Remuneration Report

Report as of 20 March 2019

The remuneration report, which discloses the basic elements, structure and amounts of the remuneration paid to the Management Board and the Supervisory Board, is part of the combined management report and the Corporate Governance Report. The Company’s remuneration systems comply with legal regulations and largely comply with the recommendations of the German Corporate Governance Code.

Remuneration of the Management Board

The remuneration paid to the members of the Management Board serves to reward each member’s personal performance and create an incentive for successful corporate management, taking the Company’s economic position into account. It is aligned with standards customary to both the industry and the country.

Determination of the Management Board’s remuneration

The proposal for the Management Board’s remuneration is drawn up by the Human Resources Committee, which subsequently presents it to the full Supervisory Board for approval. The remuneration is reviewed annually by the Supervisory Board.

The Supervisory Board is also authorized to reduce the overall remuneration of the Management Board by an appropriate amount, if the Company’s situation deteriorates so that continued payment of this remuneration would be unsustainable.

Amount and structure

The remuneration of the Management Board members comprises three components:

  1. Non-performance related remuneration (fixed remuneration)
  2. A performance-related bonus with four components
  3. Stock options

The amount of fixed remuneration was adjusted most recently in December 2018 in connection with renewing the director’s contract of Jason Loveridge Ph.D. until 31 December 2021. The renewal took effect on 1 January 2019.

Non-performance related-remuneration

The amount of the fixed remuneration is contingent on the given individual’s position and responsibility as well as on parameters customary to both the industry and the market that are geared in particular towards listed small and mid-sized companies from the biotechnology sector and related industries (e.g. MedTech). Fixed remuneration is paid on a monthly basis.

Performance-related remuneration

The performance-related remuneration comprises an annual bonus (bonus I) as well as a long-term bonus measured on the basis of the officer’s performance over three years (bonus II), and two additional bonuses that are tied to the achievement of special strategic company objectives.

The Supervisory Board fixes the performance-related bonus I following an appropriate annual performance review, exercising due discretion. Bonus I is based on the performance of 4SC and the degree to which predefined individual and general corporate goals have been achieved. These goals concern different strategic topics from clinical development, business development, strategy, investor relations and general management, which are weighted on the basis of their priorities for further business development.

The Supervisory Board determines whether the goals have been achieved in its first meeting of the subsequent calendar year. Bonus I is payable immediately after the resolution of the Supervisory Board concerning attainment of the goals. There is a cap on the amount. In addition to his basic salary and the short-term bonus I, the Management Board additionally receives a long-term salary component as a second bonus that is measured over three years and serves to promote sustainable business development. Bonus II is based on personal and company-specific goals that are determined by the Supervisory Board at the start of the first financial year of any given target achievement period. Whether a Management Board member is entitled to payment of bonus II depends on whether these goals have been achieved during a pre-defined three-year period. There is a cap on the amount.

The Supervisory Board determines whether the goals have been achieved in its first meeting after the end of the respective target achievement period. Bonus II is payable immediately after the resolution of the Supervisory Board concerning attainment of the goals for the three-year target achievement period.

Another variable remuneration component the Management Board receives is bonus III, which is awarded in the event the Company sells its business operations or is merged. The bonus payments in this case are percentages linked to the sales proceeds or the increase in enterprise value. In the event of a sale, participation in capital increases by existing major shareholders may reduce the sale proceeds to be used for the calculation. Bonus III is capped at a maximum of €25 million. In the case of an unforeseeable change in circumstances, the Supervisory Board can limit bonus III within reason.

The Management Board will receive a bonus IV if a license agreement is reached for one of 4SC’s products. The cash flows accruing to the Company until a possible registration of these products constitute the basis of calculation for the payments. However, bonus IV is capped at a maximum of €25 million. In the case of an unforeseeable change in circumstances, the Supervisory Board can also limit bonus IV within reason.

Stock options

Another remuneration component with a long-term incentive effect are the ESOPs (Employee Stock Option Plans), in which the Management Board and all employees participate. Under these plans, stock options which entitle their holders to acquire 4SC shares were issued to the Management Board in 2016 and most recently in 2018. For more detailed information on the current options holdings, please see section 9.1 of the 2018 IFRS notes.

The director’s contract for Jason Loveridge, Ph.D., stipulates that in the event of a takeover by a third party and if the Management Board is to be dissolved as a result, his salary (fixed salary plus bonus I and II) would be fully paid out for the remaining term of his contract, but at least for a minimum mathematical remaining period of six months. Furthermore, in the event that a controlling interest is acquired in the Company and the employment is terminated as contractually agreed, the regulations on the expiry of stock options for the Management Board member are rescinded, i.e. all stock options issued to the member of the Management Board up to the contingent termination date would remain with the Management Board member regardless of the termination of his employment. Apart from this, there are no post-employment or termination benefits owed to the Management Board member.

Regarding compliance with the Code recommendations on Management Board remuneration, please see the explanations in the Declaration of Compliance in accordance with Section 161 of the German Stock Corporation Act (AktG).

Management Board remuneration for 2018

The total remuneration paid to the members of the Management Board of 4SC AG in the reporting period amounted to €669 thousand. A detailed breakdown of the Management Board member’s salary can be found in section 9.1 of the 2018 IFRS notes in the 4SC Annual Report.

 Benefits granted
in € 000’s
Jason Loveridge, Ph.D.
 2017 2018 2018
(Min)
2018
(Max)
Fixed remuneration 340 340 340 340
Fringe benefits 0 0 0 0
 Total 340  340 340 340
One-year variable remuneration 33 25 0 40
Multi-year variable remuneration
2016 Stock option plan (term: 3 years) 126 137 137 137
2018 Stock option plan (term: 3 years) 0 107 107 107
Long-term bonuses, term: 3 years
  2017-2019 40 60 0 20
Total 539 669 584 684
Cost of benefits 0 0 0 0
Total remuneration
539 669 584 684

 

Allocation for the financial year
in € 000’s
Jason Loveridge, Ph.D.
2017 2018
Fixed remuneration 340 340
Fringe benefits 0 0
Total  340 340
One-year variable remuneration 13 31
Multi-year variable remuneration
2016 Stock option plan
(term: 3 years)
0 0
2018 Stock option plan
(term: 3 years)
0 0
Long-term bonuses,
term: 3 years
2017-2019 0 0
Total 353 371
Cost of benefits 0 0
Total remuneration
353  371

D&O liability insurance

The Company’s current D&O insurance policies for the member of its Management Board contain the deductible required by law. Regarding compliance with the Code recommendations on D&O insurance for Supervisory Board members, please see the disclosures in the Declaration of Compliance in accordance with Section 161 of the German Stock Corporation Act (AktG).


Remuneration of the Supervisory Board

The Supervisory Board is paid fixed remuneration because the Company believes that this way the Supervisory Board is motivated to carry out its tasks with a focus on the Company’s sustainable and successful long-term development.

Determination of the Supervisory Board’s remuneration

The remuneration paid to the members of the Supervisory Board is based on a resolution of the Company’s Annual General Meeting on 17 June 2016.

Amount and structure

The basic annual remuneration paid to each Supervisory Board member is €18 thousand, with the Chairperson of the Supervisory Board receiving twice this amount and his deputy receiving 1.5 times this amount. The Company pays €5 thousand to Supervisory Board members for each membership in a Supervisory Board committee, with the Chairperson of the respective committee receiving 1.5 times this amount.

 Supervisory Board remuneration for 2018

In financial year 2018, remuneration paid to the members of the Supervisory Board totaled €188 thousand. A breakdown of the remuneration of individual Supervisory Board members is provided in section 9.2 of the 2018 IFRS notes in the 4SC Annual Report.

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