2017 Integrated Report – Departure into a new era

The compensation system of the Management Board

The compensation system for the Management Board of DB AG aims to provide appropriate compensation to the Management Board members in accordance with their duties and areas of responsibility, while at the same time directly taking into account the performance of each Management Board member and the success of the company.

The appropriate level of compensation is reviewed regularly using a comparison process. This review examines the level of Management Board compensation both in comparison to the external market (horizontal appropriateness) and in comparison to other levels of compensation within the company (vertical appropriateness). If the review shows a need to adjust the compensation system or the level of compensation, the Personnel Committee of the Supervisory Board submits its proposals in this regard to the Supervisory Board for approval. The appropriateness of Management Board compensation was last reviewed in 2016.

Compensation components

The total compensation for Management Board members consists of a fixed salary, a performance-linked annual director’s fee and a long-term incentive plan based on multi-year figures. Total compensation also includes benefit commitments, other commitments and ancillary benefits.

The fixed salary is cash compensation linked to the fi­nan­­cial year. It is based on the scope of responsibility and the experience of each Management Board member. The individually defined fixed income is paid out in 12 equal installments.

The annual performance-linked director’s fee is calculated using a factor linked to the achievement of business targets (director’s fee factor) and the achievement of individual targets (performance factor). There is a multiplicative link between the director’s fee factor and the performance factor. The director’s fee factor depends on the level of success in attaining the business targets set out by corporate planning. The parameters for this relationship are in equal parts operational success (operating income after interest) and return on capital employed (ROCE).

The performance factor reflects success in meeting personal targets. The target fee corresponds to the annual director’s fee paid to the Management Board member in a “normal financial year” for fully meeting performance targets (meeting targets). If the Group results do not meet planned objectives, the director’s fee factor can, in extreme cases, be reduced to zero, regardless of personal performance. This means that the annual director’s fee can be zero. If planned objectives are sufficiently exceeded and the maximum performance factor is also achieved, the annual director’s fee can amount to 2.6 times the target director’s fee.

The business and personal targets of the Management Board members are decided by the Supervisory Board each year based on recommendations from the Personnel Committee, and are then agreed in writing with the Management Board members.

Together with the corporate planning adopted by the Supervisory Board, the personal targets form the basis for assessing the annual director’s fee. This means that all of the key parameters for total compensation are established at the beginning of the financial year.

At the end of each financial year, the director’s fee and the personal performance factor are calculated for each Management Board member based on Group results. Target income is attained if both business goals and individual targets have been met in full. The final decision on this matter is made by the Supervisory Board and is prepared by the Personnel Committee.The methodology for calculating the long-term incentive plan for the Management Board has been changed, starting with the 2017 tranche. The basis for assessing the long-term element of compensation is now a customary return on cap­­­ital, based on equity value. Aligning the long-term incentive to the equity value rewards sustainable increases in the value of the company. After the end of each planning period, the increase in value achieved in comparison to the company’s original planning and the payment factor are calculated. The term of each plan is four years. The payment amount for the long-term incentive plan has an upper limit and can vary between 0 and 250%. Claims from the long-term incentive plan are inheritable.

The Management Board members are entitled to an appropriate severance package if their contract is terminated before the contractually stipulated termination date, provided that the Management Board member was not personally responsible for the termination through his or her actions. The severance package is based on the remaining term of the contract, the agreed target salary and, where applicable, the pension benefits already owed by DB AG for the remainder of the contract.

In accordance with the recommendations of the PCGK, a severance payment cap is included in all contracts of DB AG Management Board members. This cap means that payments made to a Management Board member due to premature termination of Management Board duties without good cause as defined by section 626 of the German Civil Code (Bürgerliches Gesetzbuch; BGB) cannot exceed the value of two years’ salary, including variable compensation components, and must not provide compensation for more than the remaining term of the employment agreement.

Management Board members do not receive any additional compensation for mandates exercised in control bodies of Group companies or affiliated companies.

Group-wide compensation system for executives

The compensation system for executives aims primarily to closely link compensation to the sustainable success of the company in the sense of the business success of the integrated rail system and of DB Group as well as the alignment of all divisions toward this objective. 

The annual director’s fee for executives and employees not subject to wage agreements in the integrated rail system are structured as profit shares. Personal goals are then agreed with executives as part of a regular process. The achievement of the goals is regularly included in the assessment when making decisions on increases to the fixed salary. If the executives are members of bodies of DB AG subsidiaries, the respective subsidiary’s Supervisory Board is responsible for discussing the personal goals if possible until the end of a financial year. As a rule, the respective decision-making will take place after the DB AG Supervisory Board meeting in which the mid-term planning and the targets for the Group’s Management Board are adopted. This chronological sequence of the handling of personal goals in the Supervisory Boards of the subsidiaries is due to the Group structure of DB AG.

In some cases, given the regulatory requirements, DB Netz AG is subject to separate regulatory requirements which take even greater account of the business success of DB Netz AG.

Pension entitlements

The Supervisory Board of DB AG has set a general retirement age of 65 for Management Board members. After leaving the company, Management Board members are entitled to pension payments. At the latest upon reaching the age of 65, a Management Board member is entitled to a lifelong pension if the term of employment ends due to permanent invalidity, or if the contract is terminated before the agreed termination date or is not extended, where the Board member was not responsible for the termination, or if the Management Board member refuses to continue the contract under the same or more beneficial conditions. 

The system governing benefit commitments to Management Board members was amended in the year under review. Members appointed to the Management Board for the first time in 2017 and thereafter receive a defined benefit commitment under which a capital stock is saved up for the Board member for the duration of their employment and paid out when they reach retirement age. An annual amount derived as a specific percentage of fixed salary is paid into the defined contribution plan.

Company pension commitments for Management Board members already in office at the start of 2017 are based on a percentage of the basic salary depending on the length of time that the Management Board member has been with the company. Pension commitments include lifelong retirement and surviving dependent benefits. There is no lump-s­um payment option.

In addition to Management Board member contracts entered into before January 1, 2009, a reinsurance policy was concluded to cover company pension benefits.

Contractual ancillary benefits

The contractual ancillary benefits for members of the Management Board include a company car with driver for business and personal use, a personal BahnCard 100 First free travel card and standard insurance coverage. A housing allowance is provided for second homes where these are required for business purposes. Where these monetary benefits cannot be granted on a tax-free basis, they are taxed as non-monetary benefits for which the Management Board members are fully responsible. Management Board members, like any other member of the Group’s executive staff, can choose to take part in the company’s deferred compensation program.

The members of the Management Board are covered by liability insurance against financial losses incurred due to DB AG’s business operations (D&O insurance). In the year under review, this insurance was designed as a Group insurance policy with the deductible provided for under law; it provides coverage for financial losses that may occur during the performance of Management Board activities. The insurance coverage of the existing D&O insurance policy is 

valid for a period of five years after the termination of activities as a member of the Management Board. 

Compensation for the 2017 financial year

The director’s fee for the previous financial year is due at the end of the month in which the company’s Annual General Meeting takes place. 

The members of the DB AG Management Board will receive the following compensation for their work during the year under review:

Total compensation of the Management Board
(€ thousand)

Fixed
compensation

Compensation in connection with the early termination
of service

Variable compensation

Other 3)

Total 4)

Short-term 1)

Long-term
(payment
in 2017)

Long-term 2)

Incumbent members of the Management Board of DB AG as of Dec 31, 2017

Dr. Richard Lutz

844

1,045

47

20

1,909

Ulrich Weber

715

837

15

9

1,561

Ronald Pofalla

594

723

184

29

1,345

Berthold Huber

594

629

184

28

1,251

Prof. Dr. Sabina Jeschke (since Nov 10, 2017)

57

70

104

0

127

2,804

3,304

534

85

6,193

Members who left the Management Board
of DB AG during the year under review

Dr. Rüdiger Grube (until Jan 30, 2017)

75

2,251

–165

2

2,328

Total

2,879

2,251

3,304

369

87

8,521

Individual figures are rounded and therefore may not add up.
1) Subject to the decision of the Supervisory Board.
2) Long-term variable compensation refers to additions to and releases of provisions for long-term incentives.
3) Monetary benefits accruing from travel discounts, usage of company cars, and insurance and housing allowances.
4) Total without long-term variable compensation.

In the year under review, no members of the Management Board of DB AG received benefits or promises of benefits from a third party with regard to their activities as a member of the Management Board.

Pension benefits of the Management Board in the 2017 financial year

During the year under review, an amount totaling € 1,940 thousand was added to the pension provisions.

Additions to pension provisions (€ thousand)

2017

Incumbent members of the Management Board
of DB AG as of Dec 31, 2017

Dr. Richard Lutz

223

Ulrich Weber

101

Ronald Pofalla

190

Berthold Huber

523

Prof. Dr. Sabina Jeschke (since Nov 10, 2017)

33

1,070

Members who left the Management Board
of DB AG during the year under review

Dr. Rüdiger Grube (until Jan 30, 2017)

870

Total

1,940

Individual figures are rounded and therefore may not add up.

Pension provisions for former members of the Management Board are shown in total in the Notes to the consolidated financial statements.