45 Remuneration based on performance shares

The remuneration of the Board of Management is based on the remuneration system updated by the Supervisory Board on December 14, 2020 with effect from January 1, 2021. The remuneration system implements the requirements of the AktG as amended by ARUG II and takes into account the recommendations of the German Corporate Governance Code (the Code) in the version dated April 28, 2022 (which entered into force on June 27, 2022). The Annual General Meeting approved the remuneration system on July 22, 2021 with 99.61% of the votes cast.

The new remuneration system has applied from January 1, 2021 to all Board of Management members with employment contracts newly concluded or renewed after the Supervisory Board resolution of December 14, 2020. For the Board of Management members already appointed at the time of the resolution by the Supervisory Board on December 14, 2020, the new remuneration system also applies in principle from January 1, 2021. Until such time as their contracts are renewed, however, the following exceptions apply: the performance share plan of the Board of Management members already appointed continues to have only a three-year performance period but otherwise corresponds to the performance share plan described in this system. Penalty and clawback rules and a four-year performance period (previously: three years) will only apply to Board of Management members already appointed on renewal of their contracts.

The group of beneficiaries of the performance share plan was expanded at the end of 2018 by including members of top management and at the end of 2019 by adding all other members of management and selected participants below management level. Performance shares were first granted to members of top management at the beginning of 2019. All other beneficiaries were allocated benefits on the basis of performance shares for the first time at the beginning of 2020. The function of the performance share plan for top management and other beneficiaries is largely identical to the performance share plan that was granted to the members of the Board of Management. The performance period for beneficiaries below Board of Management level is 3 years. When the performance share plan was launched, members of top management were guaranteed a minimum bonus amount for the first three years on the basis of the remuneration for 2018, while all other beneficiaries were given a guarantee for the first three years on the basis of the remuneration for 2019.

PERFORMANCE SHARES

Each performance period of the performance share plan has a term of three or four years. For members of the Board of Management and of top management, the annual target amount under the LTI is converted at the time of granting into performance shares on the basis of the initial reference price of Volkswagen’s preferred shares. This annual target amount is allocated to the respective beneficiaries as a pure calculation position. Based on the degree of target achievement for the annual earnings per Volkswagen preferred share, the number of performance shares is definitively determined on the basis of a three- or four-year, forward-looking performance period. After the end of the performance period, a cash settlement is made. The payment amount corresponds to the number of determined performance shares, multiplied by the closing reference price at the end of the period plus a dividend equivalent.

For all other beneficiaries, the payment amount is determined by multiplying the target amount by the degree of target achievement for the annual earnings per Volkswagen preferred share and the ratio of the closing reference price at the end of the period, plus a dividend equivalent, to the initial reference price. Target achievement is determined on the basis of a three-year performance period with a forward-looking horizon of one year. For all beneficiaries, the payment amount under the performance share plan is limited to 200% of the target amount; the payment amount is reduced by 20% if the average ratio of capex to sales revenue or the R&D ratio in the Automotive Division is smaller than 5% during the performance period.

MEMBERS OF MANAGEMENT AND SELECTED PARTICIPANTS BELOW MANAGEMENT LEVEL

In the fiscal year, beneficiary members of management and selected participants below management level were allocated a target amount of €688 million (previous year: €665 million) on which target achievement of 100% is based. As of December 31, 2022, the total carrying amount of the obligation, which corresponded to the intrinsic value of the liabilities, was €841 million (previous year: €836 million). A total expense of €886 million (previous year: €857 million) was recognized for this commitment in the reporting period.