Annual Report 2013

Corporate governance

1. Management Board remuneration


Regulation, structure and amounts

The compensation for members of the Management Board of Henkel Management AG is set by the Supervisory Board of Henkel Management AG in consultation with the Human Resources Subcommittee of the Shareholders’ Committee. The Supervisory Board of Henkel Management AG is comprised of three members of the Shareholders’ Committee.

Remuneration structure

The structure and amounts of Management Board remuneration are aligned to the size and international activities of the corporation, its economic and financial position, its performance and future prospects, the normal levels of remuneration encountered in comparable companies and also the general compensation structure within the corporation. The compensation package is further determined on the basis of the functions, responsibilities and personal performance of the individual executives and the performance of the Management Board as a whole. The variable annual remuneration components have been devised such that they take into account both positive and negative developments. The overall remuneration mix is designed to be internationally competitive while also providing an incentive for sustainable business development and a sustainable increase in shareholder value in a dynamic environment.

Members of the Management Board receive remuneration consisting of performance-related and non-performance-related components. The non-performance-related component is made up of fixed remuneration as well as in-kind benefits and other benefits. The performance-related component is made up of variable annual remuneration, from which the recipient must finance an investment (own investment) in Henkel preferred shares corresponding to around 40 percent of the variable annual remuneration, as well as variable cash remuneration based on the long-term performance of the business (long-term incentive). Thus remuneration based on long-term performance is comprised of the own investment that is payable from the variable annual compensation, and the long-term incentive. In addition, the Supervisory Board of Henkel Management AG may, at its discretion and after due consideration, grant a special payment in recognition of exceptional achievements. Pension benefits also form part of the remuneration package. The Supervisory Board of Henkel Management AG regularly reviews the compensation system as well as the appropriateness of the compensation.

The components in detail:

Non-performance-related components


Fixed salary

The fixed remuneration is paid out monthly as salary. It amounts to 1,050,000 euros per year for the Chairman of the Management Board and 700,000 euros per year for the other Management Board members.

Other emoluments

The members of the Management Board also receive other emoluments, primarily in the form of costs associated with, or the cash value of, in-kind benefits and other fringe benefits such as standard commercial insurance policies, reimbursement of accommodation/moving costs, costs associated with preventive medical examinations, and provision of a company car, including any taxes on same. All members of the Management Board are entitled, in principle, to the same emoluments, whereby the amounts vary depending on personal situation.

Performance-related components


Variable annual remuneration

The variable annual remuneration is made up of annual performance-related components which account for around 60 percent of the target compensation amount, and a long-term variable incentive which accounts for around 40 percent of the target compensation amount and takes the form of an investment by the recipient (own investment) in Henkel preferred shares with a minimum lock-up period of three years.

Determination of variable annual remuneration

The performance criteria governing the variable annual remuneration are primarily return on capital employed (ROCE)return on capital employed (ROCE)
Return on Capital Employed (ROCE)
and earnings per preferred share (EPS) in the relevant fiscal year, adjusted in each case for exceptional items. The application of these performance parameters ensures that profitable growth is duly rewarded by Henkel. Further factors used in establishing the variable annual remuneration payable to the Management Board members are the Group results and the results of the relevant business unit, the quality of management demonstrated in those business units, and the individual contribution made by the Management Board member concerned.

In determining the variable annual remuneration, the Supervisory Board of Henkel Management AG also takes into due account the apparent sustainability of the economic performance, and the performance levels of the Management Board members.

The total amount of variable annual remuneration is subject to a cap.

Short-term and long-term components of the variable annual remuneration

The variable annual remuneration is paid annually in arrears once the corporation’s annual financial statements have been approved by the Annual General Meeting. The full amount of variable annual remuneration is paid in cash, of which the recipients can dispose of about 60 percent as they wish. The members of the Management Board invest the remaining amount corresponding to about 40 percent in Henkel preferred shares (own investment), which they purchase on the stock exchange at the price prevailing at the time of acquisition. These shares are placed in a blocked custody account with a drawing restriction. The lock-up period in each case expires on December 31 of the third year following the own investment. This own investment ensures that the members of the Management Board participate through a portion of their compensation in the long-term performance of the corporation.

Long-term incentive (LTI)

The long-term incentive is a variable cash payment based on the long-term performance of the corporation, the amount payable being dependent on the future increase registered in EPS over three consecutive years (the performance period).

On completion of the performance period, target achievement is ascertained by the Supervisory Board of Henkel Management AG on the basis of the increase in EPS achieved. The EPS of the fiscal year preceding the year of payment is compared to the EPS of the second fiscal year following the year of payment. The amounts included in the calculation of the increase are, in each case, the earnings per preferred share adjusted for exceptional items, as disclosed in the certified and approved consolidated financial statements of the relevant fiscal years.

The total amount of the long-term incentive is subject to a cap.

Caps on remuneration

Taking into account the above-mentioned caps for the performance-related components of remuneration, the table below shows the minimum and maximum remuneration amounts that result for a fiscal year (excluding other emoluments and pension expenses):

Caps on remuneration
in euros Fixed salary Variable annual
remuneration
Variable long-term
incentive
Total compensation
minimum
Total compensation
maximum
Chairman of the Management Board 1,050,000 0 to 5,491,000 0 to 918,000 1,050,000 7,459,000
Ordinary member of the Management Board 700,000 0 to 3,230,000 0 to 540,000 700,000 4,470,000
 

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Pension benefits

Current members of the Management Board have a defined contribution pension plan. Once a covered event occurs, the beneficiaries receive a superannuation lump-sum payment combined with a continuing basic annuity. The superannuation lump-sum payment comprises the total of annual contributions calculated on the basis of a certain percentage of the cash compensation paid in the fiscal year in question (fixed plus variable annual compensation). The percentage is the same for all members of the Management Board. The annual contributions depend to a certain degree on changes in the cash compensation, with minimum and maximum limits (caps) for the allocation. The annual pension component is arrived at by multiplying the amount of 3 percent of the current pension threshold by the age-based pension factor. Any vested pension rights earned within the corporation prior to the executive’s joining the Management Board are taken into account as start-up units. The defined contribution pension system ensures an appropriate, performance-based retirement pension.

An entitlement to pension benefits arises on retirement, on termination of the employment relationship on or after attainment of the statutory retirement age, in the event of death, or in the event of permanent incapacity for work. If a member of the Management Board has received no pension benefits prior to their death, the superannuation lump sum accumulated up to time of death is paid out to the surviving spouse or surviving children. In addition, the executive’s surviving spouse receives pension payments amounting to 60 percent and each dependent child receives benefit payments amounting to 15 percent of the executive’s pension entitlement – up to a maximum of 100 percent for all beneficiaries. The surviving child’s benefit is generally paid until the child’s 18th birthday or until completion of their professional training, but only up to their 27th birthday.

Provisions governing the termination of position on the Management Board

In the event of retirement, members of the Management Board who were first appointed prior to 2009 are entitled to continued payment of compensation for a further six months, but not beyond their 65th birthday. In the event of death, the payments are made to the surviving spouse or entitled dependent children.

In the event that a member’s position on the Management Board is terminated without good cause or reason, the executive contract provides for a severance settlement amounting to the remuneration for the remaining contractual term (fixed remuneration plus variable annual remuneration for single or multiple years) in the form of a discounted lump-sum payment. These severance payments are limited to two years’ compensation (severance payment cap) and may not extend over a period that exceeds the residual term of the executive contract. In the event that the sphere of responsibility/executive function is altered or restricted to such an extent that it is no longer comparable to the position prior to the change or restriction, the affected members of the Management Board are entitled to resign from office and request premature termination of their contract. In such case, members are entitled to severance payments amounting to not more than two years’ compensation.

Upon departure from the Management Board, the variable annual remuneration is paid on a time-proportion basis on the ordinary payment date after the end of the fiscal year in which the appointment ends. This applies accordingly to entitlements arising from the LTI. However, entitlements from any tranche whose performance period has not yet ended as of the date of departure are forfeited without replacement if the departure is based on good cause or reason that would have justified the revocation of the appointment or termination of the employment contract.

In addition, the executive contracts include a post-contractual non-competition clause with a term of up to two years. The associated discretionary payment can be up to 50 percent of annual compensation after allowing for any severance payments. Equally, any earnings from new extra-contractual activities during the non-competition period shall be offset against this discretionary payment to the extent that such earnings and discretionary payment together exceed the actual compensation paid in the last fully ended fiscal year by ten percent or more. No entitlements exist in the event of premature termination of executive duties resulting from a change in control.

Other provisions

The corporation maintains directors and officers insurance (D&O insurance) for directors and officers of the Henkel Group. For members of the Management Board there is a deductible amounting to 10 percent per loss event, subject to a maximum for the fiscal year of one and a half times their annual fixed remuneration.

Remuneration for 2013

Excluding pension entitlements, the total compensation paid to members of the Management Board for the performance of their duties for and on behalf of Henkel AG & Co. KGaAKGaA
Abbreviation for “Kommanditgesellschaft auf Aktien.” A KGaA is a company with a legal identity (legal entity) in which at least one partner has unlimited liability with respect to the company’s creditors (personally liable partner), while the liability for such debts of the other partners participating in the share-based capital stock is limited to their share capital (limited shareholders).
and its subsidiaries during the year under review, amounted to 26,944,135 euros (previous year: 25,309,802 euros – including the cumulative savings reserve for the Special Incentive 2012 and the compensation attributable to Dr. Lothar Steinebach through June 30, 2012). Of the total cash compensation paid or payable with respect to 2013 in the amount of 25,369,635 euros (previous year: 22,484,676 euros), fixed salaries accounted for 4,550,000 euros (previous year: 4,445,000 euros), annual variable remuneration 20,652,475 euros (previous year: 17,845,060 euros), and other emoluments 167,160 euros (previous year: 194,616 euros). In addition, the total compensation includes the long-term incentive granted with respect to 2013 which – depending on the achievement of the performance targets – becomes payable only in 2016. In accordance with legal regulations, however, a value for the long-term incentive must be reported in the year it is granted. For determining this value, an “at target” calculation is used, which is based on achieving an increase of 30 percent in earnings per preferred share (EPS) in the performance period. The calculation results in an assumed amount of 1,574,500 euros (previous year: 1,539,250 euros).

Compensation for the reporting period granted to members of the Management Board serving in 2013, separated into the above-mentioned components, is shown in the following table:

Remuneration of Management Board members who served in 2013
Cash components
in euros Fixed salary Variable
annual
remuneration
Other
emoluments
Total cash
emoluments
Variable
long-term
incentive1
Total
remuneration
Kasper Rorsted2
2013 1,050,000 5,281,225 53,333 6,384,558 399,500 6,784,058
2012 1,050,000 4,659,939 66,015 5,775,954 399,500 6,175,454
Jan-Dirk Auris
2013 700,000 3,074,250 22,501 3,796,751 235,000 4,031,751
2012 700,000 2,708,788 20,266 3,429,054 235,000 3,664,054
Carsten Knobel
(since 7/1/2012)
2013 700,000 3,074,250 26,928 3,801,178 235,000 4,036,178
2012 350,000 1,334,394 9,827 1,694,221 117,500 1,811,721
Kathrin Menges
2013 700,000 3,074,250 15,745 3,789,995 235,000 4,024,995
2012 595,000 2,369,969 15,418 2,980,387 199,750 3,180,137
Bruno Piacenza
2013 700,000 3,074,250 21,259 3,795,509 235,000 4,030,509
2012 700,000 2,708,788 34,844 3,443,632 235,000 3,678,632
Hans Van Bylen2 2013 700,000 3,074,250 27,394 3,801,644 235,000 4,036,644
2012 700,000 2,708,788 26,490 3,435,278 235,000 3,670,278
Total 2013 4,550,000 20,652,475 167,160 25,369,635 1,574,500 26,944,135
2012 4,095,000 16,490,666 172,860 20,758,526 1,421,750 22,180,276

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In the year under review, no member of the Management Board was granted non-standard benefits by the company in connection with premature termination of their tenure, nor were any such entitlements or arrangements modified. No member of the Management Board was pledged payments from third parties in respect of their duties as executives of the company, nor were any such payments granted in the reporting period.

Structure of Management Board remuneration
Long-term
remuneration components
in euros Fixed salary Short-term
components
of variable
annual
remuneration
Long-term
components
of variable
annual
remuneration
Long-term
Incentive
Other
emoluments
Total
remuneration
Total 2013 4,550,000 12,391,485 8,260,990 1,574,500 167,160 26,944,135
  16.9 % 46.0 % 30.7 % 5.8 % 0.6 % 100.0 %
Total 2012 4,095,000 9,894,400 6,596,266 1,421,750 172,860 22,180,276
  18.5 % 44.6 % 29.7 % 6.4 % 0.8 % 100.0 %

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Pension benefits

The pension benefits accruing to the members of the Management Board and the former management of Henkel KGaAKGaA
Abbreviation for “Kommanditgesellschaft auf Aktien.” A KGaA is a company with a legal identity (legal entity) in which at least one partner has unlimited liability with respect to the company’s creditors (personally liable partner), while the liability for such debts of the other partners participating in the share-based capital stock is limited to their share capital (limited shareholders).
as of the reporting date, and contributions to the pension scheme made in 2013, are shown in the following table:

Pension benefits
in euros Superannuation lump sum Basic annuity
Total
lump sum
Addition to
lump sum 2013
Total
basic annuity
(p.a.)
 Addition to
basic annuity
2013
Kasper Rorsted 3,787,380 648,360 1,951 118
Jan-Dirk Auris 887,220 391,320 563 142
Carsten Knobel 448,560 391,320 246 146
Kathrin Menges 570,510 391,320 338 126
Bruno Piacenza 887,220 391,320 501 129
Hans Van Bylen 2,613,914 391,320 1,788 115

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For pension obligations to former members of the Management Board and management of Henkel KGaAKGaA
Abbreviation for “Kommanditgesellschaft auf Aktien.” A KGaA is a company with a legal identity (legal entity) in which at least one partner has unlimited liability with respect to the company’s creditors (personally liable partner), while the liability for such debts of the other partners participating in the share-based capital stock is limited to their share capital (limited shareholders).
as well as the former management of its legal predecessor and surviving dependents, 95,956,228 euros (previous year: 90,881,294 euros) is deferred. Amounts paid to such recipients during the year under review totaled 7,626,894 euros (previous year: 7,041,167 euros).