Declaration of conformity
Joint declaration by the Executive Board and the Supervisory Board pursuant to section 161 of the German Stock Corporation Act (AktG) on the recommendations of the Government Commission on the German Corporate Governance Code
The Executive Board and Supervisory Board issue the following declaration on the recommendations of the Government Commission on the German Corporate Governance Code (version dated April 28, 2022 - the "Code") pursuant to Section 161 of the German Stock Corporation Act:
- Since the last declaration of conformity was issued by the Executive Board and Supervisory Board of Rheinmetall AG in August 2022, the Code has been complied with in full with the following exceptions:
a) Until the end of December 31, 2022, there was a deviation from recommendation G.5 of the Code. According to recommendation B.5 of the Code, an age limit should be specified for members of the Executive Board and stated in the corporate governance declaration. The service contracts with the Executive Board members provide for an age limit such that the contract ends at the end of the month, without the need for termination, in which the Executive Board member in question reaches the standard retirement age under the statutory pension scheme or at the time from which he or she draws a statutory retirement pension (sections 35-42 of the German Social Code VI), for whatever legal reason, before reaching the standard retirement age. Accordingly, Helmut P. Merch, the Chief Financial Officer who left the company on December 31, 2022, would originally have left his post on December 31, 2021. However, his employment contract was extended for a limited period until December 31, 2022. A clause on the standard retirement age was waived in his new service contract due to the time limit. Mr. Merch left the Executive Board on December 31, 2022 in his 66th year. From the Company's point of view, this individual case deviation from Recommendation B.5 of the Code was in the Company's interest, because due to the strategic realignment of the Group that had been undertaken and the Group restructuring that had begun as a result, it was in the Company's interest that Mr. Merch, with his many years of Group and Executive Board experience, should support this Group restructuring until he left office. Following Mr. Merch's departure from the Executive Board of the Company at the end of December 31, 2022, and thus since January 1, 2023, recommendation B.5 of the Code has been complied with.
b) Furthermore, the recommendation in G.8 of the Code has been deviated from. According to the recommendation in G.8 of the Code, a subsequent change in the target values or the comparison parameters should be excluded. Deviations from this recommendation have been made in the manner described below. The remuneration system for Rheinmetall AG's Executive Board members includes the operating free cash flow ("OFCF") as a performance indicator in the short-term variable remuneration (short-term incentive - "STI") with a weighting of 40%. By resolution of the Supervisory Board on December 7, 2022, the target value for OFCF was set for the 2023 financial year. This determination was based, among other things, on a capital expenditure plan for fiscal year 2023. The capital expenditure plan for fiscal year 2023 was increased due to additional investments in the interest of the company, primarily for the F-35 project, which were not included in the original capital expenditure plan. This increase was approved by the Supervisory Board on August 17, 2023. The expansion of the investment plan has a direct impact on the OFCF, which is why the target value of the OFCF for fiscal year 2023 set by the Supervisory Board on December 7, 2022 would lead to a significantly reduced target achievement in line with the Company's adjusted liquidity planning. In order to prevent - particularly against the background of the very successful business performance - the investment measures in the interests of the Company from having a negative impact on the Executive Board and thus counteracting the incentive effect of the short-term variable compensation of the Executive Board members, the Supervisory Board resolved on August 17, 2023 - in line with recommendation G.11 of the Code, according to which the Supervisory Board should have the possibility to take into account extraordinary developments to an appropriate extent - to appropriately reduce the target value of the OFCF for the STI of the current fiscal year 2023. This is intended to set an ambitious but fundamentally achievable target for the Executive Board members and restore the incentive effect of the short-term variable compensation. The Supervisory Board considers this subsequent change to the target value to be necessary and appropriate in order to be able to grant the Executive Board members compensation that is commensurate with their performance and to set the right incentives for the long-term good of the Company.
- Since August 18, 2023, all recommendations of the Code have been and are being complied with.
Düsseldorf, August 2023
The Executive Board | The Supervisory Board