46 Remuneration based on performance shares and phantom shares (share-based payment)

At the beginning of 2017, the Supervisory Board of Volkswagen AG resolved to adjust the remuneration system of the Board of Management with effect from January 1, 2017. The remuneration system of the Board of Management comprises non-performance-related and performance-related components. The performance-related remuneration now consists of a performance-related annual bonus with a one-year assessment period and a long-term incentive (LTI) in the form of a performance share plan with a mostly forward-looking three-year term (share-based payment). In addition, a bonus was converted into phantom preferred shares (phantom shares) in 2016; the payment was made in 2019.

The group of beneficiaries of the performance share plan was expanded at the end of 2018 by including members of top management and at the end of 2019 by adding all other members of management and selected participants below management level. Performance shares were first granted to members of top management at the beginning of 2019. All other beneficiaries will receive performance shares for the first time at the beginning of 2020. The function of the performance share plan for top management and other beneficiaries is largely identical to the performance share plan that was granted to the members of the Board of Management. When the performance share plan was launched, members of top management were guaranteed a minimum bonus amount for the first three years on the basis of the remuneration for 2018, while all other beneficiaries were given a guarantee for the first three years on the basis of the remuneration for 2019.

PERFORMANCE SHARES

Each performance period of the performance share plan has a term of three years. At the time the LTI is granted, the annual target amount under the LTI is converted, on the basis of the initial reference price of Volkswagen’s preferred shares, into performance shares of Volkswagen AG, which are allocated to the respective beneficiary as a pure calculation position.

For members of the Board of Management and of top management, the number of performance shares is definitively determined on the basis of a three-year, forward-looking performance period based on the degree of target achievement for the annual earnings per Volkswagen preferred share. For all other beneficiaries, the number is definitively determined on the basis of a three-year performance period with a forward-looking horizon of one year. As a departure from this, in 2020 the number will be determined on the basis of a one-year forward-looking performance period, and in 2021 on the basis of a two-year performance period with a forward-looking horizon of one year. After the end of the performance period, a cash settlement is made. The payment amount corresponds to the number of determined performance shares, multiplied by the closing reference price at the end of the period plus a dividend equivalent. The payment amount under the performance share plan is limited to 200% of the target amount.

MEMBERS OF MANAGEMENT AND SELECTED PARTICIPANTS BELOW MANAGEMENT LEVEL

If 100% of the targets agreed in each case are reached, the total target amount for all other beneficiaries will total €629 million (previous year: €– million).

PHANTOM SHARES

At its meeting on April 22, 2016, Volkswagen AG’s Supervisory Board accepted the offer made by the members of the Board of Management to withhold 30% of the variable remuneration for fiscal year 2015 for the Board of Management members active on the date of the resolution and to make its disposal subject to future share price performance by means of phantom shares. The amount withheld led to the creation of 50,703 phantom preferred shares. In 2018, Mr. Stadler received a cash payment of the value of 8,633 shares in an amount of €1.0 million as part of the termination of his contract of service. The other phantom shares were settled as planned in fiscal year 2019. The payment amount totaled €5.3 million. In the fiscal year, changes in the value of the phantom shares led to the recognition of expenses of €0.3 million (previous year: income of €1.0 million).