engel: expense of €427 thousand; Saori Dubourg: expense of €321 thousand; Michael Heinz: expense of €321 thousand; Dr. Markus Kamieth: expense of €321 thousand; Wayne T. Smith: expense of €909 thousand.

For more information on the LTI program, see:
Compensation and benefits
Note 30

Company pension benefits

The values for the company pension benefits granted to the members of the Board of Executive Directors in 2020 are shown individually in the tables “Compensation granted in accordance with GCGC 2017” and “Compensation allocated in accordance with GCGC 2017.” Effective January 1, 2020, the company offers members of the Board of Executive Directors a defined contribution pension commitment in the form of a capital investment model. The company grants the members of the Board of Executive Directors a fixed annual pension plan contribution. The pension entitlements acquired until December 31, 2019, under the previous company pension system are maintained as vested rights and upon retirement, disability or death can be accessed by the member of the Board of Executive Directors or by the surviving dependents as a company pension or retirement capital in accordance with the previous rules.

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 table below shows the defined benefit obligations for the pension entitlements accrued until the end of 2020 (as of December 31 in each case).

Present value of the defined benefit obligation (Thousand €)

 

2020

2019

Dr. Martin Brudermüller

19,490

18,171

Saori Dubourg

6,611

6,983

Dr. Hans-Ulrich Engel

16,219

14,081

Michael Heinz

16,253

15,201

Dr. Markus Kamieth

7,100

5,797

Wayne T. Smith

6,417

6,251

Total

72,090

66,484a

a

In the 2019 fiscal year, the present value of the defined benefit obligation for the pension entitlements accrued until the end of 2019 by Sanjeev Gandhi, who left the Board of Executive Directors as of December 31, 2019, amounted to €4,824 thousand.

End-of-service benefits

In the event that a member of the Board of Executive Directors appointed before 2017 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 under the system in effect until 2019 if they have served on the Board for at least 10 years or if the period until they reach legal retirement age is less than 10 years. The company is entitled to offset compensation received for any other employment against pension benefits until the legal retirement age is reached.

This rule no longer applies for any member who was appointed to the Board of Executive Directors after January 1, 2017.

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 fiscal year and, if appropriate, also the expected total compensation for the current fiscal year.

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 mandate as a one-off payment; however, this amount also may not exceed the value of two years’ compensation. The outstanding pension contributions until the end of the regular contractual term of office shall be paid as a one-time gross payment.

Former members of the Board of Executive Directors

Total compensation for previous Board members and their surviving dependents amounted to €12.5 million in 2020 (2019: €11.5 million). This figure also contains payments that previous Board members have themselves financed through the deferred compensation program, as well as the income for 2020 relating to option rights that previous members of the Board still hold from the time of their active service period. Moreover, this figure contains non-compete compensation paid to a former member of the Board of Executive Directors. The increase in total compensation resulted from two opposing effects: On the one hand, the fair value measurement of option rights resulted in income of €0.7 million overall in 2020, mainly due to the higher accounting valuation of the option rights due to the increased share price (2019: expense of €0.6 million). On the other hand, the inclusion of the non-compete compensation led to an expense of €2.0 million in 2020.

Option rights that have not yet been exercised on retirement are to be continued under the conditions of the program including the associated holding period to emphasize that the compensation for the Board of Executive Directors is geared to sustainability.

Total compensation of former members of the Board of Executive Directors and their surviving dependents (Million €)

 

2020

2019

Retirement and surviving dependents’ pensions

11.2

10.9

Income/expense from the fair value measurement of option rights

–0.7

0.6

Non-compete compensationa

2.0

Total

12.5

11.5

a

Sanjeev Gandhi stepped down from the Board of Executive Directors effective the end of December 31, 2019. Based on the termination agreement, non-compete compensation was agreed for a two-year, post-contractual non-compete obligation.

Pension provisions for previous Board members and their surviving dependents amounted to €209.0 million (2019: €198.2 million).