GERMANY Law and Practice Contributed by: Eva Nase and Kay-Uwe Neumann, POELLATH
but provides for further rules with respect to its con - tents relating to different aspects of the remunera - tion of the management board if those aspects are foreseen in the remuneration system. However, the DCGK makes several recommendations with respect to criteria to be described in the remuneration sys - tem – eg, the ratio between the fixed remuneration and the variable remuneration based on short- and long-term incentives, as well as the performance and non-performance indicators for determining payment of variable remuneration. The supervisory board then determines the actual remuneration of each member of the management board based on the remuneration system. The super - visory board and the management board have to pre - pare a remuneration report regarding the past financial year, which is subject to a non-binding approval by the annual general meeting. Neither the resolution on the remuneration system nor the resolution on the remuneration report can be objected to by means of a contesting action or an action for annulment by a As regards restrictions on the remuneration of the members of the management board, the AktG requires that the overall remuneration of individual members of the management board is appropriate in relation to their tasks and performance as well as the economic situation of the company. In addition, the supervisory board must ensure the customary remuneration is not exceeded. Further, the remuneration in listed compa - nies has to be aimed at a sustainable and long-term- oriented development of the company, and variable remuneration should be granted based on long-term incentives accordingly. If the supervisory board culpably disregards the statu - tory requirements when determining the remuneration for the management board, it may be held liable for damages. Characteristics The DCGK makes further recommendations with respect to the characteristics of the remuneration. For example, it recommends that the variable remunera - tion based on long-term incentives exceeds the one shareholder. Restrictions
based on short-term incentives. Variable remuneration shall be predominantly invested in shares of the com - pany or granted as share-based remuneration. The DCGK further recommends that payments to members of the management board due to early termination of their activity do not exceed twice the annual remuneration (severance cap) and do not con - stitute remuneration for more than the remaining term of the contract. Another suggestion is that change-of- control clauses should not be agreed upon. Supervisory Board The remuneration of the supervisory board members may be specified in the articles of association or grant - ed by the general meeting. It should be appropriate in relation to the tasks of the members of the supervisory board and the company’s economic situation. In listed companies, the general meeting has to resolve on the remuneration of the supervisory board members at least every four years, also in a non-binding manner, with the resolution including or referencing the same details that are to be included in the remuneration system of the management board with respect to the remuneration of the supervisory board members, if applicable. The DCGK further recommends taking into consideration the status as chair or deputy chair of the supervisory board or committee in this context. It is suggested that the supervisory board remuneration be a fixed remuneration. Managing Directors and General Partners In a GmbH, the remuneration of managing directors is the responsibility of the shareholders’ meeting, which must not adhere to any restricting rules. In a KGaA, the general partners generally receive no remuneration for their activities, but are entitled to receive a fee for taking over the liability of the KGaA vis-à-vis third parties. In the case of a capital com - pany as general partner, the remuneration of its man - agement members is to be set according to the rules applying to the respective legal form of such a capital company. All capital companies are required to disclose the total remuneration of the management board in the annual financial statements. An exception is made only for
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