Long Term Incentive Programm (LTIP)
The Long Term Incentive Program (LTIP) for executives and senior managers aims to
- strengthen the common interest of employees, management and investors in the success of the company
- enhance the focus on medium and long term corporate goals
- set up a compensation system that is oriented to both corporate performance and the capital market
LANXESS's Long Term Incentive Program is divided into an Economic Value Plan (EVP) and a Stock Performance Plan (SP). Members of the Management Board, senior managers and certain other managers are eligible to take part in the EVP, which comprises three tranches, starting in the years 2005 - 2007. In each tranche, EVP rights are awarded to managers who make a personal investment in the company's stock. This personal investment, which is defined for each manager individually, is the precondition for participation in the EVP.
Economic Value Plan (EVP)
The Economic Value Plan is based on two key performance indicators for the company: EBITDA pre exceptionals and net financial debt. These are used to determine the economic value, which is the basis for the EVP. If, in the last year of the lock-up period, absolute value has been created since the issue of the relevant tranche, the EVP rights entitle the holder to a cash payment. These rights are automatically exercized when the consolidated financial group statements for the last year of the lock-up period for the relevant tranche have been approved by the Annual Stockholders' Meeting. For the first tranche, that will be following the Annual Stockholders' Meeting in 2008.
The level of payment depends on the increase in economic value. The target is based on the mid-term operating budget of LANXESS AG for the term of each tranche. If the operating targets are achieved and the actual increase in economic value corresponds to the planned increase, the value of each EVP right is 1.00 Euro. No minimum level has been set for the increase in economic value. The maximum value is 2.00 Euro per EVP right.
There is a three-year lock-up period for each tranche of EVP rights. This is the period in which the increase in economic value is measured (fiscal 2005-2007, 2006-2008 and 2007-2009). Each manager's personal investment for the EVP is subject to a five-year lock-up period.
Stock Performance Plan (SP)
For the top management, the LANXESS Long Term Incentive Plan also includes a Stock Performance Plan (SP) to complement the EVP. Members of the top management may only take part in the LTIP if they participate in both the EVP and the SP. The SP also requires a personal investment, the level of which depends on management grade. For members of the Board of Management it is 40 % of their fixed salary for the EVP and SP in total.
The central benchmark for the SP is the performance of LANXESS stock relative to the performance of Dow Jones STOXX 600 ChemicalsSM Index, which is the relevant reference index for each tranche. In addition to the economic component reflected in the EVP, the SP therefore takes account of the price performance of LANXESS's stock relative to the sector index.
Each tranche of SP and EVP rights for top management involves a lock-up period of three years (tranches: fiscal years 2005-2007, 2006-2008, 2007-2009). This adds up to a total lock-up period of five years. The EVP rights are exercized automatically, while the SP rights can be exercized within two years from the end of the lock-up period for each tranche. The exercising of SP rights is subject to insider trading regulations.
