Remuneration Report

Upon the proposal of the Presiding Committee, the Supervisory Board determines the total remuneration of the individual Executive Board members; it regularly adopts and reviews the remuneration system for the Executive Board. The existing remuneration system is to be revised in the light of the provisions of the German Act on the Appropriateness of Board Remuneration (VorstAG).

Total remuneration of the individual Executive Board members is determined by the Supervisory Board plenary, taking account of Group remuneration on the basis of a performance assessment. The criteria governing the appropriateness of remuneration are the tasks of each individual Board member, their personal performance, the economic position, the performance and sustainable development of the Company, the benchmark remuneration customary in the peer environment and the remuneration structure otherwise applied in the Company. Moreover, remuneration is set at a level that is competitive in the market for highly qualified managerial staff. The remuneration of Mr Long is fixed by TUI Travel PLC’s Remuneration Committee.

Remuneration of the Executive Board in the short financial year 2009

The remuneration granted to TUI AG’s Executive Board members for the short financial year 2009 comprises fixed and variable components. Executive Board members are also entitled to a company car with driver services as well as travel benefits. The variable components consist of a management bonus and a bonus under a long-term incentive programme.

For Executive Board members based in Germany, the level of the management bonus was linked to Group profit and earnings by the divisions in the completed financial year as well as personal assessment factors. The management bonus was calculated on the basis of the respective underlying earnings before interest, tax and amortisation of goodwill (EBITA). For the UK-based Executive Board member, the management bonus depended on a personal assessment factor and the degree of achievement of specific predefined targets.

Under the long-term incentive programme, the German-based Executive Board members receive a bonus translated into phantom stocks in TUI AG on the basis of an average share price. These phantom stocks are calculated from underlying earnings before tax and amortisation of goodwill (EBTA). Since this indicator had a negative value for the short financial year 2009, no phantom stocks were granted for the completed short financial year.

After a future lock-up period of four years, the entitlement to cash payment from this bonus can be exercised individually by the Executive Board members within predetermined exercise windows.

The lock-up period does not apply to members resigning from the Executive Board. The level of the cash payment depends on the average price of TUI AG shares over a period of 20 trading days following the date of exercise. There are no absolute or relative return or price targets. Provision has been made for a cap to apply in the event of extraordinary, unexpected developments.

The long-term incentive programme for Mr Long consists of shares in TUI Travel PLC granted as a function of personal assessment factors, established by TUI Travel PLC’s Remuneration Committee.

On 30 September 2009, former Executive Board members held no shares (pre­vious year: 10,479 shares). Mr Long held vesting rights to 4,358,966 shares in TUI Travel PLC as per 30 September 2009.

Provisions totalling €5,500 thousand (previous year: €6,000 thousand) were formed to cover entitlements under the long-term incentive programme.
 

Development of aggregate phantom stocks in TUI AG
 

The measurement of the phantom stocks in TUI AG and vesting shares in TUI Travel PLC resulted in a profit of €1,872 thousand (previous year: loss of €6,753.1 thousand) for the Executive Board members in short financial year 2009.

Changes in the value of the phantom stock portfolios of Executive Board members
 

Remuneration of individual Executive Board members
 

As in 2008, the members of the Executive Board did not receive any loans or advances in the 2009 short financial year.

Benefits in the event of a termination of position

a) Pension entitlements   
Pensions are paid to former Executive Board members if they reach the predefined age limit or are permanently incapacitated. The pension for Board members based in Germany is calculated on the basis of pensionable pay, geared to the Board member’s fixed remuneration. The pension is set at a specific percentage of the pensionable pay. This percentage is 50% for the first service contract period. Depending on the number of service contract periods or based on individual agreements, this percentage may rise to a maximum of 80%. Pension entitlements vest upon the expiry of the first term of office. TUI AG has not granted any pension entitlements to Mr Long. Instead of granting a pension entitlement, an amount worth 50% of his fixed salary is paid into a pension fund. This payment is counted towards his non-performance-related remuneration.

Under certain circumstances, widows of Executive Board members will receive a widow’s pension worth 60% of the above-mentioned pension for their lifetime or until remarriage. Children of Executive Board members receive an orphan’s pension, paid as a maximum until they reach the age of 27. Orphans who have lost one parent receive 20% of the pension, and orphans who have lost both parents receive 25%.
 

Pension entitlements/addition to or reversal of pension provisions
 

b) Transition payments   
Executive Board members retiring upon expiry of their term of office, whether because they are not reappointed or because their term is not renewed or because the Company terminates their contract of service, are entitled to a transition payment until the date at which the pension payments fall due. The transition payment is equivalent to the pension rights that have accrued. Any income received by the beneficiaries from self-employment or employment, pensions or transition payments from other companies or payments received from insurance companies is deducted from the transitional entitlement. Mr Long is not entitled to transition payments.

c) Change of control agreement
In the event of a loss of Board membership through a change of control or by executing the right granted to Board members, specifically accorded for this case, to resign their position and terminate their contract of employment as a Board member, every Board member is entitled to receive compensation for the financial entitlements that he or she would have derived from the remainder of the agreed contract term.

The performance-related remuneration and the phantom stocks granted for the remainder of the contract term are based on the average remuneration received in the last three financial years. The same provision applies to the remuneration hitherto received for Supervisory Board mandates.

d) Severance payment   
The service contract for Board members does not contain an explicit entitlement to severance payments upon premature termination. However, a severance payment may be paid under an individual termination agreement. Future service contracts for Board members will ensure that the severance payment does not exceed the equivalent value of twice the annual remuneration. For change of control situations, the severance payment will be limited to 150% of the severance payment cap.

e) Pension obligations    
At the balance sheet date, pension obligations for active members of the Exe­cutive Board totalled €22,331 thousand (previous year: €20,259 thousand). Pension provisions for former members of the Executive Board and their dependents amounted to €43,361.1 thousand (previous year: €41,628.6 thousand) at the balance sheet date.

The pension obligations for German beneficiaries were funded via the conclusion of pledged reinsurance policies. As the reinsurance policy fully covered the pension obligations for former and active Executive Board members, the insurance was deducted as an asset from the pension obligation. In the short financial year 2009, pension provisions for active Board members rose by €2,072 thousand (in the previous year, provision rose by €330 thousand). The increase is mainly due to a reduction of the interest rate from 6.25% to 5.25%.

In financial year 2009, the remuneration paid to former Executive Board members and their surviving dependents totalled €3,033 thousand (previous year: €4,445 thousand).

Remuneration of the Supervisory Board

The remuneration of Supervisory Board members comprises a fixed component and variable components. These are determined in accordance with section 18 of TUI AG’s Articles of Association, which have been made permanently accessible to the public on the internet.

The members of the Supervisory Board receive a fixed remuneration of €40,000, payable upon the completion of the financial year, besides reimbursement of their expenses. The remuneration is rateably paid for parts of a financial year or a short financial year. The Supervisory Board also receives remuneration of €100 per €0.01 of the earnings per share reported for the completed financial year.

The Supervisory Board members also receive remuneration related to the Company’s long-term performance. This long-term variable remuneration is based on an annual base sum of €20,000. The amount is paid upon the completion of the third financial year following the granting of the remuneration and increases or decreases in line with the percentage increase or decrease in earnings per share in the third year following the year for which the amount was granted. Thereby a change in earnings per share of €0.01 results in an increase or decrease of the base amount of €100. However, the sum payable may not under any circumstances exceed 250% of the base amount.

The chairman of the Supervisory Board receives three times the remuneration of a regular member, the deputy chairwoman and the other members of the Presiding Committee one and a half times the total remuneration of a regular member. Separate remuneration is paid for membership and chairing of committees.
 

Remuneration of the Supervisory Board
 

In addition, travel and other expenses totalling €63 thousand (previous year: €96 thousand) were reimbursed. Total remuneration of the Supervisory Board members thus amounted to €2,319 thousand (previous year: €1,791 thousand).

Apart from the work performed by the employees’ representatives pursuant to their contracts, the members of the Supervisory Board did not provide any personal services such as consultation or agency services for TUI AG or its subsidiaries in the short financial year 2009.
 

Remuneration for individual Supervisory Board members for the short financial year 2009
 

The entitlements of the Supervisory Board members under the long-term remuneration arrangement were covered by a provision.