Chairman’s Letter
Compensation Report
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Management Report
Compensation Report
The members of the Board of Management receive a fixed salary, composed of a base salary and a fixed supplement. Additionally, remuneration in kind and other benefits, and variable compensation are granted. The variable compensation comprises a variable bonus and the possible payments resulting from participation in long-term stock-based compensation programs. Since 2005, the variable bonus for a given year is tied to the attainment of the Group target based on EBITDA. For the year 2006, the variable bonus is calculated partly according to the Group’s EBITDA margin before special items, and partly according to the average target attainment of the HealthCare, CropScience and MaterialScience subgroups. The latter is based mainly on the subgroups’ target attainment measured by EBITDA before special items as well as on a qualitative appraisal in relation to the market and competitors.
The direct remuneration of members of the Board of Management in 2006 amounted to €8,143,822 (2005: €7,064,828), comprising €2,260,400 (2005: €1,985,580) in base salaries and €1,096,556 (2005: €837,073) in fixed supplements, €4,644,475 (2005: €4,085,754) in variable bonuses plus €142,391 (2005: €156,421) of remuneration in kind and other benefits. Remuneration in kind mainly consists of values assigned to certain benefits in kind in accordance with German taxation guidelines, such as on the use of company cars.
Members of the Board of Management were permitted to participate in a cash-settlement based stock option program, offered through 2004, if they placed their personal investment in Bayer stocks in a special deposit account. Under this previous program, a total of 25,290 instruments with a fair value of €1,806,718 remained outstanding as of December 31, 2006.
Since 2005, the members of the Board of Management have participated in the long-term stock-based compensation program Aspire I (2005 and 2006 tranches). Participation in this program is linked to membership of a Group Leadership Circle, not to the contract of service as a member of the Board of Management. Further details of this program are presented in Note [26.1] “Stock-based compensation.”
The entitlements earned in 2006 relate to the 2006 parts of the respective three-year performance periods of the long-term stock-based compensation programs granted in current and previous years. The changes in the value of previously existing entitlements under long-term stock-based compensation programs that were earned prior to 2006 are shown separately. They result from the upward trend in the price of Bayer stock in 2006. Additionally, the fair value of the stock-based compensation as of the grant date in 2006 is given separately.
The table below shows the remuneration components of those individual members of our Board of Management who actively served in the course of 2006. In 2006, the remuneration of our chief financial officer was raised to recognize the special tasks of this position.
The direct remuneration of members of the Board of Management in 2006 amounted to €8,143,822 (2005: €7,064,828), comprising €2,260,400 (2005: €1,985,580) in base salaries and €1,096,556 (2005: €837,073) in fixed supplements, €4,644,475 (2005: €4,085,754) in variable bonuses plus €142,391 (2005: €156,421) of remuneration in kind and other benefits. Remuneration in kind mainly consists of values assigned to certain benefits in kind in accordance with German taxation guidelines, such as on the use of company cars.
Members of the Board of Management were permitted to participate in a cash-settlement based stock option program, offered through 2004, if they placed their personal investment in Bayer stocks in a special deposit account. Under this previous program, a total of 25,290 instruments with a fair value of €1,806,718 remained outstanding as of December 31, 2006.
Since 2005, the members of the Board of Management have participated in the long-term stock-based compensation program Aspire I (2005 and 2006 tranches). Participation in this program is linked to membership of a Group Leadership Circle, not to the contract of service as a member of the Board of Management. Further details of this program are presented in Note [26.1] “Stock-based compensation.”
The entitlements earned in 2006 relate to the 2006 parts of the respective three-year performance periods of the long-term stock-based compensation programs granted in current and previous years. The changes in the value of previously existing entitlements under long-term stock-based compensation programs that were earned prior to 2006 are shown separately. They result from the upward trend in the price of Bayer stock in 2006. Additionally, the fair value of the stock-based compensation as of the grant date in 2006 is given separately.
The table below shows the remuneration components of those individual members of our Board of Management who actively served in the course of 2006. In 2006, the remuneration of our chief financial officer was raised to recognize the special tasks of this position.
Remuneration of the members of the Board of Management
| Werner Wenning | Klaus Kühn | Udo Oels1 | Wolfgang Plischke2 | Richard Pott | Total | ||
| € | |||||||
| Base salary | 2006 | 748,872 | 412,236 | 343,526 | 343,530 | 412,236 | 2,260,400 |
| 2005 | 748,872 | 412,236 | 412,236 | - | 412,236 | 1,985,580 | |
| Fixed supplement | 2006 | 325,132 | 316,366 | 142,205 | 142,206 | 170,647 | 1,096,556 |
| 2005 | 325,132 | 170,647 | 170,647 | - | 170,647 | 837,073 | |
| Variable bonus | 2006 | 1,525,086 | 1,034,615 | 567,335 | 689,745 | 827,694 | 4,644,475 |
| 2005 | 1,554,615 | 843,713 | 843,713 | - | 843,713 | 4,085,754 | |
| Remuneration in kind and other benefits | 2006 | 47,926 | 35,571 | 9,594 | 18,163 | 31,137 | 142,391 |
| 2005 | 40,169 | 35,266 | 41,942 | - | 39,044 | 156,421 | |
| Directly effected remuneration | 2006 | 2,647,016 | 1,798,788 | 1,062,660 | 1,193,644 | 1,441,714 | 8,143,822 |
| 2005 | 2,668,788 | 1,461,862 | 1,468,538 | - | 1,465,640 | 7,064,828 | |
| Stock-based compensation entitlements earned in the respective year | 2006 | 820,514 | 480,609 | 538,181 | 193,188 | 461,939 | 2,494,431 |
| 2005 | 495,504 | 285,748 | 285,748 | - | 284,248 | 1,351,248 | |
| Change in value of existing entitlements | 2006 | 339,733 | 229,617 | 104,125 | 66,262 | 164,952 | 904,689 |
| 2005 | 169,289 | 99,693 | 99,693 | - | 98,055 | 466,730 |
1 until April 28, 2006
2 effective March 1, 2006
2 effective March 1, 2006
The fair value of the stock-based compensation as of the grant dates for 2006 and 2005, respectively, is shown in the following table. The entitlements earned in 2006 under the 2006 and 2005 stock-based compensation are included in the preceding table under “stock-based compensation entitlements earned in the respective year.”
| Werner Wenning | Klaus Kühn | Udo Oels1 | Wolfgang Plischke2 | Richard Pott | Total | ||
| € | |||||||
| Fair value of newly granted stock-based compensation as of grant date | 2006 | 268,113 | 181,886 | 40,419 | 117,597 | 145,509 | 753,524 |
| 2005 | 253,636 | 137,652 | 137,652 | - | 137,652 | 666,592 |
1 until April 28, 2006
2 effective March 1, 2006
2 effective March 1, 2006
Pension provisions for the current members of the Board of Management amounted to €29,564,478 (2005: €32,218,996). Active members of the Board of Management are entitled to receive a pension from the age of 60 in an annual amount equal to at least 30 percent of the last yearly fixed salary. This percentage increases depending on years of service as a Board of Management member and, according to the inception of the respective service contract, is capped between 60 and 80 percent. We refer to the maximum such percentage a member of the Board of Management can reach as his final target pension level.
We currently pay former and retired members of the Board of Management a monthly pension equal to 80 percent of the last monthly base salary received while in service. The pensions paid to former members of the Board of Management or their widows are normally reassessed every three years and adjusted taking into account the development of consumer prices. These amounts are in addition to any amounts they receive as a result of their participation in the Bayer pension plan described below. The current service cost for pension entitlements of those individual members of our Board of Management who actively served in the course of 2006 was as follows:
We currently pay former and retired members of the Board of Management a monthly pension equal to 80 percent of the last monthly base salary received while in service. The pensions paid to former members of the Board of Management or their widows are normally reassessed every three years and adjusted taking into account the development of consumer prices. These amounts are in addition to any amounts they receive as a result of their participation in the Bayer pension plan described below. The current service cost for pension entitlements of those individual members of our Board of Management who actively served in the course of 2006 was as follows:
| Werner Wenning | Klaus Kühn | Udo Oels1 | Wolfgang Plischke2 | Richard Pott | Total | ||
| € | |||||||
| Current service cost for pension entitlements earned in the respective year | 2006 | 398,564 | 1,651,294 | - | 1,644,517 | 233,284 | 3,927,659 |
| 2005 | 311,158 | 420,046 | - | - | 186,600 | 917,804 |
1 until April 28, 2006
2 effective March 1, 2006
2 effective March 1, 2006
For active Board of Management members a general severance indemnity clause, with the following main elements, applies:
If a member of the Board of Management is not offered a new service contract upon expiration of his existing service contract because he is not reappointed to the Board of Management, or if the member is removed from the Board of Management in the absence of grounds for termination without notice, he will receive a monthly bridging allowance amounting to 80 percent of his last monthly fixed salary for a period of 60 months from the date of expiration of his service contract less the period for which the Board of Management member was released from his duties on full pay. Special arrangements apply in the event of a change of control; for details see Information pursuant to Section 289, Paragraph 4 and Section 315, Paragraph 4 of the German Commercial Code.
Emoluments to retired members of the Board of Management and their surviving dependents amounted to €10,924,768 (2005: €10,323,009). Pension provisions for former members of the Board of Management and their surviving dependents amounted to €117,866,846 (2005: €115,972,457).
There were no loans to members of the Board of Management outstanding as of December 31, 2006, nor any repayments of such loans during the year.
If a member of the Board of Management is not offered a new service contract upon expiration of his existing service contract because he is not reappointed to the Board of Management, or if the member is removed from the Board of Management in the absence of grounds for termination without notice, he will receive a monthly bridging allowance amounting to 80 percent of his last monthly fixed salary for a period of 60 months from the date of expiration of his service contract less the period for which the Board of Management member was released from his duties on full pay. Special arrangements apply in the event of a change of control; for details see Information pursuant to Section 289, Paragraph 4 and Section 315, Paragraph 4 of the German Commercial Code.
Emoluments to retired members of the Board of Management and their surviving dependents amounted to €10,924,768 (2005: €10,323,009). Pension provisions for former members of the Board of Management and their surviving dependents amounted to €117,866,846 (2005: €115,972,457).
There were no loans to members of the Board of Management outstanding as of December 31, 2006, nor any repayments of such loans during the year.
Compensation of the Supervisory Board
The compensation of the Supervisory Board is based on the provisions of the Articles of Incorporation, the current version of which was adopted by the stockholders at the Annual Stockholders’ Meeting on April 29, 2005. This provides that, in addition to reimbursement of their expenses, each member of the Supervisory Board receives fixed annual remuneration of €60,000 and a variable annual remuneration component. The variable remuneration component is based on corporate performance in terms of the gross cash flow reported in the Group financial statements for the fiscal year. The members of the Supervisory Board receive €2,000 for every €50,000,000 or part thereof by which the gross cash flow exceeds €3,100,000,000, but the variable component for each member may not exceed €30,000. In accordance with the provisions of the German Corporate Governance Code, additional remuneration is paid to the Chairman and Vice Chairman of the Supervisory Board and for chairing and membership of committees. The Chairman of the Supervisory Board receives three times the basic remuneration, while the Vice Chairman receives one-and-a-half times the basic remuneration. Members of the Supervisory Board who are also members of a committee receive an additional one quarter of the amount, with those chairing a committee receiving a further quarter. However, no member of the Supervisory Board may receive total remuneration exceeding three times the basic remuneration. If changes are made to the Supervisory Board and its committees during the fiscal year, members receive remuneration on a pro-rated basis. No remuneration or benefits were paid for personal services, in particular, the provision of consultancy or intermediary services. The Company has purchased insurance for the members of the Supervisory Board to cover their legal liability arising from their service on the Supervisory Board.
In addition to their remuneration as members of the Supervisory Board, those employee representatives who are employees of Bayer Group companies receive compensation unrelated to their service on the Supervisory Board. The total amount of such compensation was €647,813.
There were no loans to members of the Supervisory Board outstanding as of December 31, 2006, nor any repayments of such loans during the year.
The remuneration of the individual members of the Supervisory Board is shown in the table in the Corporate Governance Report.
In addition to their remuneration as members of the Supervisory Board, those employee representatives who are employees of Bayer Group companies receive compensation unrelated to their service on the Supervisory Board. The total amount of such compensation was €647,813.
There were no loans to members of the Supervisory Board outstanding as of December 31, 2006, nor any repayments of such loans during the year.
The remuneration of the individual members of the Supervisory Board is shown in the table in the Corporate Governance Report.
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