Corporate governance report (including the statement on corporate governance)
In the following chapter, the Management Board reports on corporate governance at ELMOS Semiconductor AG – also on behalf of the Supervisory Board – pursuant to No. 3.10 of the German Corporate Governance Code. The chapter includes the statement on corporate governance in accordance with Section 289a HGB (German Commercial Code) and the remuneration report (all pages and appendix references refer to the annual report 2010).
Implementation of the German Corporate Governance Code
For the Management Board and the Supervisory Board of ELMOS Semiconductor AG, corporate governance means the realization of responsible and sustainable company management with the necessary transparency in all areas of the group. Management Board and Supervisory Board have again concerned themselves intensively in fiscal year 2011 with the provisions of the German Corporate Governance Code in its last amended version of May 26, 2010. In September 2011, they jointly released the declaration of compliance in accordance with Section 161 AktG once again. Apart from the four reported deviations, all recommendations of the German Corporate Governance Code are complied with. All previously released declarations of compliance have been made permanently accessible on the ELMOS website. here.
Compliance
One of the essential tasks of the Management Board is the control and monitoring of compliance in the group. Compliance stands for the observance of applicable law as well as of all rules and guidelines that exist within the company. The compliance program at ELMOS provides the organizational foundations for this. The essential principles applied by ELMOS were put down in January 2011 in a code of conduct. It primarily includes guidance on the interaction with business partners and colleagues, dealing with information and data, and avoiding conflicting interests, and it addresses the issues workplace safety and environmental protection. All employees were given copies of the code of conduct for their information. Training courses have been held for particularly sensitive areas. The code of conduct is a binding component of every employment contract concluded after the code’s introduction. It is available on the ELMOS website and is effective throughout the group.
Individuals with access to insider information find entry in an insider list and are informed about the applicable statutory provisions. They are regularly referred to trade restrictions due to their insider status.
Working methods of Management Board and Supervisory
Board Management Board and Supervisory Board feel jointly committed to responsible corporate governance. Their highest goal is to safeguard the company’s existence and to increase the shareholder value. The Management Board currently has four members. At the beginning of the year 2012, Dr. Peter Geiselhart joined the Management Board. He assumed responsibility for Development and Sales, taking over from Jürgen Höllisch, who left the company as of February 29, 2012. For an interim period from January 1 to February 29, 2012, the Management Board thus had five members.
The members of the Management Board are responsible for their respective key areas (overview on pages 14/15); together they assume responsibility for the entire management in accordance with the applicable law, the articles of incorporation, the board’s rules of procedure, and the resolutions of the General Meeting of shareholders. The Management Board represents the company to the outside world. The board is responsible for the management of the group, the definition and monitoring of the group’s strategic orientation and corporate targets, and group financing. The Management Board usually meets in full session once a week. The Management Board gives regular, extensive, and timely reports to the Supervisory Board on all developments and events of relevance to the company.
The Supervisory Board supervises the Management Board, appoints its members and advises them with respect to the company’s management. Upon the nomination of candidates for the Management Board, the Supervisory Board examines the eligibility of women and men equally. However, finding the right person for the position according to his or her qualification for the benefit of the company remains the top priority. Management Board and Supervisory Board work together closely and with mutual trust. The Management Board always involves the Supervisory Board in essential decisions. The rules of procedure of the two boards define this cooperation, among other issues. A detailed summary of the Supervisory Board’s work can be found in the Supervisory Board report starting on page 19. The chairman gives a report to the shareholders on the board’s work over the past fiscal year at each Annual General Meeting.
The Supervisory Board has six members, elected for five years in accordance with the articles of incorporation. The amendment to the articles of incorporation providing for an increase in the number of Supervisory Board members from three to six was decided by the Annual General Meeting on May 17, 2011. Pursuant to the provisions of the German One-Third Participation Act (Drittelbeteiligungsgesetz), the Supervisory Board consists of four shareholder representatives and two employees’ representatives. The representatives of the shareholders are elected by the Annual General Meeting, the employees’ representatives are elected by the staff. The most recent elections were held in 2011 so that the Supervisory Board is elected until the 2016 Annual General Meeting. The Supervisory Board does not set up committees as this would not lead to an increase in the efficiency of its work at present.
Based on the requirements defined by the German Corporate Governance Code, the Supervisory Board has established goals and principles with respect to the board’s composition. Among them are international experience, technical and entrepreneurial expertise, strategic vision, knowledge of the company, industry specific know-how, and experience with accounting and internal control processes. Diversity and the avoidance of conflicting interests are part of these principles as is an adequate participation of women. The Supervisory Board has set itself the target that at least one woman shall be represented on the Supervisory Board in the future. It has also determined an age limit of 72 years for its members at the time of election.
These goals and principles – with the exception of the intended participation of women – are fully realized already with the present composition of the Supervisory Board of ELMOS Semiconductor AG and will also be considered for future nominations. At the last election, the pursued participation of women could not be realized yet; however, it remains the stated goal to consider women for these positions as well. The election proposals made by the Supervisory Board for the election of Supervisory Board members will primarily be oriented toward the company’s benefit while considering these goals.
The composition of Management Board and Supervisory Board are described on pages 14/15 and on page 18 of this annual report.
Shareholders and General Meeting
Shareholders make use of their rights at the Annual General Meeting. Prior to the meeting, they receive the agenda, the conditions for participation, and upon request the annual report. All the documents relating to the upcoming and the past Annual General Meetings as well as further information on participation in and voting at the General Meeting are available on our website – also in English – and can be requested in print from the company.
Shareholders who cannot attend the Annual General Meeting in person have the option to assign their voting rights to proxies nominated by ELMOS. The proxy can be contacted throughout the entire length of the General Meeting. Furthermore, the Annual General Meeting is broadcast in its entirety per webcast on our website. After the General Meeting, shareholder presence and voting results will be announced on our website. The next Annual General Meeting will be held on May 8, 2012 in Dortmund.
Dates of importance to the shareholders are compiled annually in a financial calendar which is published on the Internet and in the annual report. All quarterly and annual financial reports are available on the website. The CEO and the CFO regularly provide information to analysts and investors within the framework of road shows and conferences. The investor relations team of ELMOS Semiconductor AG is also available for any questions the shareholders may have.
Anticipatory risk management
Efficient risk management contributes to the success of sound corporate governance. Risk management of this grade does its part in detecting risks at an early stage, assessing them, and initiating adequate countermeasures. All company divisions are involved in the risk management system implemented at ELMOS. Parameters for risk assessment are the probability of occurrence and the estimated amount of loss. This risk assessment is updated quarterly or at even shorter intervals if necessary. We give account of the principles of the risk management system as well as of current corporate risks in the group management report.
Audit conducted by Ernst & Young
Before submitting the proposal for the appointment of the auditor, the Supervisory Board obtained a declaration from the auditor for fiscal year 2011 on relationships between the auditor, its boards, and its audit manager with the company or the company’s board members. This declaration furnished no doubts about auditor independence. Compliant with No. 7.2.3 of the German Corporate Governance Code, the Supervisory Board arranged for the auditor to give account without delay of any material findings and incidents to occur during the performance of the audit. The Supervisory Board also determined that the auditor inform the Supervisory Board or make note in the audit report if the auditor establishes differences from the declaration of compliance as issued by the Management Board and the Supervisory Board. No inconsistencies of this kind were established.
Stock option plans
ELMOS has issued stock option plans for employees, executives, and Management Board members. Stock options continue to represent an important and customary component of a modern remuneration system and a suitable means for incentive and the long-term commitment of employees. The share price is a central criterion for our shareholders to determine the return on an investment in the company. The link to the share price therefore is the beneficiaries’ incentive within the framework of the stock option plan. The performance hurdle and the absolute performance target are 20% so that options can only be exercised if the shareholder value has been increased considerably. Moreover, the pecuniary advantage the beneficiaries can achieve by exercising their options is limited to a fourfold of the exercise price defined upon the issue of options.
The plans are explained in detail in the notes to the consolidated financial statements. Please refer to note 23 for further information.
Remuneration report
Total remuneration of the Management Board
The Supervisory Board decides and routinely reviews the remuneration system and the essential contract terms and conditions for the Management Board members in full session. Total Management Board remuneration comprises a fixed monthly salary, a management bonus, and stock options as well as fringe benefits and pension benefits. The company does not provide an individualized disclosure of the remuneration with respect to privacy protection. Management Board and Supervisory Board agree that such a disclosure would not contribute to greater transparency in the form of additional information relevant to the capital market. For this reason the Annual General Meeting of May 4, 2010 decided to exempt the company from its legal obligation for individualized disclosure of Management Board remuneration for the period of five years.
In fiscal year 2011, the members of the Management Board received a total fixed remuneration of 1,587 thousand Euro (2010: 1,318 thousand Euro) and variable remuneration of 1,051 thousand Euro (2010: 1,791 thousand Euro). Management Board remuneration comprises fixed components and variable incentive components which are linked to the group’s current earnings before taxes on the one hand and personal, individualized targets, agreed on annually with the Supervisory Board, on the other hand. In the year 2011, 50,000 stock options (2010: 50,000 stock options) of ELMOS Semiconductor AG were issued altogether to the members of the Management Board. The total time value of these options came to 88 thousand Euro at the time they were granted (2010: 112 thousand Euro). There are indirect pension commitments to members of the Management Board of ELMOS Semiconductor AG for which no accruals are required because of the volume of these commitments and risk coverage provided by completely congruent pension plan reinsurance. In the year 2011, contributions to these pension plans amounted to 520 thousand Euro (2010: 341 thousand Euro). They are included in the fixed components of the remuneration.
Remuneration of former Management Board members or their surviving dependants amounted to 268 thousand Euro in fiscal year 2011 (2010: 364 thousand Euro). In addition, insurance premiums of 271 thousand Euro were paid for this group of beneficiaries (2010: 347 thousand Euro). Pension provisions for former Management Board members or their surviving dependants came to 2,502 thousand Euro as of December 31, 2011 (2010: 2,533 thousand Euro). After setting off pension provisions against the time value of pension plan reinsurance, 364 thousand Euro (2010: 480 thousand Euro) remain as pension provisions and similar obligations altogether recognized for the group.
Apart from pension commitments and compensation agreements in case of a change of control, no additional benefits have been promised to any Management Board member in case of the termination of occupation. Nor did any member of the Management Board receive benefits or corresponding promises from third parties with regard to his position on the Management Board in the past fiscal year.
Total remuneration of the Supervisory Board
The Supervisory Board’s remuneration is determined by Section 9 of the articles of incorporation. The Supervisory Board members receive fixed and variable payments apart from the reimbursement of their expenses. The variable remuneration is linked to the dividend and thus oriented toward the company’s long-term success. 25 percent of the fixed remuneration and 100 percent of the variable remuneration are paid in shares of the company at present. The Supervisory Board members are not granted stock options of ELMOS Semiconductor AG for their positions on the board. The employees’ representatives receive stock options only in the context of their employment with ELMOS Semiconductor AG.
Compliant with the recommendation of the German Corporate Governance Code with respect to Supervisory Board remuneration in consideration of chairmanship and vice chairmanship, the chairman receives twice the amount of the regular fixed payment and the vice chairman receives one and a half times of said amount. The Supervisory Board members’ remuneration is disclosed in summarized form, yet not individualized. This also applies for payments made to Supervisory Board members for individually performed services, particularly consulting and mediation services.
The fixed remuneration paid to members of the Supervisory Board amounted to the total sum of 59 thousand Euro in fiscal year 2011 (2010: 85 thousand Euro). This amount includes expenses and disbursements. Payments of variable remuneration amounted to 89 thousand Euro (2010: 0 thousand Euro). The company paid 23 thousand Euro (2010: 140 thousand Euro) to members of the Supervisory Board for consulting and other services. Directors’ dealings Individuals who hold executive positions with the issuer of stocks and persons closely related to such individuals are obligated by law to disclose the purchase and sale of stock of ELMOS Semiconductor AG in accordance with Section 15a WpHG (Securities Trading Act). All such directors’ dealings are announced immediately upon notification Europe-wide and publicized on the company’s website. For detailed information about directors’ dealings, please refer to the notes to consolidated financial statements (note 38).
Stocks and stock options
The disclosures of the company’s stocks and stock options held by members of Management Board and Supervisory Board members are explained in detail in the notes to the consolidated financial statements. Please refer to note 35 for this information. In accordance with No. 6.6 GCGC, the members of the Supervisory Board had combined direct or indirect holdings of approx. 40% of the stocks issued by the company and the members of the Management Board had combined direct or indirect holdings of less than 1% (as of December 31, 2011).
Integral labor, social and ethical standards
A high satisfaction level among the employees and the development of their full potential should be the objective for any company. For this reason, ELMOS offers its employees regular specialist trainings and further education courses in various formats in order to safeguard effective work and a continuous professional development of the staff. Since ELMOS is an internationally positioned company, employees are e.g. trained in English in economy, finance, and sales classes by an English tutor. This measure leads the students to the internationally acknowledged Cambridge Certificate.
ELMOS wants to be more than just a place to work and is aware of its social responsibility for its employees. Apart from an in-house gym for health promotion, the ELMOS health team provides a comprehensive and versatile portfolio of examinations and events for its employees. In addition to birthmark control and the annual flu shot, an event on the issue of breast cancer prevention was held in the year 2011. The most important event, however, was organizing a corporate typing session on the premises of ELMOS in cooperation with the German Bone Marrow Donor Center (DKMS) with the result that new donors for people suffering from leukemia were registered. Another very special project with respect to social responsibility is the Knut Hinrichs Relief Fund, initiated by ELMOS employees. The goal of this registered association is the granting of one-time financial aid or ongoing support in cases of need and indigence as well as providing health prevention and further education to acting or former employees as well as their spouses and children. Knut-Hinrichs-Unterstützungskasse e.V. is funded by voluntary grants contributed by ELMOS Semiconductor AG. In the year 2011, assistance could be provided by this association in three cases.
The issue of compliance is gaining more and more in importance against the backdrop of a globalizing economy. Compliance is regarded as the observance of laws and guidelines in companies. ELMOS has prepared a code of conduct which is binding for all employees. In this code, ELMOS commits itself to a corporate culture based on mutual respect, regardless of sex, religion, nationality, ethnical background, disabilities, and age. The code also deals with the principles of entrepreneurial conduct, the handling of information and data, donations, workplace safety, environmental protection, and leadership, responsibility and supervision. The code is available for download on our website and can be requested as a print copy.
Environmental protection is one of our guiding corporate principles. For us, product quality, economy, occupational safety, and environmental protection are equally high ranking corporate goals and components of an integrated corporate philosophy. Acting responsibly today safeguards the future. Our commitment to the environment shows in our ISO 14001 certification. For more than 10 years, ELMOS has actively taken measures beyond statutory eco and health protection regulations. We want to make a contribution so that co-workers and neighbors can continue living in a healthy environment in the future. You can find all the data and facts on the issue of environment as well as information on eco targets both defined and reached in our eco report available on our website.
It is also important to us as a company to assume responsibility for society. Youth and training promotion is a part of it for us, as is the support of charitable institutions. In the context of our social responsibility, we therefore regularly donate to the charities. In 2011, ELMOS supported KITZ.do, among other projects, a center for raising the interest of school kids in technical and natural sciences. Over the past years, we tried to make a contribution to the remedy of urgent problems both domestically and abroad by a large number of different fundraising campaigns. In 2011, one of these measures was financing the corporate typing event for the German Bone Marrow Donor Center.