Remuneration of the Management Board

Remuneration System

The remuneration system and the amount of remuneration of the Management Board are determined by the Supervisory Board on the proposal of the Executive and Nomination Committee. They are discussed yearly, for the last time in March 2018, and adjusted according to the framework found as adequate. The Annual General Meeting approved the basic principles of the remuneration system on May 9, 2014, and its last amendment on April 30, 2015.

The criteria used to assess whether the remuneration is appropriate include the duties of the individual Management Board member, his or her personal performance, the economic situation, the company’s success and future outlook and the extent to which such remuneration is standard practice. When determining whether the level of remuneration is standard practice, the company looks at its peer group and the remuneration structure that applies in the rest of the company. Furthermore, we compare ourselves with other listed companies of a similar size. The remuneration structure is oriented towards the sustainable growth of the company.

In addition to fixed remuneration, the members of the Management Board receive variable short-term as well as variable long-term remuneration which takes account of both positive and negative developments. The Supervisory Board can, at their own due discretion, award Management Board members a discretionary bonus for particular achievements, even without a prior agreement. There is no entitlement to these bonuses. In the event that a discretionary bonus is paid, the underlying decision-making criteria are published. Furthermore, the members of the Management Board receive fringe benefits in the form of insurance premiums, as well as the private use of means of communication and company vehicles. In addition to his Management Board contract with Vonovia, Management Board member Daniel Riedl has another Management Board contract with the Austrian company BUWOG. This means that, in Daniel Riedl’s case, the remuneration amounts listed below include the remuneration components from both Management Board contracts.

Fixed Remuneration and Fringe Benefits

The fixed remuneration, which contains not only the basic remuneration but also, in varying amounts, the remuneration for assuming mandates at Vonovia Group companies, subsidiaries and participating interests, is paid to the Management Board members in twelve equal monthly installments. In addition to their fixed remuneration, the Management Board members are given the opportunity to pay an annual pension contribution into a deferred compensation scheme, with the exception of Daniel Riedl, whose annual pension contribution is paid by BUWOG into an external pension fund. The contribution for Rolf Buch comes to € 355,000, while the contribution for Klaus Freiberg, Dr. A. Stefan Kirsten, Gerald Klinck, Daniel Riedl and Helene von Roeder amounts to € 160,000 in each case. Alternatively, the amount is paid out as cash remuneration. Due to the termination of the contracts of employment concluded with Dr. A. Stefan Kirsten and Gerald Klinck with effect from May 9, 2018 and the commencement of the contracts of employment concluded with Daniel Riedl and Helene von Roeder on May 9, 2018, the contributions are on a pro rata basis.

The fringe benefits include 50% of health and nursing care insurance contributions, albeit up to the amount of the maximum statutory employer’s share at the most, and, in one case, a term life insurance policy. In the event of illness, salaries continue to be paid for a period of twelve months, but until the end of the employment contract at the latest. In the event of death, the company continues to pay the salary to the employee’s surviving dependents for up to six months. The members of the Management Board are provided with a company car as well as communication means, which they have the right to use for private purposes. Travel expenses are reimbursed in line with the Vonovia/BUWOG Travel Expense Policy. An agreement was reached in Daniel Riedl’s contract of employment with Vonovia that the company would reimburse the costs associated with travel from Vienna to Bochum and back, as well as any overnight accommodation in Bochum.

In addition, the contract of employment concluded with Helene von Roeder includes an agreement that, upon presentation of corresponding proof furnished by her previous employer, Helene von Roeder will receive compensation payments for all entitlements to variable remuneration that are not satisfied by her previous employer because the contractual relationship between her and that previous employer ended as a result of her move to Vonovia.

Based on the evidence presented, this results in a gross compensation payment of € 194,621.00 that will fall due for payment in three equal tranches: the first tranche will fall due in 2018, the second following the adoption of the annual financial statements for the 2018 fiscal year and the third following the adoption of the annual financial statements for the 2019 fiscal year.

Should the Management Board members be held liable for financial losses while executing their duties, this liability risk is, in principle, covered by the D&O insurance for Management Board members of the company. Vonovia follows the statutory requirements, which provide for a deductible of 10% of any claim up to an amount of one-and-a-half times the fixed annual remuneration for all claims in one fiscal year.

Bonus

The variable short-term remuneration is based on success criteria set in advance by the Supervisory Board as well as personal targets. The variable short-term remuneration is capped at € 700,000 for Rolf Buch as the Chairman of the Management Board, and at € 440,000 for Klaus Freiberg, Dr. A. Stefan Kirsten, Gerald Klinck, Daniel Riedl and Helene von Roeder. The Supervisory Board is authorized to increase or reduce the arithmetical entitlement to the variable short-term remuneration by up to 20% at its own due discretion. The variable short-term remuneration payable to Klaus Freiberg was increased by 20% (€ 88,000) on the basis of a one-off discretionary adjustment to the variable short-term remuneration approved by the Supervisory Board and was paid out in 2018. Due to the termination of the contracts of employment concluded with Dr. A. Stefan Kirsten and Gerald Klinck with effect from May 9, 2018, and the commencement of the contracts of employment concluded with Helene von Roeder and Daniel Riedl on May 9, 2018, the amounts for 2018 are granted on a pro rata basis. The success criteria state that 40% of the variable short-term remuneration depends on the achievement of the Group FFO target, 15% on the achievement of the Group Adjusted NAV/share target and a further 15% on the achievement of the Group EBITDA sales target. A further 30% of the variable short-term remuneration is related to the achievement of the personal targets agreed with the Supervisory Board.

The targets for the three quantitative success criteria and the target achievement levels for the 2018 calendar year are set out below:

The Management Board members receive the variable short-term remuneration one month after the adoption of the annual financial statements of Vonovia.

Long-term Incentive Plan

The variable long-term remuneration (long-term incentive plan, LTIP plan) is a plan which meets the requirements set out in the German Stock Corporation Act (AktG) and the German Corporate Governance Code and aims to ensure that the remuneration structure focuses on sustainable corporate development. The LTIP plan was introduced in 2015 and replaced the previous plan, which was launched at the time of the successful IPO.

The members of the Management Board are offered an annual remuneration component with a long-term incentive effect and a balanced risk-return profile in the form of notional shares (“performance shares”) in line with the provisions of the LTIP plan.

The Supervisory Board offers the Management Board members a prospective target amount (“grant value”) in EUR for each performance period, which corresponds to four years as a general rule. Rolf Buch is awarded performance shares with a grant value of € 1,900,000 a year respectively. Klaus Freiberg, Dr. A. Stefan Kirsten, Gerald Klinck, Daniel Riedl and Helene von Roeder are each awarded performance shares with a grant value of € 800,000 a year. Due to the termination of the contracts of employment concluded with Dr. A. Stefan Kirsten and Gerald Klinck with effect from May 9, 2018, and the commencement of the contracts of employment concluded with Helene von Roeder and Daniel Riedl on May 9, 2018, the grant values for 2018 are granted on a pro rata temporis basis in line with the contractual provisions.

The actual payout amount is calculated based on this grant value, the target achievement level during the performance period and the performance of Vonovia’s shares, including dividends paid during the performance period. If the share price remains the same and the target achievement level comes to 100%, then the actual payout amount corresponds to the grant value (plus any dividends paid to the shareholders during the performance period).

The initial number of performance shares for the performance period in question corresponds to the grant value divided by the initial share price, rounded up to the next full share.

The overall target achievement level for a performance period is determined based on the following success targets:

1. Relative Total Shareholder Return (RTSR)
2. Development of NAV per share
3. Development of FFO 1 per share
4. Customer Satisfaction Index (CSI)

Each of the four success targets is assigned a weighting of 25%.

At the start of each performance period, the Supervisory Board sets an objective for each of the four success targets. If all of these objectives are reached, the target achievement level comes to 100%. It also sets a minimum value for each of the four success targets as the lower target corridor threshold. If this value is reached, the target achievement level comes to 50% (“minimum value”). The Supervisory Board also sets a maximum value. If this value is reached or exceeded, the target achievement level comes to 200% (“maximum value”).

The Supervisory Board has the right and the obligation to appropriately adjust the calculation modalities if there are significant changes in the comparator group.

The reporting on the new LTIP plan is based on actuarial reports of an independent actuary.

At the end of each performance period, the initial number of performance shares is multiplied by the overall target achievement level and rounded up to the next full share. This multiplication produces the final number of performance shares.

The final number of performance shares is multiplied by the final share price, which, by definition, includes the total dividends paid per share during the performance period in relation to the final number of performance shares. This multiplication produces the cash payout amount.

The payout amount is limited to 250% of the grant value (“cap”).

As far as Klaus Freiberg, Dr. A. Stefan Kirsten and Gerald Klinck are concerned, the performance period for 50% of the performance shares granted as part of the 2015 tranche ended on December 31, 2017, marking the end of a three-year period. The payment made in line with the contractual provisions, totaling € 1,000,000 (gross) for Klaus Freiberg and Dr. A. Stefan Kirsten and € 750,000 (gross) for Gerald Klinck, was made in the 2018 fiscal year.

The targets for the four success criteria for the 2015 tranche and the target achievement levels following the end of the performance period on December 31, 2018, are set out below:

In 2013, Rolf Buch was granted 400,000 notional shares (SAR = stock appreciation rights) as part of the LTIP in force at that time. These shares were earned over five annual tranches of equal size. The notional shares were converted into payout amounts for each annual tranche on the basis of a formula laid down in the LTIP agreement. The fifth, and consequently the last, tranche under this LTIP was paid out to Rolf Buch in the 2018 fiscal year.

Due to the commencement of his contract of employment with Vonovia on May 9, 2018, Daniel Riedl was granted a one-off payment of € 15,111.11 to settle the LTI award made by BUWOG AG “LTIP March 2017” for the period from May 1–May 8, 2018, in full.

Upper Remuneration Thresholds

In addition to the provisions governing variable remuneration, upper thresholds have been contractually agreed for the remuneration paid to the Management Board as a whole in line with the recommendations set out in the German Corporate Governance Code (GCGC). As a result, the total remuneration for Rolf Buch is capped at a total of € 6,970,000 a year, excluding the claims under the LTIP dated June 14, 2013. The total remuneration for Klaus Freiberg, Dr. A. Stefan Kirsten, Gerald Klinck and Helene von Roeder is capped at € 3,500,000.00 respectively. The total remuneration for Daniel Riedl is capped at € 2,500,000.00 year in his Vonovia contract. The Austrian BUWOG contract concluded with Daniel Riedl does not include any corresponding provision. Due to the termination of the contracts of employment concluded with Dr. A. Stefan Kirsten and Gerald Klinck with effect from May 9, 2018, and the commencement of the contracts of employment concluded with Helene von Roeder and Daniel Riedl on May 9, 2018, the upper remuneration thresholds have been set on a pro rata basis.

Share Holding Provision

The Management Board members are obliged, for the duration of their appointment as members of Vonovia’s Management Board, to hold shares in the company (restricted shares) in the amount of the annual fixed remuneration and to furnish evidence showing that this obligation has been met at the end of each fiscal year by presenting suitable documents to the Chairman of the Supervisory Board. The value of the shares to be held is to be redefined in the event of changes to the annual fixed remuneration/a share split. In the first four fiscal years after an individual’s initial appointment as a Management Board member, the restricted shares can be accumulated on a pro rata basis.

Retirement Provision/Deferred Compensation Scheme

The pension entitlements of the Management Board members are based on the opportunity to pay an annual pension contribution into a deferred compensation scheme. Rolf Buch, Dr. A. Stefan Kirsten (with the exception of May 2018), Gerald Klinck and Helene von Roeder make use of this opportunity, whereas Klaus Freiberg opts for a payout as cash remuneration. In Daniel Riedl’s case, the annual pension contribution made by BUWOG is paid into an external pension fund.

For each calendar year, the contractually agreed pension contribution is converted in accordance with the in-house “Pension Instead of Cash Remuneration” model and is converted into an annuity based on actuarial principles depending on the age of the individual in question.

In 2018, the pension contribution was € 966,356 for Rolf Buch, € 265,457 for Helene von Roeder, € 116,396 for Dr. A. Stefan Kirsten, € 192,180 for Gerald Klinck and an amount of € 103,188 for Daniel Riedl, corresponding to the pension fund contribution made.

Payments in the Event of Premature Termination of Management Board Duties

Payments to a Management Board member on premature termination of his or her contract, including fringe benefits, are contractually regulated to not exceed the value of two years’ remuneration and are paid for no more than the remaining term of the employment contract (severance pay cap). Payments in the event of premature termination of a Management Board member’s contract due to a change of control are limited to 150% of the severance pay cap.

After the collaboration with Dr. A. Stefan Kirsten was terminated prematurely by way of an amicable agreement, Dr. A. Stefan Kirsten received a gross severance payment of € 5,822,000 in accordance with the provisions set out in his contract of employment.

Following the termination of their contracts of employment, Rolf Buch and Daniel Riedl are subject to a twelve-month non-competition clause. The ex gratia payment for Rolf Buch corresponds to 75% of the contractual payments most recently received by him (incl. STI and LTIP) over a period of 12 months, while the ex gratia payment for Daniel Riedl amounts to a gross total of € 1,700,000 over the same period. The other Management Board members are not subject to any non-competition regulation.

Loans/Advances

The Management Board members were not granted any loans or advances.

Remuneration of the Management Board Within the Meaning of the German Corporate Governance Code