HOCHTIEF Geschäftsbericht 2008

 

Corporate Governance

HOCHTIEF complies with all recommendations of the German Corporate Governance Code. In accordance with this Code, the Executive Board reports jointly on behalf of the Supervisory Board on corporate governance at HOCHTIEF.

HOCHTIEF has a tradition of good corporate governance, which promotes confidence in the Company among investors, clients and the workforce. We model our corporate governance on the German Corporate Governance Code, which was first introduced in 2002. We have fully complied with all of its recommendations since 2006. A Compliance Declaration pursuant to Section 161 of the German Stock Corporations Act (AktG) showing that HOCHTIEF continues to comply with all recommendations of the German Corporate Governance Code was submitted by the Executive Board and Supervisory Board in March 2009.

HOCHTIEF has always based its actions on nationally and internationally accepted standards for good and responsible corporate governance. Corporate governance is for us a benchmark that embraces all parts of the Company, and we are determined to continuously develop the way in which its principles are translated into practice.

Detailed information on the subject of corporate governance is provided on our website. The site contains both the current Compliance Declaration and those issued in the past. We also publish all of the Company's press releases and ad-hoc disclosures on our website.

We alert shareholders to important dates on a continuous basis with the financial calendar published in our annual report and quarterly reports as well as on our website. Two annual meetings for analysts and investors are supplemented by conference calls when our quarterly results are published. All presentations for these events may be freely viewed online. Recordings of the meetings are also available for playback on our website.

Our annual General Shareholders' Meeting is prepared with the goal of informing all shareholders in a prompt, comprehensive and effective manner both before and during the meeting. Ahead of the General Shareholders' Meeting, the annual report and the notice of the meeting provide shareholders with full information on the preceding fiscal year and all items on the agenda. All documents and information relating to the General Shareholders' Meeting are additionally made available together with the annual report on our website.

Shareholders can vote at the General Shareholders' Meeting in person, appoint a representative of their choice to vote on their behalf, or authorize a Company-appointed proxy to vote according to instructions. Shareholders unable to attend a General Shareholders' Meeting can follow the entire proceedings in a webcast.

The Chairman of the Supervisory Board outlined the main points of the Executive Board compensation system and any changes to it at the General Shareholders' Meeting in May 2008. This will be repeated at the 2009 meeting.

A core element of good corporate governance is transparency. This is particularly important in situations where transactions entered into by the Executive Board could give rise to conflicts of interest. We are able to report that there were no material transactions in 2008 between Executive Board members or persons close to them and HOCHTIEF or any Group company. Similarly, no contracts were entered into between HOCHTIEF and members of the Supervisory Board. There were no conflicts of interest involving members of the Executive Board or the Supervisory Board. The number of Company shares held directly or indirectly by members of the Executive Board and Supervisory Board and the number of financial instruments relating to such shares amounted to less than one percent of all shares issued by HOCHTIEF as of December 31, 2008 (Point 6.6 of the Code).

One focus of corporate governance activities during the year was the onward development of our compliance* program. Compliance with the law and internal guidelines is an essential management responsibility at HOCHTIEF. A Code of Conduct first adopted in 2002 has been supplemented in the meantime by a comprehensive set of rules, the compliance program. This is regularly reviewed and updated as necessary. All members of the workforce are called upon to take an active part in its implementation. The statutory requirements are explained in greater depth and in concrete terms in various Group directives and circulars.

Compliance activities during the year under review centered around fighting corruption. The Executive Board again made absolutely clear that it will not accept any corruption-related infringement. Breaches of the rules on fighting corruption are not tolerated in any way and trigger sanctions against the members of staff concerned.

Workforce training is provided on important aspects of the law and internal directives. Compliance officers are available to answer specific questions. Classroom-based training is supplemented with interactive e-learning programs, for example, on combating corruption. A key topic in this training is high-risk behavior (such as corruption or collusive bidding). As an additional element of its compliance activities, HOCHTIEF has now opened a whistle-blowing hotline alongside its existing ethics hotline. We have entrusted the running of the new hotline to an independent law firm. Both

lines are there for members of the Group's workforce to report breaches of the law or directives. Informants can remain anonymous if they wish.

The Supervisory Board's Audit Committee discussed the compliance program in its meeting of November 11, 2008 and noted it with approval.

Compensation report

The Compensation Report forms an integral part of the combined Management Report.

Executive Board compensation for the 2008 fiscal year

At the proposal of the Human Resources Committee, the full Supervisory Board decides on the Executive Board compensation system including its main contractual elements and reviews this system on a regular basis. Specifics regarding the amount of Executive Board compensation are decided by the Human Resources Committee.

Executive Board member compensation comprises a fixed annual salary supplemented by variable, performance-linked components. The fixed component constitutes basic compensation not linked to performance and is paid as a monthly salary; Executive Board members additionally receive supplementary compensation in the form of non-cash benefits. Non-cash benefits mostly comprise amounts to be recognized for tax purposes for private use of company cars and accident insurance.


Compensation for the 2008 [2007] fiscal year

(EUR thousand) Fixed compensation Performance-
linked compensation 		Non-cash benefits Total
Dr. Lütkestratkötter 785 (672) 807 (863) 16 (12) 1,608 (1,547)
Ehlers 523 (480) 538 (616) 24 (24) 1,085 (1,120)
Dr. Lohr 523 (453) 538 (582) 29 (29) 1,090 (1,064)
Dr. Noé 523 (480) 538 (616) 18 (18) 1,079 (1,114)
Dr. Rohr 523 (453) 538 (582) 25 (24) 1,086 (1,059)
Executive Board total 2008 2,877 (2,538)*** 2,959 (3,259)*** 112 (107)*** 5,948 (5,904)***

The value of performance-linked compensation depends on the consolidated profit before taxes and the personal performance of the Executive Board members themselves.

In the event of full compliance with the targets, the total cash compensation comprises around 50 percent fixed and 50 percent performance-linked components. The performance- linked compensation consists of the Company bonus (60 percent) and an individual bonus (40 percent) – assuming full compliance with targets.

Executive Board compensation also includes pension awards, other awards in the event of termination of office, and participation in the Group's variable compensation arrangements combining long-term incentives with an element of risk.

Executive Board compensation for past fiscal years Amounts paid in 2008 for offices held within the Group comprised EUR 35,000 in fixed compensation to Dr. Noé and EUR 578,000 in additional performance-linked compensation paid retroactively for FY 2007 (EUR 269,000 to Dr. Lütkestratkötter, EUR 48,000 to Mr. Ehlers, EUR 73,000 to Dr. Lohr, EUR 115,000 to Dr. Noé and EUR 73,000 to Dr. Rohr).

Variable pay components combining a long-term incentive effect with an element of risk Executive Board compensation also includes participation in the Company's long-term incentive plans (LTIPs). These comprise grants of stock appreciation rights (SARs) and stock awards (phantom stock).

If the applicable exercise targets are met after a two-year waiting period, the stock appreciation rights grant the Executive Board members a monetary claim against the Company, which they can exercise over the then following three years. The amount of the claim depends on the development of the share price within the waiting and exercise periods. In addition, relative and absolute performance targets, which cannot be modified retroactively, have to be met.

The terms of stock awards provide that after the three-year waiting period, those entitled have, for each stock award and for a further two-year exercise period, a monetary claim against the Company equal to the closing price of HOCHTIEF stock on the last day of stock market trading prior to the exercise date.

The value of all entitlements under long-term incentive plans is capped so that the amount of compensation stays appropriate in the event of extraordinary, unforeseeable developments. In fiscal 2008, the stock appreciation rights under LTIP 2006 were exercised in full by all members of the Executive Board. The sums paid out amounted to EUR


Variable pay components combining a long-term incentive effect with an element of risk

  LTIP 2008 RSA 2008/Tranche 1 LTIP income 2008 [expense 2007]
Stock appreciation rights Stock awards
Number Value (EUR thousand) Number Value (EUR thousand)** Number Value (EUR thousand)** Value (EUR thousand)
Dr. Lütkestratkötter 11,250 186 7,350 494 33,276 2,041 (1,314) [2,079]
Ehlers 7,500 124 4,900 329 22,184 1,361 (358) [1,399]
Dr. Lohr 7,500 124 4,900 329 22,184 1,361 (358) [1,366]
Dr. Noé 7,500 124 4,900 329 22,184 1,361 (1,082) [2,086]
Dr. Rohr 7,500 124 4,900 329 22,184 1,361 (1,025) [1,671]
Executive Board total 2008 41,250 682 26,950 1,810 122,012 7,485 (4,137) [8,601]***

1,485,000 (EUR 297,000 each to Dr. Lütkestratkötter, Mr. Ehlers, Dr. Lohr, Dr. Noé and Dr. Rohr).

Executive Board compensation also includes long-term SARs under the Top Executive Retention Plan 2004 (TERP 2004)"a plan set up on the sale of RWE Aktiengesellschaft's stake in HOCHTIEF Aktiengesellschaft. Stock appreciation rights worth EUR 4,448,000 were exercised in 2008 under TERP 2004 (EUR 1,400,000 by Mr. Ehlers, EUR 1,400,000 by Dr. Lohr, and EUR 1,648,000 by Dr. Noé).

In May 2008, the Human Resources Committee launched a Retention Stock Award plan (RSA 2008) and granted the first tranche of awards under the plan. The Committee also resolved to grant a second tranche in 2009 and a third in 2010, each identical in amount to the first.

The plans have also granted SARs and stock awards to members of upper management.

For his activities on the Turner Board, Dr. Lütkestratkötter has been granted awards under the Phantom Stock Award Plan for The Turner Corporation top managers and Board members in past years. The plan is based on the granting of stock appreciation rights and phantom stock units whose performance is measured with reference to a phantom stock price based on earnings.

Further information on the plans is provided in the Notes to the Consolidated Financial Statements on pages 140 and 161.

For fiscal 2008, the Executive Board members received fixed compensation in a total amount of EUR 2,877,000, performance-linked compensation totaling EUR 2,959,000 and combined non-cash benefits of EUR 112,000. Longterm compensation components from LTIP 2008, amounting to EUR 2,492,000, were also allocated for fiscal 2008. Total compensation for the 2008 fiscal year thus amounts to EUR 8,440,000 (2007: 9,606,000).

The granting of the first tranche of the newly launched Retention Stock Award plan (RSA 2008) resulted in a EUR

7,485,000 extraordinary increase in the total compensation amount, raising total compensation for fiscal 2008 to EUR 15,925,000. Although RSA 2008 runs for seven years, each of its three tranches is required to be accounted for at fair value at the grant date. This value is determined as of the grant date using the Black/Scholes option pricing model. The fair value at the end of the waiting period differs from the fair value at the grant date and depends on the future performance of the HOCHTIEF stock price. As of the audit date of the consolidated financial statements, plans launched in the past and still in force had lost about half of their value as of the grant date. Some of the stock appreciation rights plans are currently valueless due to the high issue price.

Pensions

All Executive Board members have pension awards under individual contracts setting the minimum pension age at 60. The pension amount is determined as a percentage of fixed compensation, the percentage rising with each member's term of office. The maximum amount for the Executive Board members is 65 percent of their final fixed compensation. Surviving dependants receive 60 percent of the pension.

Executive Board members whose contract is not extended or is prematurely terminated before they reach the age of 50 receive a transitional benefit payable until the commencement of regular pension payments and equaling 50 percent of the pension entitlement accumulated prior to leaving the Company or 75 percent in the case of members leaving at age 50 or older; where applicable, other income is partly deductible from the transitional benefit.

  Transfers to pension provisions in fiscal 2008 [2007] Estimated benefit amount
(EUR thousand) Service cost Interest expense (as of Dec. 31, 2008)
Dr. Lütkestratkötter 283 [173] 192 [79] 334
Ehlers 204 [213] 85 [68] 183
Dr. Lohr 158 [150] 49 [35] 183
Dr. Noé 182 [189] 123 [103] 235
Dr. Rohr 211 [200] 154 [118] 235
Executive Board total 1,038 [925]* 603 [403]* 1,170

Dr. Lütkestratkötter, Dr. Lohr and Dr. Noé have received pension awards for their work on the Leighton Board. An expense of EUR 7,000 for Dr. Lütkestratkötter, EUR 1,000 for Dr. Lohr and EUR 10,000 for Dr. Noé was incurred for this purpose by Leighton in the 2007/2008 fiscal year.

The present value of pension benefits for current and former Executive Board members is EUR 43,564,000 (2007: EUR 45,798,000). This amount is fully covered by plan assets in the form of pension liability insurance entitlements and the HOCHTIEF pension fund.

Pension payments to former members of the Executive Board and their surviving dependants were EUR 3,116,000 in 2008 (2007: EUR 2,822,000).

Severance awards for members of the Executive Board

If shareholders obtain control of HOCHTIEF Aktiengesellschaft as defined in Sections 29 and 30 of the German Securities Acquisition and Takeover Act (WpÜG), all members of the Executive Board in office in the year concerned are entitled – under agreements entered into with them before 2008 – to resign from office and simultaneously terminate their contracts at six months' notice. The members of the Executive Board are each similarly entitled in the event of other takeover-like contingencies specified in their contracts (including, among other things, the obtaining of a majority of voting rights at general shareholders' meetings). Executive Board members also have such a right if confronted by sustained and substantial pressure from shareholders demanding that they resign or take specific action which the members concerned are unable to reconcile with their personal responsibility for the exercise of office. In the
event that their contracts are terminated by notice, terminated by mutual agreement or expire within nine months following a takeover, the departing Executive Board members receive in compensation for termination of their contracts a severance award equaling two-and-a-half years' benefits comprising their fixed annual compensation plus performance-linked compensation in the amount budgeted for in their contracts. If an Executive Board member's contract has more than two-and-a-half years left to run from the effective date of termination, the severance award increases by an appropriate amount. No earlier than two-and-a-half years following termination of their contracts, the departing Executive Board members are paid a contractual transitional benefit in accordance with their contractual pension arrangements. Regarding all entitlements under their contractual pension arrangements, the departing Executive Board members are treated as if their contract had three years left to run from the termination date. Regarding any entitlements under the Company's long-term incentive plans, the departing Executive Board members have a right to demand settlement of entitlements under plans currently in force. Departing Executive Board members who do not exercise the right to settlement are treated under the long-term incentive plans as if their contract had three years left to run from the termination date.

Supervisory Board compensation

Supervisory Board compensation is determined at the General Shareholders' Meeting and is governed by Section 18 of the Company's Articles of Association. Supervisory Board compensation for fiscal 2008 based on the dividend proposed for approval at the General Shareholders' Meeting in May 2009 is shown in the table below.

Supervisory Board compensation

(EUR thousand) Fixed remuneration Variable remuneration Attendance fees Total
Dr. Martin Kohlhaussen 36 195 8 239
Gerhard Peters 24 130 8 162
Ángel García Altozano 18 97 8 123
Alois Binder 18 97 8 123
Detlev Bremkamp 20 108 8 136
Günter Haardt 18 97 8 123
Lutz Kalkofen 12 65 8 85
Prof. Dr. Hans-Peter Keitel 14 76 8 98
Dr. Dietmar Kuhnt 16 90 6 112
Raimund Neubauer 12 65 8 85
Udo Paech 12 65 8 85
Gerrit Pennings 12 65 8 85
Prof. Dr. Heinrich von Pierer 12 65 8 85
Prof. Dr. Wilhelm Simson 18 97 8 123
Tilman Todenhöfer 4 21 2 27
Marcelino Fernández Verdes 12 65 8 85
Klaus Wiesehügel 18 97 6 121
Supervisory Board total 276 1,495 126 1,897


Compliance Declaration pursuant to Section 161 of the German Stock Corporations Act (AktG)

After due appraisal, the Executive Board and Supervisory Board of HOCHTIEF Aktiengesellschaft submit their compliance declaration for 2008 as follows:

"HOCHTIEF Aktiengesellschaft complies in full with the recommendations of the Government Commission on the German Corporate Governance Code dated June 6, 2008 and published on August 8, 2008 by the German Ministry of Justice in the official section of the electronic Bundesanzeiger (Federal Official Gazette).

Similarly, following submission of the last Compliance Declaration on March 18, 2008, HOCHTIEF complied until August 8, 2008 with all recommendations of the Code dated June 14, 2007 and has complied from August 9, 2008 onward with all recommendations of the Code dated June 6, 2008."

Essen, March 18, 2009

HOCHTIEF Aktiengesellschaft

For the Supervisory Board
Dr. Kohlhaussen
For the Executive Board
Dr.-Ing. Lütkestratkötter, Dr. Lohr


 
HOCHTIEF Geschäftsbericht 2008 | Copyright 2008 HOCHTIEF