In 2016, the Supervisory Board reviewed and updated the Executive Board’s remuneration system, which had remained unchanged since the IPO in 2013. The Supervisory Board adopted the necessary resolutions for this purpose at its meetings on 29 June 2016 and 28 September 2016.
The review was based on an analysis conducted by an external remuneration consultant who is independent of both the Executive Board and the KION Group. It also drew on remuneration comparisons, particularly with MDAX companies.
On the basis of this analysis and taking account of the assumptions that it had formulated, the Supervisory Board drew up changes to the Executive Board remuneration system in accordance with the requirement that remuneration is appropriate and in line with normal market practice and reflecting changes at KION GROUP AG since the current remuneration system was introduced.
The structure of the remuneration, comprising fixed, one-year variable and multiple-year variable remuneration, remains fundamentally unchanged. However, minor adjustments to the content of the individual components are to be made with effect from 1 January 2017 in order to improve the transparency and understandability of the system.
The number of financial targets for the one-year variable remuneration will be reduced from four to two. Starting in 2017, it will be equally weighted between free cash flow and adjusted EBIT. In addition, the target range has been linearised and the lower and upper limits have been adjusted to minus 30 per cent and plus 30 per cent below / above the budgeted figure (previously: minus 25 per cent and plus 35 per cent).
The bandwidth of the discretionary performance multiple, which enables the assessment of an Executive Board member’s individual performance to be reflected in the one-year variable remuneration, was widened to a range of 0.7 to 1.3 (currently: 0.8 to 1.2).
For the purpose of the multiple-year variable remuneration, the target number of performance shares at the start of a performance period will, from 2017, be calculated on the basis of the average price of KION shares during the last 60 trading days before the start of the performance period (currently: fair value at the start of the performance period).
The benchmark index used to calculate the total shareholder return (TSR) target will be the MDAX (currently: STOXX Europe Total Market Index (TMI) Industrial Engineering Index), to which KION GROUP AG belongs. In view of the share price trend that has become established since the IPO in 2013, the target range will be adjusted so that the lower limit for the target is set at 0 per cent outperformance (= equal performance) and the upper limit (= 200 per cent target achievement) at 20 per cent outperformance. If the lower limit (= equal performance) is reached, target achievement is 50 per cent and a bonus is paid. This means that target achievement is 100 per cent if outperformance is 6.67 per cent (currently: lower limit if outperformance is 0 per cent, 100 per cent target achievement if outperformance is 10 per cent and upper limit if outperformance is 15 per cent).
Similarly to the financial targets for the one-year variable remuneration, the target range for the ROCE target has been linearised and the lower and upper limits have also been adjusted to minus 30 per cent and plus 30 per cent below / above the budgeted figure.
The maximum possible target achievement for the two targets, which affects the calculation of the final number of performance shares at the end of the performance period, has been raised to 200 per cent (currently: 150 per cent).
For the multiple-year variable remuneration, the bandwidth of the discretionary performance multiple for evaluating the individual performance of Executive Board members was also widened to a range of 0.7 to 1.3 (currently 0.8 to 1.2). In parallel to this, the Supervisory Board has decided to increase Executive Board members’ individual remuneration in two stages (with effect from 1 January 2017 and 1 January 2018) and to increase the fixed annual contribution to Dr Toepfer’s pension from 1 January 2017.
In addition, it was decided to introduce share ownership guidelines, under which individual Executive Board members are required to hold shares worth 100 per cent of their basic remuneration. This shareholding must be reached within four years and held for as long as they remain on the Executive Board.
The amended Executive Board remuneration system will be put to the Annual General Meeting of KION GROUP AG for approval on 11 May 2017.