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Corporate Governance at ThyssenKruppThyssenKrupp continued to focus on developing its governance practices in the past year. The Company complies with all the recommendations of the German Corporate Governance Code as amended by the Government Commission on June 02, 2005, and follows all but one of the Code's suggestions. CORPORATE GOVERNANCE REPORTThe Executive Board – also on behalf of the Supervisory Board – reports in the following on corporate governance at ThyssenKrupp in accordance with section 3.10 of the German Corporate Governance Code: ThyssenKrupp has always been guided by internationally and nationally recognized standards of good and responsible corporate management. Corporate governance is for us a central issue embracing all areas of the Group. We took the necessary organizational steps to meet the requirements of the Investor Protection Improvement Act (AnSVG) at an early stage. For example, we keep an insider register containing the names of all relevant people. Unqualified Declaration of Conformity again at October 01, 2005On October 01, 2005 the Executive Board and Supervisory Board issued the statutory Declaration of Conformity in accordance with Art. 161 of the Stock Corporation Act (AktG), stating that ThyssenKrupp complies with all the recommendations of the German Corporate Governance Code as amended on June 02, 2005. Beyond this, ThyssenKrupp also complies with the suggestions of the Code – with one exception: there are no plans at present to introduce staggered periods of office for the stockholder representatives on the Supervisory Board. We consider it expedient to stick to a common period of office. At our exchange-listed subsidiary Eisen- und Hüttenwerke AG, the German Corporate Governance Code is implemented taking into account the particularities of its membership in the Group. Variances are set out in the Company's Declaration of Conformity of September 26, 2005. Internet information and services for our stockholdersOur stockholders are kept regularly informed about important dates by a financial calendar, which is published in the Annual Report, the quarterly reports and on the Company website. At the Annual General Meeting, which is transmitted on the internet in full, they can exercise their voting rights in person or by proxy, for which they can authorize the representative of their choice or a company-nominated proxy acting on their instructions. Proxy voting instructions for the Annual General Meeting on January 21, 2005 could also be issued in advance and during the meeting up to the end of the general debate by electronic media. These facilities will also be available to the stockholders for the next Annual General Meeting on January 27, 2006. All documents and information on the Annual General Meeting are available on our website. In compliance with the Law on Corporate Integrity and Modernization of the Right of Avoidance (UMAG) which entered into effect on November 01, 2005, we have switched and thus simplified the registration and authorization process for the next Annual General Meeting to the so-called "record date" system in common international use. In the future, the deadline for the authorization and registration of stockholders will be 21 days before the Annual General Meeting. With this we are increasing the incentive, particularly for our foreign stockholders, to take part in the Annual General Meeting and exercise their voting rights. Close cooperation between Executive Board and Supervisory BoardThe Executive Board and Supervisory Board work closely together in the interest of the Company; their joint goal is to increase the value of the enterprise on a sustainable basis. The Executive Board provides the Supervisory Board with regular detailed updates on all relevant issues relating to corporate planning and strategic development, on business transactions and the situation of the Group including an overview of risks. Under the Articles of Association, important business transactions are subject to Supervisory Board approval. For more details, please turn to the Report by the Supervisory Board. The Company has taken out directors and officers (D&O) liability insurance with an appropriate deductible for the members of ThyssenKrupp AG's Executive and Supervisory Boards. There was only one case of a consultancy or other service contract between members of the Supervisory Board and the Company in the reporting period: insofar as the international law firm Clifford Chance, one of whose partners is Supervisory Board member Dr. v. Schenck, acted in a legal advisory capacity for the Company, the engagement was approved by the Supervisory Board Personnel Committee. Conflicts of interest of Executive or Supervisory Board members, which must be disclosed immediately to the Supervisory Board, did not occur. Re-election of Supervisory Board takes into account Corporate Governance CodeIn the Annual General Meeting on January 21, 2005, the stockholder representatives on the Supervisory Board were individually re-elected. A Supervisory Board comprised of highly qualified members, the majority of whom are independent, is the basis for efficient Supervisory Board work. The different careers and nationalities of the elected stockholder representatives reflect the variety of activities of our Group and its international alignment. With the current composition of its Supervisory Board, ThyssenKrupp also complies with the new Code recommendation on the independence of the Supervisory Board, which implements a corresponding ruling by the European Commission. The period of office of the stockholder representatives ends at the close of the Annual General Meeting which resolves on discharging the Supervisory Board from responsibility for fiscal 2008/2009. The period of office of the employee representatives on the Supervisory Board ends at the close of the Annual General Meeting which resolves on discharging the Supervisory Board from responsibility for fiscal 2007/2008. The German Corporate Governance Code recommends that the chairman of the audit committee should have specialist knowledge and experience in the application of accounting principles and internal control processes. ThyssenKrupp follows this recommendation. Dr. Kohlhaussen, Chairman of the Audit Committee since January 2005, was a member of the board of managing directors of Commerzbank AG for almost 20 years, for ten of which he was chairman of the board. He has been chairman of the supervisory board of Commerzbank AG since 2001. Dr. Kohlhaussen also chairs the audit committees of other companies. Furthermore, in his everyday work he has gained extensive knowledge and experience in dealing with internal control processes. Compliance as a focus of risk managementGood corporate governance also involves dealing responsibly with risks. The systematic risk management activities performed as part of our value-based Group management approach identify risks and optimize risk exposure. The risk management system at ThyssenKrupp AG is examined by the auditors in Germany and abroad. It is continuously evolved and adapted to the changing conditions. In the past fiscal year the Group's compliance measures formed a key area of risk management. Provision was made to ensure the companies of the Group and their employees comply in particular with the new insider law, the laws on combating corruption and the anti-trust regulations. For more details, please turn to the Risk Management section. Open and transparent communicationsThe aim of our corporate communications is to ensure that all target groups receive the same information at the same time. Private investors also have access to the latest news and developments at the Group on our website. All press and stock exchange (ad hoc) announcements made by ThyssenKrupp AG are published online. The Company's Articles of Association and the Rules of Procedure for the Executive Board, Supervisory Board and Audit Committee can also be viewed on our website, as can details of how ThyssenKrupp is implementing the recommendations and suggestions of the German Corporate Governance Code. All stockholders and interested readers can subscribe to an electronic newsletter, which reports news from the Group. According to Art. 15a of the Securities Trading Law (WpHG) the members of the Executive and Supervisory Boards as well as other employees in a management role are obligated to disclose the purchase and sale of ThyssenKrupp shares and their derivatives. At September 30, 2005 no such disclosures had been made to ThyssenKrupp AG in the reporting year. Similarly, there were no cases of share ownership subject to disclosure under section 6.6 of the German Corporate Governance Code at September 30, 2005. To supplement Art. 15a WpHG, ThyssenKrupp has issued an insider policy which sets out rules for trading with the Company's securities for board members and employees and ensures the requisite transparency. The other directorships held by Executive and Supervisory Board members. Details of related party transactions are given in the Notes to the Consolidated Financial Statements. KPMG again responsible for auditingWe agreed with the auditors KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Berlin and Frankfurt am Main that the Chairman of the Audit Committee would be informed immediately of any possible grounds for exclusion or bias arising during the audit insofar as they are not immediately eliminated, and that the auditors would report immediately on any findings and occurrences during the audit which have a significant bearing on the duties of the Supervisory Board. It was also agreed that the auditors would inform the Supervisory Board or make a note in the audit report of any facts ascertained during their examination which are inconsistent with the Declaration of Conformity issued under Art. 161 Stock Corporation Act (AktG) by the Executive Board and Supervisory Board. COMPENSATION REPORTPerformance-based compensation for Executive BoardThe structure of the compensation system for the Executive Board is discussed and regularly reviewed by the Supervisory Board at the proposal of the Personnel Committee. Determining the compensation of individual Executive Board members is the duty of the Personnel Committee. Executive Board compensation comprises non-performance-related and performance-related components. The non-performance-related components comprise fixed compensation and non-cash benefits, while the performance-related components consist of a bonus and long-term incentive components. In addition, the Executive Board members received pension entitlements. Compensation is based in particular on the duties of the individual Executive Board member, his/her personal performance and that of the Executive Board as well as on the business situation, success and prospects of the Company relative to its competitive environment. The basic non-performance-related fixed compensation is paid out as a monthly salary. It is reviewed every three years among other things on the basis of the general salary trend in the Group. In addition, the Executive Board members receive non-cash benefits mainly comprising the tax value of real property, related incidental costs and the use of Company cars. The Executive Board members are responsible for paying tax on these non-cash benefits. In principle they are available in the same way to all Executive Board members; they vary in amount according to the personal situation of the individual member. No loans or advance payments were granted to members of the Executive Board in the year under review. The first component of performance-related compensation is the bonus. The bonus amount is based equally on the development of ebt and roce. This means that the bonus as a performance incentive is linked to the performance indicators used in the Group. In addition to their bonus, Executive Board members receive two further variable compensation components with a long-term incentive effect: stock appreciation rights under the Company's Long Term Management Incentive plan (LTMI) and benefits under the Mid Term Incentive plan (MTI). The Notes to the Consolidated Financial Statements contain details of the LTMI and the MTI in "Management incentive plans". The following table shows the breakdown of fixed salary, bonus and long-term incentive components for the individual Executive Board members:
For fiscal 2004/05, compensation paid to the active Executive Board members (including non-cash benefits) totaled €12.4 million (prior year: €12.3 million), of which €3.8 million (prior year: €4.0 million) related to fixed salaries and €7.8 million (prior year: €7.0 million) to bonuses. Non-cash benefits totaled €0.7 million (prior year: €0.8 million). In addition, the Executive Board members received payments of €87,100 from the 4th installment of the LTMI. In addition, the Executive Board was granted 75,098 stock rights from the 3rd installment of the MTI in the past fiscal year. At September 30, 2005 the members of the Executive Board had a total of 182,500 stock appreciation rights from the 5th installment of the LTMI and 251,339 stock rights from the first three installments of the MTI. At the end of the performance period for the 5th installment, the stock appreciation rights under the LTMI result in a cash remuneration if at least one of the two performance hurdles of the LTMI has been met. The number of stock rights issued under the MTI is established at the end of a three-year performance period depending on EVA. For every €50 million change in EVA, the number of stock rights changes by 10%. The amount of compensation also depends on the performance of ThyssenKrupp's stock. The following table shows the current rights totals under the LTMI and MTI. In line with the new Management Compensation Disclosure Act (VorstOG), in addition to the number of rights the table also shows the value of the rights at the time of award, calculated in accordance with the requirements for international accounting. The members of the Executive Board received pension entitlements, which are also shown for the individual members in the following table. The pension of an Executive Board member is based on a percentage of the fixed salary component, the percentage increasing with the duration of the Executive Board member's appointment (generally 30% from the start of the first, 50% from the start of the second and 60% from the start of the third period of appointment; the pension of the Executive Board Chairman is 65%). The pension entitlement is therefore not linked to the variable compensation components. No further payments have been promised to any Executive Board members in the event that they leave their post. No members of the Executive Board received payments or corresponding promises from third parties in connection with their Executive Board positions in the year under review. Total compensation paid to former members of the Executive Board and their surviving dependants amounted to €13.3 million (prior year: €14.4 million). An amount of €128.4 million (prior year: €129.9 million) was accrued for pension obligations benefiting former Executive Board members and their surviving dependants. Table: Stock rights and pension plans Supervisory Board compensation regulated in the Articles of AssociationThe compensation of the Supervisory Board was determined by the Annual General Meeting and is regulated in Art. 14 of the Articles of Association. It is based on the duties and responsibilities of the Supervisory Board members and on the performance of the ThyssenKrupp Group. In addition to reimbursement of their expenses and a meeting attendance fee of €500, Supervisory Board members receive compensation comprising the following elements: a fixed component of €16,000 and a bonus of €800 for each €0.01 by which the dividend paid out to stockholders for the past fiscal year exceeds €0.10 per share. On top of this, there is an annual compensation, based on the long-term performance of the Company, of €2,000 for each €100,000,000 by which average earnings before taxes and minority interest (EBT) in the last three fiscal years exceeds €500,000,000. This compensation component will be payable for the first time after the Annual General Meeting on January 27, 2006.
The Chairman receives three times the above fixed compensation, bonus and long-term performance-based component, and the Vice Chairman double these amounts. In accordance with the German Corporate Governance Code, chairmanship and membership of Supervisory Board committees are compensated separately. Supervisory Board members who only serve on the Supervisory Board for part of the fiscal year receive a proportionally reduced compensation amount. For fiscal year 2004/2005, on the basis of the proposed dividend of €0.70 per share (excluding the special dividend of €0.10 per share), the members of the Supervisory Board will receive total compensation, including meeting attendance fees, of €2.3 million (prior year: €1.7 million). The individual Supervisory Board members will receive the amounts listed in the above table. Members of the Supervisory Board of ThyssenKrupp AG will receive compensation of €168,466 (prior year: €184,238) for supervisory board directorships at Group subsidiaries in fiscal 2004/2005. The individual members of the Supervisory Board will receive the amounts shown in the following table. Beyond this, with one exception, Supervisory Board members received no further compensation or benefits in the reporting year for personal services rendered, in particular advisory and mediatory services. The international law firm Clifford Chance, one of whose partners is Supervisory Board member Dr. v. Schenck, received a total of €87,513 for consultancy services for subsidiaries of the ThyssenKrupp Group in the past fiscal year. No loans or advance payments were granted to members of the Supervisory Board in the year under review.
Former Supervisory Board members who left the Supervisory Board prior to October 01, 2004 receive a proportional payment from the long-term compensation component in the total amount of €47,381 for the time they served on the Supervisory Board. The breakdown is shown in the following table:
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