Reebok 2011 Annual Report Download - page 54

adidas Group
2011 Annual Report
TO OUR SHAREHOLDERS
50
2011
01.7 Compensation Report
Compensation system for the Executive Board
Following preparation by the Supervisory Board’s General Committee,
the compensation system for our Executive Board and the total
compensation of each member of the Executive Board is determined
and regularly reviewed by the entire Supervisory Board. The compen-
sation system is geared towards creating an incentive for successful,
sustainable corporate development.
The compensation of the Executive Board members is designed
to reflect the size and global orientation of the Group as well as
its economic situation and prospects. It aims to appropriately
remunerate exceptional performance, while diminishing the overall
target compensation when targets are not met. Finally, the compen-
sation is orientated towards the typical structure and level of executive
board compensation at comparable companies. Taking into account
the compensation structure at the adidas Group, the tasks and the
contribution of each Executive Board member to the Group’s success,
his individual performance as well as the performance of the entire
Executive Board are considered. Thus, an appropriate level of compen-
sation can be ensured.
Components of the compensation system
The target annual income of our Executive Board members consists
of a fixed compensation component amounting to around 35% and
a variable, i.e. performance-related, compensation component
amounting to around 65% in the case of 100% target achievement. The
individual compensation components are outlined as follows:
– Fixed compensation consists of the contractually agreed, non-
performance-related annual salary that is paid in twelve monthly
instalments. Its amount is fixed upon appointment to the Executive
Board, and remains unchanged for three years.
– Variable compensation consists of a Performance Bonus and a
compensation component with a long-term incentive effect (LTIP
Bonus), which is based on the Long-Term Incentive Plan 2009/2011
(LTIP 2009/2011) measured over a three-year period. The variable
compensation components are designed in such a way that the
incentive to achieve the sustainable targets set for granting the
LTIP Bonus is significantly higher than the incentive to achieve the
Performance Bonus. Corresponding contractual provisions ensure
that this weighting will also be maintained in the future. More than
50% of the variable target compensation component is based upon
multi-year performance criteria.
The variable compensation components feature the following
criteria:
– The Performance Bonus serves as compensation for the Executive
Board’s performance in the past financial year in line with the
short-term development of the Group. At the beginning of the
financial year, the Supervisory Board determines the amount
of the Performance Bonus based on a target achievement of
100% (Bonus Target amount) for each member of the Executive
Board, as well as the performance criteria with their respective
explicit targets. As criteria for the 2011 Performance Bonus,
the Supervisory Board determined both the business-related
criteria (increase of consolidated net income and of operating free
cash flow) as well as the Executive Board member’s individual
performance. The target achievement of business-related criteria
can be rated with a maximum of 150%. At the end of the financial
year, the Supervisory Board resolves upon a concrete bonus for
each Executive Board member depending on the respective degree
of target achievement.
– The LTIP Bonus serves as compensation for the long-term perform-
ance of the Executive Board in line with corporate planning.
When determining the LTIP 2009/2011, the Supervisory Board
defined the following performance criteria with different
weightings:
– Increase of consolidated net income
– Reduction of net debt (adjusted for non-operating effects)
– Increase of sales growth with regard to the Reebok, Rockport
and Reebok-CCM Hockey brands
– Absolute and relative share price development
When calculating the LTIP Bonus payable following the three-year
period, the weighted degrees of target achievement of the
performance criteria are accumulated and multiplied by the
individual LTIP target amount determined by the Supervisory
Board for each Executive Board member when the LTIP 2009/2011
was established. The payout of the LTIP 2009/2011 is capped
at a maximum of 150% of the individual LTIP target amount. If
the overall degree of target achievement lies below 50%, the
Executive Board member is not entitled to the LTIP Bonus. Once
the Supervisory Board has resolved upon the amount of the LTIP
Bonus to be granted to each Executive Board member, the Bonus
will be paid upon approval of the 2011 annual financial statements.
Compensation Report 1)
For the adidas Group, transparent and comprehensible reporting on the compensation of the Executive
Board and Supervisory Board are essential elements of good corporate governance. In the following, we
summarise the principles of the compensation system and outline the structure and level of Executive
Board and Supervisory Board compensation. We also report on the benefits which the members of our
Executive Board will receive in case of resignation from office or retirement.
01.7
1) This Compensation Report is a component of the Group Management Report and is also part of the Corporate
Governance Report including the Declaration on Corporate Governance.