Remuneration Report

 

The additional annual variable amount paid to each member of the Board of Management contains annually recurring components tied to the business success of the Company. It is primarily oriented on the results achieved and the financial position of the Company.

 

One-time variable components tied to business performance are not granted as part of the remuneration of the Board of Management.

 

Stock options serve as variable components of remuneration providing long-term incentives.

 

Until 2006, stock options were issued to the Board of Management, Group senior executives and the employees of Volkswagen AG.

 

Under this arrangement, all current members of the Board of Management were entitled to subscribe for convertible bonds, which continue to have an incentive effect. The conversion rights are linked to the development of the price of Volkswagen ordinary shares. As of December 31, 2007, conversion rights still existed from tranches 5 to 8. All tranches of the stock option plan entitled members of the Board of Management to subscribe for a maximum of 500 non-transferable convertible bonds at a price of €2.56 per bond, conveying the right to acquire a maximum of 5,000 ordinary shares. If a member of the Board of Management was a member of top management at the date of grant for each tranche, they could – like all other members of top management – subscribe for a maximum of 500 non-transferable convertible bonds at a price of €2.56 per bond, conveying the right to acquire a maximum of 5,000 ordinary shares. The precondition for participation in this stock option plan was a contribution of between €5,000 and €25,000 in Time Assets, depending on the number of convertible bonds being acquired. The stock option plan is essentially structured as follows: the basis for determining the conversion price (base conversion price) of a tranche is the average Xetra closing price of Volkswagen ordinary shares on the five trading days prior to the respective decision on the issue of convertible bonds. Conversion is possible for the first time after a vesting period of 24 months, and then for a period of five years as from the date of issue of the convertible bonds. The conversion price is initially set at 110% of the base conversion price, and then increases by five percentage points each year. The members of the Board of Management may exercise their conversion rights only three times a year, within four-week windows beginning on public reporting dates of Volkswagen AG. The stock option plan is thus based on demanding, relevant comparative parameters as set out in the German Corporate Governance Code. Further details are contained in the agenda of the Annual General Meeting held on April 16, 2002, at which the authorization to implement the stock option plan was granted. The details of the stock option plan are explained in note 21 Equity.

 

 

 

 

* Automatic conversion after expiration of the conversion period.

 

The stock option plan is designed to provide the members of the Board of Management – like all other employees – with an element of their total remuneration package that is oriented on an increase in the share price. In this way, it aims to enhance value added and enterprise value. Furthermore, the stock option plan is also a commonly employed instrument in recruiting and assuring the long-term loyalty of members of the Board of Management. There is no possibility of subsequently modifying the performance targets or comparative parameters underlying the stock option plan.

 

Inappropriate levels of payment arising from the stock options are not to be expected, because of their link to the development of the price of Volkswagen ordinary shares and the limitation of the number of stock options in each tranche. As recommended by the German Corporate Governance Code, the Supervisory Board will establish a cap on such payments in consultation with the members of the Board of Management in the event of extraordinarily high unforeseen increases.

 

 

 

The members of the Board of Management are entitled to a pension and to a surviving dependents’ pension as well as the use of company cars in the event of termination of their service on the Board of Management.

 

The old-age pension to be granted after leaving the Company is payable immediately if their membership of the Board of Management is terminated by the Company, and in other cases on reaching the age of 63. Any remuneration from other sources until the age of 63 is deductible from the benefit entitlement up to a certain fixed amount.

 

The old-age pension is calculated as a percentage of the fixed basic salary, which accounts for most of the fixed individual remuneration of the Board of Management shown in the table above. Mr. Winterkorn and Mr. Garcia Sanz have an old-age pension entitlement of 70%, Mr. Heizmann of 62% and Mr. Neumann and Mr. Pötsch of 60% of their fixed basic salaries as of the end of 2007.

 

Starting at 50%, the individual percentage increases by 2 percentage points for each year of service up to the maximum of 70% defined by the Presidium of the Supervisory Board.

 

Members of the Board of Management are entitled to a six-month continuation of their normal remuneration in the case of illness and to their pension in the case of incapacity. Their surviving dependents receive a widows’ pension of 66 2/3% and orphans’ benefits of 20% of the former member of the Board of Management’s pension.

 

Dr. Bernhard has received a total amount of €5.95 million in conjunction with his departure from the Board of Management. No further pension claims or surviving dependents’ pension can be made against Volkswagen AG.

 

On December 31, 2007 the pension obligations for members of the Board of Management in accordance with IAS 19 amounted to €30,334,447 (previous year: €21,907,510). Current pensions are index-linked in accordance with the index-linking of the highest collectively agreed salary insofar as the application of section 16 of the Gesetz zur Verbesserung der betrieblichen Altersversorgung (BetrAVG – German Company Pension Act) does not lead to a larger increase.

 

Retired members of the Board of Management and their surviving dependents received €8,688,685 (previous year: €10,189,421). Obligations for pensions for this group were recognized in the amount of €107,971,788 (previous year: €118,976,976).

 

 

The remuneration of the members of the Supervisory Board of Volkswagen AG amounts to €4,276,167 (previous year: €2,843,267) and is dependent on the dividend to be paid for fiscal year 2007. It is composed of fixed components (including attendance fees) of €307,192 (previous year: €306,142) and variable components of €3,968,975 (previous year: €2,537,125), in accordance with the provisions of the Articles of Association prevailing at the time.

 

 

 

1

The employee representatives have stated that they will transfer their Supervisory Board remuneration to the Hans Böckler Foundation in accordance with the guidelines issued by the German Confederation of Trade Unions (DGB).

2

Under section 5(3) of the Niedersächsisches Ministergesetz (Act Governing Ministers of the State of Lower Saxony), the Supervisory Board members appointed by the State of Lower Saxony are obliged to transfer their Supervisory Board remuneration to the State of Lower Saxony, with the exception of an amount of €5,500 (and the non-transferable portion of the attendance fees amounting to €200 per meeting).