Basic Principles of Management Board Compensation
The compensation of ADVA Optical Networking’s Management Board members consists of fixed and variable components. In addition to a fixed salary, the members of the Management Board receive two kinds of variable compensation which are assessed based either on short-term aspects or on long-term criteria focusing on the sustainable development of the Group. As additional long-term variable compensation, the Management Board members receive stock options within the scope of ADVA Optical Networking’s stock option program. The maximum amount of compensation for the members of the Management Board is capped, both overall and for its variable compensation components (annual bonus, long term bonus, newly issued options).
In 2016, the fixed salaries of the CEO and CTO remained unchanged, while the fixed salary of the CFO has been converted from USD to EUR and matched with the fixed salary of the other two members of the Management Board. The short-term variable compensation was based on the Group’s pro forma operating income (40%), the Group’s revenues (20%), and the Group’s net liquidity (20%) as well as individual goals agreed with each member of the Management Board at the beginning of the year (20%). The short-term variable compensation is determined annually as compensation for the current year at the discretion of the Supervisory Board.
Furthermore, a long-term variable compensation focusing on the sustainable development of the Group was agreed in 2015 which will be paid to the members of the Management Board after three years, provided that minimum Group pro forma operating income margins, increasing year-by-year, are met for each of the three years. All members of the Management Board additionally receive a company car or a car allowance. Moreover, ADVA Optical Networking bears the costs of pecuniary damage liability insurance for the Management Board members, taking into account the statutory deductible amount. These benefits are partially taxable by the members of the Management Board as non-cash benefits. In addition, ADVA Optical Networking grants stock options to members of the Management Board. These option rights authorize the members of the Management Board to purchase a set number of shares in the Company once a fixed vesting period has elapsed and the goal to increase the share price by at least 20% has been reached.
Total Management Board compensation payable for 2016 and 2015 was EUR 2,429 thousand and EUR 1,764 thousand, respectively. During both years, there were no long-term service contracts in the sense of IAS 19 for any member of the Management Board. In 2016 and 2015, no loans were granted to the members of the Management Board. At December 31, 2015, ADVA Optical Networking reports a receivable of EUR 62 thousand from Brian Protiva relating to payroll tax on exercised stock options. The receivable has been offset from remuneration paid in January and February 2016. At December 31, 2016, no receivables outstanding from members of the management board have been reported.