Audi 2006 Annual Report Download - page 206

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Every member of the Board of Management is paid a variable annual gratuity. The vari-
able gratuity comprises components recurring annually that are tied to the economic suc-
cess of the company. It is largely based on the earnings achieved by the company and its
economic situation.
Share options serve as variable remuneration components providing a long-term incen-
tive. These options are based on the performance of Volkswagen ordinary shares. In the
context of the eighth tranche of the share options plan, in the 2006 financial year each
member of the Board of Management was able to subscribe to up to 500 non-transferable
convertible bonds at a price of EUR 2.56 each, entitling the holder to up to 5,000 Volkswagen
ordinary shares. A condition of participation in this share options plan was the contribution
of between EUR 5,000 and EUR 25,000 in time bonds, depending on the number of convert-
ible bonds being acquired.
The structure of the share options plan is essentially as follows: the basis for determin-
ing the conversion price (basic conversion price) of a tranche is the average Xetra closing
prices of Volkswagen ordinary shares on the five trading days preceding each decision to
issue convertible bonds. Conversion may take place for the first time after a qualifying pe-
riod of 24 months and then up until a period of five years from the time of issue of the con-
vertible bonds has elapsed. The conversion price is initially 110 percent of the basic conver-
sion price, rising by five percentage points in each subsequent year. The Board of Manage-
ment may exercise its conversion rights only three times a year, during four-week exercise
periods, each of which commences on a public reporting date of Volkswagen AG. The share
options plan is thus centred on demanding, relevant comparative parameters in the spirit of
the German Corporate Governance Code. Further details are given in the Agenda to the
Annual General Meeting of Volkswagen AG on April 16, 2002, at which authorisation to in-
troduce the share options plan was granted.
The purpose of the share options plan’s structure is to grant the Board of Management a
remuneration component that is based on appreciation in the company’s share price. It is
thus intended to contribute towards increasing value creation and towards enhancing the
value of Volkswagen AG. The share options plan is in addition a widely used instrument for
recruiting and retaining board members.
The retrospective adjustment of the stock option plan’s performance targets or compara-
tive parameters is excluded.
Inappropriate inflows from the share options are not to be expected due to the link with
the share price performance of Volkswagen ordinary shares and the restricted number of
options per tranche. In order to implement the recommendation of the German Corporate
Governance Code, the Supervisory Board is prepared to come to an agreement with the
members of the Board of Management on a cap in the event of exceptional, unforeseen
developments.
In the context of the eighth tranche of the share options plan, the members of the Board
of Management of AUDI AG subscribed to a total of 1,700 of the aforementioned convertible
bonds in the 2006 financial year. In the period under review, the number of share options
exercised by members of the Board of Management of AUDI AG totalled 3,400. At Decem-
ber 31, 2006 the members of the Board of Management held entitlements to purchase a
total of 37,000 ordinary shares of Volkswagen AG in the event of the conditions of conver-
sion being met. The value of the share options from all tranches totalled EUR 713 thousand
at December 31, 2006. This calculation is based on a binominal model and takes all param-
eters of the share options plan into account.
In certain circumstances, members of the Board of Management are entitled to retire-
ment benefits and a disability pension.
The defined benefit liabilities for pensions for current members of the Board of Man-
agement totalled EUR 7,454 (9,033) thousand at December 31, 2006.