Executive Board and Supervisory Board remuneration

In accordance with Section 13 Paragraph 1 of the Articles of Association, the members of the Supervisory Board receive a fixed salary of EUR 50,000 per year and a variable bonus depending on net profit per share. Total remuneration for an ordinary member may not exceed EUR 100,000 per year. Remuneration for the Chairman is three times and for the Deputy Chairman one and a half times the total remuneration of ordinary members. Committee members receive an additional 25 per cent and committee chairmen an additional 50 per cent of total remuneration. Remuneration for committee work is subject to the proviso that the committee met at least once in the financial year.

In 2010 the Supervisory Board adopted a new remuneration structure for the Executive Board, which was applicable from the 2011 financial year onwards. It implements the rules contained in the Act on Appropriate Executive Board Remuneration (VorstAG) and the German Corporate Governance Code (GCGC). These require publicly listed companies to align their remuneration structures more closely with the sustainable development of the company. The Supervisory Board was also keen to smooth the remuneration of the Executive Board, which in the cyclical airline business had fluctuated far more than average in recent years. At the Annual General Meeting held on 3 May 2011 this new system of Executive Board remuneration was approved by 98.41 per cent of votes validly cast. The current system of Executive Board remuneration reduces the short-term financial incentives in the variable components and bases the variable remuneration largely on performance over several years.

Part of the previous one-year variable bonus was therefore converted into basic salary. The remaining, in comparison with the old system smaller, variable remuneration component is measured by reference to the operating margin.

Only 75 per cent of this bonus is to be paid the following year, and therefore on an annual basis. The remaining 25 per cent are carried forward for another two years. At the end of the assessment period, which runs for three years in total, the amount carried forward is to be multiplied by a factor of between 0 and 2. How high the factor is depends to 70 per cent on the CVA achieved over the three-year period and to 30 per cent on sustainability parameters such as environmental protection, customer satisfaction and staff commitment. As the Executive Board is also obliged to take part in the LH-Performance programme, the great majority of variable remuneration components are therefore based on performance over several years.

The Act on Appropriate Executive Board Remuneration (VorstAG) defines a vesting period of at least four years for stock option programmes; this period is also given as a general orientation and recommendation for long-term incentive models. In new contracts with Executive Board members the duration of the LH-Performance programme has therefore been increased from three to four years, even though it is not a stock option programme within the meaning of the Act. Extending the duration to four years initially means that there is no longer any opportunity of receiving a payment under an option package in 2014, as the LH-Performance programme for 2010 ends in 2013 and the programme for 2011 ends in 2015. To close this gap, the Supervisory Board has voted to introduce an additional one-off option exercise date after three years in the programme for 2011.

Details of remuneration and retirement benefit commitments for members of the Executive Board and of remuneration for members of the Supervisory Board can be found in the remuneration report which is part of the management report. The amounts paid to the individual Executive Board and Supervisory Board members are published in the Notes to the consolidated financial statements, “Note 50”.