Remuneration report

With respect to the Gesetz zur Angemessenheit der Vorstandsvergütung (VorstAG – German Act on the Appropriateness of Executive Board Remuneration) enacted in 2009 and changes to the Corporate Governance Code, the existing remuneration rules were reviewed by the Supervisory Board in April 2010 and amended in line with legal requirements to take effect in the 2010 financial year.

Remuneration system for the Executive Board

Remuneration for the Executive Board is set by the Supervisory Board. The remuneration system provides for a non-performance-related basic annual remuneration component based on the individual Executive Board member’s duties, a performance-related remuneration component, and non-cash benefits in the form of a company car and contributions to a pension scheme.

The bonus as a performance-related remuneration component is dependent on sustained company development. It is based on the weighted average over the financial year and the two previous financial years. The basis for calculating the bonus includes 60% of Group EBT (excluding measurement gains / losses) for the financial year just ended, 30% of that of the previous financial year and 10% of that of the financial year before that. Mr Böge receives 0.5% of the calculation basis as a bonus and Mr Borkers receives 0.2%. The bonus is limited to 150% of the basic annual remuneration.

The non-performance-related basic annual remuneration is € 300,000 for Mr Böge and € 168,000 for Mr Borkers. For the 2011 financial year, there is an additional bonus entitlement of € 374,000 for Mr Böge and € 149,000 for Mr Borkers, which will be paid on approval of the consolidated financial statements by the Supervisory Board.

If the results of operations and net assets of the Company deteriorate during the term of the respective employment contracts to such an extent that further payment of this remuneration becomes unreasonable, the rules of section 87 (2) of the AktG shall apply. The Supervisory Board shall decide at its own discretion on the extent to which such remuneration shall be reduced.

In the event that the employment contract is terminated prematurely by the Company without any good cause, the members of the Executive Board shall be entitled to a settlement in the amount of the annual remuneration outstanding up to the end of the agreed contractual term, but limited to a maximum of two annual remuneration amounts (basic annual remuneration plus bonus). For the measurement of the annual remuneration amount, the average annual remuneration for the previous financial year and the probable annual remuneration for the current financial year shall be applicable.

A long-term incentive (LTI) remuneration component was agreed for the first time in 2010. The amount of the LTI is based on changes in the market capitalisation of Deutsche EuroShop AG between 1 July 2010 and 30 July 2015. Market capitalisation is calculated by multiplying the share price by the number of Company shares issued. On1 July 2010, according to information provided by the German stock exchange, market capitalisation stood at € 983.5 million.

If there is a positive change in market capitalisation over the above five-year period of up to € 500 million, Mr Böge will receive 0.2% and Mr Borkers 0.025% of the change. For any change over and above this amount, Mr Böge will receive 0.1% and Mr Borkers 0.0125%. The LTI will be paid out to Mr Borkers in December 2015, and to Mr Böge in five equal annual instalments, the first being paid on 1 January 2016. In the event that the employment contract is terminated prematurely by the Company, any entitlements arising from the LTI until that date will be paid out prematurely.

Since 1 July 2010, the market capitalisation of the Company rose to € 1,280.5 million by 31 December 2011 (31 December 2010: € 1,496.3 million) and was thus € 297 million higher than at 1 July 2010 (31 December 2010: € 512.8 million). The present value of the potential entitlement to the long-term incentive arising therefrom was € 609 thousand at year-end (31 December 2010: € 960 thousand). In the year under review, the sum of € 96,000 was added to the provision established for this purpose (2010: € 85,000).

Remuneration of the Executive Board in 2011

The remuneration of the Executive Board totalled € 1,066,000, which breaks down as follows:

€ thousand Non-perfor- mance-related remuneration Performance-related remuneration Ancillary benefits Total Total Previous year
Claus-Matthias Böge 300 374 65 739 803
Olaf G. Borkers 168 149 10 327 351
  468 523 75 1,066 1,154

Ancillary benefits include the provision of a car for business and private use and contributions to a pension scheme.

No advances or loans were granted to members of the Executive Board. The Company has not entered into any commitments or contingent liabilities in favour of these persons.

Remuneration system for the Supervisory Board

The remuneration of the Supervisory Board is based on section 8 (4) of the Articles of Association of Deutsche EuroShop AG. In accordance with the Articles of Association, the remuneration amounts to € 50,000 for the chairman, € 37,500 for the deputy chairman and € 25,000 for each of the other members of the Supervisory Board. Committee membership is not additionally taken into account when determining the remuneration of the Supervisory Board. Moreover, the remuneration does not contain any performance-based elements. The remuneration is determined on the basis of the business model and size of the Company and the responsibility associated with the role. The Company’s business and financial position is also taken into consideration. If a member of the Supervisory Board should leave the Supervisory Board during the financial year, the member shall receive their remuneration pro rata. Cash expenses are also reimbursed in accordance with section 8 (5) of the Articles of Association.

Remuneration of the Supervisory Board in 2011

The remuneration of the members of the Supervisory Board totalled € 223,000 in the period under review, which breaks down as follows:

€ thousand Total 2011 Total 2010
Manfred Zaß 59.50 59.50
Dr. Michael Gellen 44.62 44.62
Thomas Armbrust 29.75 29.75
Alexander Otto 29.75 29.75
Dr. Jörn Kreke 29.75 29.75
Dr. Bernd Thiemann 29.75 29.75
Including 19% value added tax 223.12 223.12

No advances or loans were granted to the members of the Supervisory Board.

Miscellaneous

There are no agreements with members of the Executive Board providing for a severance payment on expiry of their current employment contract.

No pensions are paid to former members of the Executive or Supervisory Boards or to their dependents.

Compensation agreements concluded by Deutsche Euro Shop AG with Executive Board members or employees of the Company for the event of a change of control

A change-of-control arrangement has been agreed with two employees. Under this arrangement, if and insofar as the Company informs them that they will no longer be employed in their current positions, these employees will have a special right of termination with a notice period of one month up to the end of the quarter, which will be valid for twelve months from the date the change of control takes effect.

A change of control arises if Deutsche EuroShop AG merges with another company, if a public takeover bid has been made under the Deutsches Wertpapiererwerbs- und Übernahmegesetz (WpÜG – German Securities Acquisition and Takeover Act) and accepted by a majority of shareholders, if the Company is integrated into a new group of companies or if the Company goes private and is delisted.

In the event of the termination of the employment relationship, these employees will receive a one-time payment amounting to three months’ gross salary multiplied by the number of years that they have worked for the Company, but limited to a maximum of 24 months’ gross salary.

The Deutsche EuroShop Group does not currently have any other compensation agreements with members of the Executive Board or other employees for the event of a change of control.

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