Reebok 2012 Annual Report Download - page 78

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adidas Group
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2012 Annual Report
To Our Shareholders
56
2012
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01.7
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Compensation Report
Compensation Report
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.
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 compensation
and personnel topics dealt with by the Supervisory Board and General
Committee are described in the Supervisory Board Report
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SEE
SUPERVISORY BOARD REPORT, P. 46. The compensation system was presented
to and adopted by the Annual General Meeting on May 10, 2012.
The compensation system is geared towards creating and promoting
an incentive for successful, sustainably value-oriented corporate
development and management. 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. Furthermore,
the compensation is oriented 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,
their individual performance as well as the performance of the entire
Executive Board are considered when determining the compensation.
Thus, an appropriate level of compensation can be ensured.
Components of the Executive Board compensation
The composition of the overall compensation is weighted more towards
the performance-related short-term and long-term compensation
components than towards the fixed components. In the case of 100%
target achievement, the target annual income of our Executive Board
members consists of a fixed compensation component amounting to
around one third and a variable, i.e. performance-related, compensation
component amounting to around two thirds of the target amount. The
individual compensation components are outlined as follows:
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The annual fixed salary is based on the tasks and responsibilities of
the individual Executive Board member. It is paid in twelve monthly
instalments and remains unchanged for three years during the term
of the service agreement.
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The variable compensation consists of a Performance Bonus payable
following the end of the respective financial year and a compensation
component with a long-term incentive effect (LTIP Bonus), which is
based on the Long-Term Incentive Plan 2012/2014 (LTIP 2012/2014)
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 regulations 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:
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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
target Performance Bonus based on a target achievement of 100%
(Bonus target amount) for each member of the Executive Board, and
resolves upon the differently weighted performance criteria with
their respective explicit targets. As criteria for the 2012 Performance
Bonus, the Supervisory Board determined both the business-related
criteria (increase in net income attributable to shareholders and an
improvement in average operating working capital as a percentage
of sales) as well as the Executive Board members’ individual
performance. The target achievement of business-related criteria
can be rated with a maximum of 150% by the Supervisory Board. At
the end of the financial year, the Supervisory Board examines the
concrete target achievement of each Executive Board member and
determines the bonus amount depending on the respective degree of
target achievement.
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The LTIP Bonus serves as compensation for the long-term
performance of the Executive Board in line with corporate planning.
When determining the LTIP 2012/2014, the Supervisory Board defined
the following performance criteria with different weightings:
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increase in net income attributable to shareholders
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increase in operating free cash flow
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increase of adidas NEO label sales
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development of the adidas AG share price.
1)
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.