Corporate Governance report

The Management Board manages the company on its own joint responsibility. It is required to safeguard the interests of the company and is committed to achieving the sustainable growth of enterprise value. It specifies the business goals and defines the strategies to be implemented in order to attain these targets. The Management Board is responsible for making decisions on all matters of fundamental and key importance for the company. In its meeting on November 7, 2019, the Supervisory Board of DB AG appointed Dr. Sigrid Nikutta as a Member of the Management Board of DB AG for the newly created Freight Transport Board division for the period from January 1, 2020 to December 31, 2022.

In its meeting on December 11, 2019, the Supervisory Board of DB AG appointed Dr. Levin Holle as a member of the Management Board of DB AG for the Finance and Logistics Board division for the period from February 1, 2020 to January 31, 2023. Furthermore, in its meeting on February 19, 2020, the Supervisory Board of DB AG reappointed Mr. Martin Seiler, Labor Relations Director and Board member for the Human Resources and Legal Affairs division from January 1, 2021 to December 31, 2025. The Management Board of DB AG therefore consists of seven divisions. In addition to the Chairman’s division, the Management Board also comprises the Finance and Logistics, Human Resources and Legal Affairs, Digitalization and Technology, Passenger Transport, Freight Transport and Infrastructure divisions.

In accordance with this provision, Dr. Nikutta informed the bodies at the beginning of her Management Board mandate that she has a familial relationship with a member of the general management of a rail vehicle manufacturer. In order to avoid any conflicts of interest, she will not participate in any procurement processes with this rail vehicle manufacturer.

Management Board members must discuss any conflicts of interest with the Supervisory Board immediately and must also provide other members of the Management Board with information about any such conflicts.

The Supervisory Board advises and monitors the Management Board in its management of the company.

In line with the requirements of the Co-Determination Act (MitbestG), the Supervisory Board of DB AG consists of 20 members, of whom ten members are shareholders’ representatives and ten members are employee representatives. Some of the shareholders’ representatives are seconded to the Supervisory Board and some are elected at the Annual General Meeting. The employees’ representatives on the Supervisory Board are elected in line with the requirements of the Co-Determination Act.

The period of office of the members of the Supervisory Board elected by the General Meeting, Dr. Ingrid Hengster, Prof. Dr. Susanne Knorre, Dr. Jürgen Krumnow, Ms. Kirsten Lühmann, Mr. Michael Odenwald, Mr. Eckhardt Rehberg and Mr. Christian Schmidt, as well as the period of office of the members of the Supervisory Board delegated by the Federal Government, State Secretary Werner Gatzer (BMF), Mr. Oliver Wittke (formerly BMWi) and State Secretary Dr. Tamara Zieschang (BMVI), along with that of the employee representatives on the Supervisory Board (Mr. Jürgen Beuttler, Mr. Jörg Hensel, Mr. Klaus-Dieter Hommel, Mr. Alexander Kirchner, Mr. Jürgen Knörzer, Ms. Heike Moll, Mr. Mario Reiß, Ms. Regina Rusch-Ziemba, Mr. Jens Schwarz and Mr. Veit Sobek), duly expired at the end of the Annual General Meeting on March 25, 2020. At this Annual General Meeting, Dr. Ingrid Hengster, Prof. Dr. Susanne Knorre, Ms.Kirsten Lühmann, Mr. Michael Odenwald, Dr. Immo Querner, Mr. Eckhardt Rehberg and Mr. Christian Schmidt were elected to the Supervisory Board as shareholder representatives for the period from March 25, 2020, up to the end of the Annual General Meeting, which resolves on their discharge for the fourth financial year following the start of their period of office. State Secretary Werner Gatzer (BMF), State Secretary Dr. Tamara Zieschang (BMVI) and Parliamentary State Secretary Elisabeth Winkelmeier-­Becker (BMWi) were delegated directly to the Supervisory Board by the BMVI as additional shareholder representatives, with effect from March 25, 2020. Against the backdrop of the Covid-19 pandemic, the delegate meetings scheduled for February 10/11, 2020 to elect employee representatives to the co-determined Supervisory Boards of DB Group, including the Supervisory Board of DB AG, could not take place, so a judicial replacement appointment of the employee representatives to the Supervisory Board of DB AG was requested instead. On March 12, 2020, the Berlin-Charlottenburg District Court appointed the following persons as members of the Supervisory Board, with effect from March 25, 2020: Mr. Jürgen Beuttler, Mr. Jörg Hensel, Mr. Klaus-Dieter Hommel, Ms. Cosima Ingenschay, Mr. Jürgen Knörzer, Ms. Heike Moll, Mr. Mario Reiß, Mr. Jens Schwarz, Mr. Veit Sobek and Mr. Torsten Westphal.

At the constituent Supervisory Board meeting, which also took place on March 25, 2020, Mr. Michael Odenwald was again elected Chairman of the Supervisory Board, while Mr. Torsten Westphal was elected Deputy Chairman of the Supervisory Board. On April 25, 2020, Mr. Torsten Westphal resigned his mandate as Deputy Chairman of the Supervisory Board with immediate effect and his mandate on the Supervisory Board of DB AG with effect from May 31, 2020. As his successor, Mr.Klaus-Dieter Hommel was elected Deputy Chairman of the Supervisory Board at the Supervisory Board meeting on May 15, 2020. On June 18, 2020, the District Court of Berlin-Charlottenburg appointed Mr. Martin Burkert to the Supervisory Board as an employee representative in order to fill the mandate left vacant by the departure of Mr. Westphal.

Any personal or business relationships of individual members of the Supervisory Board with the company are stated in the Notes to the consolidated financial statements.

Supervisory Board members must immediately disclose any conflicts of interest with the Supervisory Board and must also provide the Supervisory Board with information about any such conflicts. In the reporting period, no such incidents arose.

Transactions of fundamental importance and other Management Board decisions with a major impact on the business operations and on the assets, financial or income situation of the company require the authorization of the Supervisory Board. The Management Board reports to the DB Supervisory Board on the business development and the position of DB Group at least once every quarter. The Management Board also reports to the Supervisory Board regularly on all measures implemented within the company that are intended to ensure compliance with laws and corporate regulations. In addition, the tasks of the Supervisory Board include the auditing and approval of the company’s annual financial statements and the auditing of the company’s management report, the consolidated financial statements, and the DB Group management report. The Supervisory Board also monitors the accounting process, the effectiveness of the internal control system, the risk management system and the internal audit system, as well as the process of auditing the annual financial statements.

In addition, the Chairman of the Supervisory Board is in regular contact with the members of the Management Board and particularly the Chief Executive Officer to discuss company strategy, business development and risk management. The Chairman of the Supervisory Board receives regular reports from the Chief Executive Officer on all events that are of key importance for assessing the company’s situation and development, as well as for its management.

There were no consultancy agreements or other comparable service agreements or contracts for services between the members of the Supervisory Board and DB AG in the year under review

Supervisory Board Committees

In order to enable it to carry out its monitoring activities to the best of its abilities, the Supervisory Board of DB AG has made use of the option of setting up further committees in addition to the Mediation Committee, which has to be set up in accordance with the Co-Determination Act, and has set up an Executive Committee, an Audit and Compliance Committee and a Personnel Committee. An overview of the members of the committees can be found in the Notes to the consolidated financial statements. Details of the Bwork performed by the individual committees in the year under review are included in the report of the Supervisory Board. Details of the functions of the individual committees can be found on our Web site.

Seven women currently serve on the Supervisory Board of DB AG. A target of a 30 % share of women on the Supervisory Board of DB AG was set, with a deadline of June 30, 2022.

Two women currently serve on the Management Board of DB AG. A target of a 30 % share of women on the Management Board of DB AG was set, with a deadline of June 30, 2022.

At the other management levels of DB AG, the following targets have been set (deadline December 31, 2020): at the first management level below the Management Board, a 25.5 % share of women, and at the second management level below the Management Board, a 28.6 % share of women.

As of December 31,2020, a 24.5 % share of women was realized at the first management level below the Management Board. At the second level, 28.9 % was achieved. This essentially achieved the targets at the first and second management levels below the Management Board. DB Group is committed to the equal participation of women and men in management positions and, on the basis of the law, has decided to set a total target of 30 % women in management for all applicable subsidiaries at all levels (Supervisory Boards, Management Boards/general management, first and second management levels), with a deadline of December 31, 2024.

The total compensation for Management Board members consists of a fixed salary, a performance-linked annual director’s fee and a long-term incentive plan based on multi-year figures. Total compensation also includes benefit commitments, other commitments and ancillary benefits.

The fixed salary is cash compensation linked to the financial year. It is based on the scope of responsibility and the experience of each Management Board member. The individually defined fixed income is paid out in 12 equal installments.

The performance-linked annual director’s fee is calculated using a factor linked to the achievement of business targets (director’s fee factor) and the achievement of individual targets (performance factor). There is a multiplicative link between the director’s fee factor and the performance factor. The director’s fee factor depends on the level of success in attaining the business targets set out by corporate planning. The parameters for this relationship are in equal parts operational success (operating income after interest) and return on capital employed (ROCE).

The performance factor reflects success in meeting personal targets. The target fee corresponds to the annual director’s fee paid to the Management Board member in a “normal financial year” for meeting performance targets in full (meeting targets). If the Group results do not meet planned objectives, the director’s fee factor can, in extreme cases, be re­­duced to zero, regardless of personal performance. This means that the director’s fee can be zero. If planned objectives are sufficiently exceeded and the maximum performance factor is also achieved, the annual director’s fee can amount to 2.6 times the target director’s fee.

The business and personal targets of the Management Board members are decided by the Supervisory Board each year based on recommendations from the Personnel Committee, and are then agreed in writing with the Management Board members.

Together with the corporate planning adopted by the Supervisory Board, the personal targets form the basis for assessing the annual director’s fee. This means that all of the key parameters for total compensation are established at the beginning of the financial year.

At the end of each financial year, the director’s fee and the personal performance factor are calculated for each Management Board member based on Group results. Target income is attained if both the business goals and the individual targets have been met in full. The final decision on this matter is made by the Supervisory Board and is prepared by the Personnel Committee.

In March 2020, the Supervisory Board modified how the long-term incentive (LTI) plan of the Management Board works for tranches to be disbursed in future. The adjusted LTI methodology now also focuses on long-term transport and climate policy objectives and the sustainable creditworthiness and profitability of DB Group. After the end of the respective plan term of four years, the extent to which LTI targets have been achieved at the end of the tranche is measured using the average target achievement for the individual years. The payment amount for the long-term incentive plan has an upper limit and can vary between 0% and 200%. Claims from the long-term incentive plan are inheritable.

The Management Board members are entitled to an appropriate severance package if their contract is terminated before the contractually stipulated termination date, provided that the Management Board member was not personally responsible for the termination through his or her actions. The severance package is based on the remaining term of the contract, the agreed target salary and, where applicable, the pension benefits already owed by DB AG for the remainder of the contract.

In accordance with the recommendations of the PCGK, a severance package cap is included in all contracts of DB AG Management Board members. This cap means that payments made to a Management Board member due to premature termination of Management Board duties without good cause as defined by section 626 of the Civil Code (Bürgerliches Gesetzbuch; BGB), cannot exceed the value of two years’ salary, including variable compensation components, and must not provide compensation for more than the remaining term of the employment agreement.

Management Board members do not receive any additional compensation for mandates exercised in control bodies of Group companies or affiliated companies.

Group-wide compensation system for executives

The compensation system for executives aims primarily to closely link compensation to the sustainable success of the company in the sense of the business success of the integrated rail system and of DB Group as well as the alignment of all divisions toward this objective.

The annual director’s fee for executives and employees not subject to wage agreements in the integrated rail system is structured as a profit share. Personal goals are then agreed with executives as part of a regular process. The achievement of the goals is regularly included in the assessment when making decisions on increases to the fixed salary.

If the executives are members of bodies of DB AG subsidiaries, the respective subsidiary’s Supervisory Board is respon­sible for discussing the personal goals if possible by the end of the previous financial year. Where applicable, the respective decision-making will take place after the DB AG Supervisory Board meeting in which the mid-term planning and the targets for the Group’s Management Board are adopted. This chronological sequence of the handling of personal goals in the Supervisory Boards of the subsidiaries is due to the Group structure of DB AG.

In some cases, given the regulatory requirements, DB Netz AG is subject to separate regulatory requirements which take even greater account of the specific business goals of DB Netz AG.

Pension entitlements

The Supervisory Board of DB AG had set a general retirement age of 65 for Management Board members. In the year under review, in accordance with the provisions of the PCGK 2020, this regulation was modified to stipulate that the Management Board should not include any members who have reached the statutory retirement age. After leaving the company, Management Board members are entitled to pension payments. At the latest upon reaching the age of 65, Management Board members who were in office prior to 2017 are entitled to a lifelong pension if the term of employment ends due to permanent invalidity, or if the contract is ter­minated before the agreed termination date or is not extended, without good cause, or if the Management Board member refuses to continue the contract under the same
or more beneficial conditions.

The system governing benefit commitments to Management Board members was amended in 2017. Members appoint­­ed to the Management Board for the first time in 2017 and thereafter receive a defined benefit commitment under which a capital stock is saved up for the Board member for the dura­tion of their employment and paid out when they reach retirement age. An annual amount derived as a specific percentage of fixed salary is paid into the defined contribution plan.

Company pension commitments for Management Board members already in office at the start of 2017 are based on a per­centage of the basic salary depending on the length of time that the Management Board member has been with the company. Pension commitments include lifelong retirement and surviving dependent benefits. There is no lump-sum pay­­ment option.

In addition to Management Board member contracts entered into before January 1, 2009, a reinsurance policy was concluded to cover company pension benefits.

Contractual ancillary benefits

The contractual ancillary benefits for Management Board members include a company car with driver for business and personal use, a personal BahnCard 100 First free travel card and standard insurance coverage. A housing allowance is provided for second homes where these are required for business purposes. Where these monetary benefits cannot be granted on a tax-free basis, they are taxed as non-monetary benefits for which the Management Board members are fully responsible. Management Board members, like any other member of the Group’s executive personnel, can choose to take part in the company’s deferred compensation program.

The members of the Management Board are covered by liability insurance against financial losses incurred due to DB AG’s business operations (D & O insurance). In the year under review, this insurance was designed as a group insurance policy with the deductible provided for under law; it provides coverage for financial losses that may occur during the performance of activities as Management Board members. The insurance coverage of the existing D & O insurance policy is valid for a period of five years after the termination of activities as a member of the Management Board.

DB AG Management Board

The director’s fee for the previous financial year is due at the end of the month in which the company’s Annual General Meeting takes place.

The DB AG Management Board members will receive the following compensation for their work during the year under review:

Individual figures are rounded and therefore may not add up.
¹⁾ Subject to the resolution of the Supervisory Board.
²⁾ Long-term variable compensation refers to additions to and releases of provisions for long-term incentives (LTI). Due in particular to the forecasted effects of the Covid-19 pandemic on DB Group, provisions made in previous years for LTI plans for 2017 to 2020 and 2018 to 2021 were released in the year under review (€ 2,277 thousand).
³⁾ Monetary benefits accruing from travel discounts, usage of company cars, and insurance allowances.
⁴⁾ Total without long-term variable compensation.

In the year under review, no Management Board members of DB AG received benefits or promises of benefits from a third party with regard to their activities as a member of the Management Board.

Pension benefits for the Management Board for the 2020 financial year

During the year under review an amount totaling € 1,633 thousand was added to the pension provisions.

Pension provisions for former Management Board members are shown in total in the Notes to the consolidated financial statements.