LEG Immobilien : Remuneration Report 2021

82	GROUP MANAGEMENT REPORT	LEG IMMOBILIEN SE Annual Report 2021
Remuneration report | Preliminary remarks

Remuneration report

The remuneration report outlines the structure and amount of the remuneration paid to the members of the Management Board and the Supervisory Board. The report is based on the provisions under the German Stock Corporation Act in accordance with section 162 AktG and the recommendations of the German Corporate Governance Code (as amended 16 December 2019).

The Management Board and Supervisory Board will submit the remuneration report to the Annual General Meeting for approval

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Remuneration system

FIXEDREMU­	NERATION COMPONENT		BASIC REMUNERATION
	FRINGE BENEFITS
			PENSION ENTITLEMENT

•  Fixed contractually agreed remuneration payable in twelve equal instalments

•  Essentially company car for business and private use, for business trips the services of a driver can be used, various insurance elements

•  Receipt of a fixed amount, specified in the respective employment contract, into a reinsured support fund

in accordance with section 120a (4) AktG for the first time on 19 May 2022.

The Annual General Meeting of LEG Immobilien SE (hereinafter referred to as LEG Immo) approved the remuneration system for members of the Management Board presented by the Supervisory Board on 19 August 2020. This remuneration system is effective for Management Board agreements concluded from 1 January

COMPONENT	SHORT-TERM
VARIABLE
REMUNERATION
COMPONENT (STI)

Plan type

Restriction / cap

Performance criteria

•  Tantieme

•  200 % of the target amount

•  40 %: Result from renting & leasing

•  40 %: Funds from operations I

•  20 %: ESG-targets

•  Criteria-based adjustment factor (0,8 - 1,2) to assess the individual and collective performance of the Management Board as well as extraordinary developments

2021 onwards.

Preliminary remarks

The 2021 financial year was a successful year for LEG Immo. FFO I rose by 10.4 % year on year to EUR 423.1 million. The EBITDA margin as at 31 December 2021 was 74.9 %, 0.5 percentage point higher than on the previous year's reporting date on 31 December 2020. This means that the company exceeded or reached the targets it published for 2021. In addition to financial targets, the ESG strategy is also of great importance to LEG Immo. This is also reflected in Management Board targets. Alongside financial tar- gets, non-financial environmental, social and governance targets were set that are also incorporated in the Management Board remuneration systems and in the management of LEG Immo. Investor suggestions regarding the remuneration system are taken on board by the Supervisory Board and the Management Board. In particular, the Management Board waived the payment of the 2021 and 2022 transaction bonus, which - as a variable remuneration

REMUNERATION
LONG-TERM
VARIABLE
VARIABLE
REMUNERATION
COMPONENT (LTI)

TRANSACTION BONUS

Payout

Plan type

Restricition / cap

Performance criteria

Term of a performance

period

Payout

Restriction / cap

Performance citerion

Payout (with Deferral)

•  After the end of the respective financial year

•  Performance cash plan

•  200 % of the target amount

•  40 %: Development of the absolute total shareholder return - TSR

•  40 %: Share price development compared to the EPRA Germany Index

•  20 %: ESG-targets

•  Four years

•  After the four-year performance period

• EUR 1.256.000 (Chairman of the Board)
• EUR 866.000 (Full members of the Board)

•  Acquisition of a significant property portfolio: •  Threshold value: 7,500 residential units p. a. •  Maximum value: 30,000 residential units p. a.

•  33 % after the end of the respective financial year

•  67 % after a further wo financial years depending on the achievement of a business plan (50 % FFO I, 50 % result from renting & leasing)

component - was viewed critically by investors. An adjustment to the Management­ Board remuneration system, which takes account of these investor suggestions and makes provisions for higher share orientation, is being planned and is to be submitted to the 2022 Annual General Meeting for approval.

MALUS/CLAWBACK

SHARE RETENTION OBLIGATION

MAXIMUM REMUNERATION

•  Partial or complete reduction or reclaim of variable remuneration possible

•  Obligation to purchase LEG shares equivalent to a gross basic salary within four years

•  Obligation to hold the acquired shares for the duration of the Management Board activity

•  Chairman of the Board: EUR 4,300,000

•  Full members of the Board: EUR 2,900,000

83	GROUP MANAGEMENT REPORT	LEG IMMOBILIEN SE Annual Report 2021
Remuneration report | Remuneration system of the Management Board

Remuneration system of the Management Board

The Management Board remuneration system (see also graphic previous page > G 10) supports LEG Immo's three fundamental core activities: optimising core business, expanding the value chain and portfolio growth. The following points in particular are taken into consideration when designing the remuneration system:

•Support of company strategy

The variable remuneration component includes a short-term incentive (STI) and a long-term incentive (LTI).

There are also provisions in place for special remuneration (a transaction bonus) as an extraordinary remuneration component in the event of exceptional success in connection with the acquisition of

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property portfolios. This bonus is determined by the scope and success of the transaction. However, the Management Board volunteered to forego this in 2021 and 2022.

Overview of the individual regular components of the remuneration system over time:

• Focus on long-term and sustainable financial development at LEG Immo
• Continuous, environmentally-oriented improvement in line with climate protection goals, optimising customer and employee focus and continuously adapting governance to meet the highest standards (ESG)
• Performance-basedManagement Board remuneration while simultaneously ensuring ambitious targets (pay-for-performance)
• Harmonising the interests of the Board and shareholders
• Taking account of the interests of other LEG Immo stakeholders and aligning Management Board remuneration with them
• Taking into consideration investor requirements and market practice.

The Management Board remuneration system comprises fixed and variable components, the sum of which forms the total remuneration of a member of the Management Board and for which the Supervisory Board has set a maximum amount for each Management Board member (maximum remuneration).

The fixed remuneration component comprises basic remuneration, additional benefits and an occupational pension.

Remuneration system over time

			Year of granting		Year 2		Year 3		Year 4
remunerationFixed	component		Fixed remuneration
			(Basic remuneration,
			fringe benefits &
			pension entitlement)
			Short-term
remunerationVariable			variable remuneration
component		component
	Long-term variable
			(STI)
			remuneration component
			(LTI)

84	GROUP MANAGEMENT REPORT	LEG IMMOBILIEN SE Annual Report 2021
Remuneration report | Remuneration system of the Management Board •Fixed remuneration component

The respective contractually agreed annual targets for the individual remuneration components, assuming 100 % achievement, are as follows:

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Remuneration components
		Lars von Lackum		Susanne		Dr Volker Wiegel
€ thousand		CEO		Schröter-Crossan		COO
		CFO
Fixed remuneration		800		500		500
One-year variable	480		325		325
remuneration (STI)
Multi-year variable	600		445		445
remuneration
Total remuneration		1,880		1,270		1,270

Fixed remuneration component

Basic remuneration

are paid. This regulation also applies to employee-financed pension commitments for which LEG Immobilien SE is the contractual partner. This is capped at an annual payment of EUR 20 thousand for Lars von Lackum and EUR 15 thousand for the other members of the Management Board.

Furthermore, LEG Immobilien SE provides its Management Board members with an appropriate company car for business and private use. All costs of its upkeep and use are paid by the company. In addition, members of the Management Board can use the services of a driver for official journeys. The monetary value arising from private use is capped at EUR 80 thousand per member of the Management Board. The wage and income taxes on these benefits are paid by the respective member of the Management Board. Members of the Management Board are also reimbursed for expenses and travel expenses.

Furthermore, LEG Immobilien SE has taken out accident insurance for the members of the Management Board which also covers accidents outside work. The pay-out to the insured party or his heirs amounts to not more than EUR 500 thousand in the event of death and EUR 1 million in the event of invalidity.

D&O insurance has also been taken out for the members of the Management Board. The D&O insurance policies each include a legally permitted deductible of 10 % of the loss, limited to 1.5 times the fixed annual remuneration per calendar year. The appropriateness of the deductible is reviewed annually.

Pension entitlement

Each calendar year, the company grants members of the Management Board a fixed employer-financed occupational pension commitment, the amount of which is set out in the Management Board agreement. This is paid into a provident fund which is backed by the assets of a life insurance policy. This amount is reduced on a pro rata basis if the member leaves or joins the company during the year. In addition, the pension benefits allowance for the Management Board member provided as part of the additional benefits can also be paid into the provident fund instead of this allowance.

The occupational pensions granted to members of the Management Board in the 2021 financial year are shown in the table below.

The members of the Management Board receive their basic remuneration in twelve equal monthly payments (pro rata temporis).

Benefits

The Management Board receives contractually agreed benefits in addition to basic remuneration. The members of the Management Board receive standard contributions of up to 50 % of their private health and long-term care insurance, however, this is limited to the amount that would be owed if the respective member had statutory health insurance.

If members of the Management Board are voluntarily insured under the statutory pension scheme or are members of a professional pension scheme in place of the statutory pension scheme, 50 % of the standard contributions to the statutory pension scheme

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Occupational pension scheme granted
		Company pension benefits via a provident fund with annually		Company pension benefits via a provident fund or
			paid fixed contribution			professional pension scheme
in €	Amount p. a.		Monetary compen­	Monetary compen­		Amount p. a.		Monetary compen­		Monetary compen­
		sation amount		sation year				sation amount		sation year
Lars von Lackum		100,000		2,325,000		2042		7,924		183,555		2042
Susanne Schröter-Crossan		50,000		1,245,356		2046		7,924		204,693		2046
Dr Volker Wiegel		50,000		1,141,667		2043		7,9241		2		2

1  The company pension benefits for Dr Volker Wiegel is provided by the pension scheme for lawyers 2  A monthly payout starts with the day of retirement

85	GROUP MANAGEMENT REPORT	LEG IMMOBILIEN SE Annual Report 2021
Remuneration report | Variable remuneration component with a short-term incentive function (STI)

Variable remuneration component with a short-term incentive function (STI)

The purpose of the STI is to secure profitable, organic growth and ensure that annual operating targets are met. The STI consists of an annual payment measured on the basis of the following financial and non-financial performance targets:

•net rental and lease income,

The targets for net rental and lease income and for FFO I are based on the annual business plan. The business plan resolved by the Supervisory Board for the respective financial year applies.

The following financial performance indicators were set for the

2021 financial year:

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If the target is achieved, target attainment is 100 %. If the target is exceeded by 20 %, the maximum target attainment of 200 % is achieved. If target attainment is less than 20 % of the target, the level of target attainment is set at zero. Target attainments be- tween­ the defined target attainment points (0 %; 100 %; 200 %) are calculated by linear interpolation.

When calculating the STI amounts to be paid out for the financial performance indicators, the actual figure per sub-target is to be

•funds from operations I (FFO I),

•non-financial environmental, social and governance targets (ESG targets).

The financial targets each account for 40 % and ESG targets for 20 % of the STI target. The STI also has a criteria-based adjustment factor with a range of 0.8 to 1.2. Target attainment for the perfor­­ mance targets is capped at 200 %.

STI - Financial performance indicators

Performance criterion

Net rental and lease income

FFO I

Target value

EUR 505.8 million

EUR 417.9 million

compared with the figure in the business plan. Firstly, target attainment is calculated by taking the percentage deviation from the actual figure compared to the target using the contractually agreed weighting. The STI partial amount achieved is then calculated based on the target attainment.

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Short-term variable remuneration scheme

×

×

Criteria-based

=

Overall objective achievement

adjustment factor

(Cap at 200 %)

(0.8-1.2)

Payout amount

Target amount

financial year

in €

in €

Financial performance criteria

(Cap 200 % of

Individual performance

target amount)

of Management Board

Funds from

ESG-targets

menbers

Net rental and lease

derived from the

Collective performance of

+

operations I

+

income

CSR report

the Management Board

Extraordinary

40 %

40 %

20 %

developments

86	GROUP MANAGEMENT REPORT	LEG IMMOBILIEN SE Annual Report 2021
Remuneration report | Variable remuneration component with a short-term incentive function (STI)

The targets from the business plan, which was adopted before the start of the financial year, are to be assessed in accordance with the regulations defined in the Management Board agreements in terms of the effects of acquisitions and disposals not taken into account in the business plan and of changes in consolidated companies and adjusted where necessary. The Adler transaction is not yet taken into account in 2021 because the transaction was not closed until 29 December 2021 and so there were no earnings effects for the 2021 financial year. With regard to acquisition and sales activity in 2021, the targets as per the 2021 business plan must be amended regarding net rental and lease income and FFO

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STI - Target attainment		Adjusted		Actually		Deviation		Degree of target		STI partial
		target		achieved		(in %)		attainment		amount (in %)
								based on con­
€ million								tractually agreed
							weighting (in %)
Net rental and lease income		510.3		522.1		102.33		111.65		44.66
FFO I		421.6		423.1		100.37		101.83		40.73

I because the business plan approved by the Supervisory Board does not take acquisitions into account.

Other effects from the change in consolidated companies are insignificant at Group level in 2021 and not included in the adjusted targets.

The following targets are relevant for calculating the STI for the financial performance indicators:

ESG targets are based on LEG Immobilien SE's sustainability report and on strategic considerations and future projects. Environ­ mental, social and governance criteria are defined for the ESG targets and are put into practice with specific targets. The targets are assigned quantitative or qualitative criteria so that a comparison of target and actual performance can be carried out at the end of

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the financial year to measure target attainment. The specific ESG targets and the minimum and maximum values are set each year and finalised by the Supervisory Board before the start of the financial year.

The Supervisory Board set the following ESG targets for the 2021 financial year:

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STI - Financial performance indicators

STI - ESG-targets 2021
Environmental		Social		Governance
Target:		Target:		Target:
Completion of energetic refurbishment of existing		Customer inquiries: Reduction in the		Stabilisation of Sustainalytics rating
stock that is classified as modernisation measures in		repeat call ratio compared to 2020

€ million

Net rental and lease income

FFO I

Target		Adjusted
according to		target for
2021 busi­	2021
ness plan

505.8 510.3

417.9 421.6

accordance with section 555b no. 1 - 3 BGB p.a. (e. g.
heating, roof, basement, façade, windows, doors) in
relation to the stock included in the annual report as
at 31 December 2019 in number of residential units
Targets:		Targets:		Targets:
0 % minimum value: 2 %		0 % minimum value: - 7.5 %		0 % minimum value: 12.4 %
100 % target attainment: 3 %		100 % target attainment: - 15 %		100 % target attainment: 10.4 %
200 % maximum value: 4 %		200 % maximum value: - 22.5 %		200 % maximum value: 8.4 %

All sub-targets (environmental, social and governance) were weighted equally.

Target attainment for the "environmental" sub-target was 150 %. Target attainment for the "social" sub-target was 77 %. The "gover- nance" sub-target was significantly exceeded.