A. Remuneration of the Members of the Board of Management

Throughout the reporting period, the Volkswagen Group’s business was impacted by the effects of the Covid-19 pandemic and in particular by limited vehicle availability due to the semiconductor shortage. In this environment, the Volkswagen Group’s deliveries declined year-on-year. Meanwhile, the operating result improved versus the prior year due to margin and mix effects. The Board of Management members also benefited from this in their remuneration.

I. Principles of Board of Management remuneration

The remuneration of the Board of Management is based on the remuneration system developed by the Supervisory Board and adopted on December 14, 2020 with effect from January 1, 2021. The remuneration system for the members of the Board of Management implements the requirements of the AktG as amended by ARUG II and takes into account the recommendations of the German Corporate Governance Code (the Code) in the version dated December 19, 2019 (which entered into force on March 20, 2020). The Annual General Meeting approved the remuneration system on July 22, 2021 with 99.61 % of the votes cast.

The new remuneration system has applied since January 1, 2021 to all Board of Management members with service contracts newly concluded or renewed after the Supervisory Board resolution of December 14, 2020. For the Board of Management members already appointed at the time of the resolution by the Supervisory Board on December 14, 2020, the new remuneration system also applies in principle from January 1, 2021. Until such time as their contracts are renewed, however, the following exceptions apply: the performance share plan of the Board of Management members already appointed continues to have only a three-year performance period but otherwise corresponds to the performance share plan described in this system. Penalty and clawback rules will only apply to Board of Management members already appointed on renewal of their contracts.

The level of the Board of Management remuneration should be appropriate and attractive in the context of the Company’s national and international peer group. Criteria include the tasks of the individual Board of Management member, their personal performance, the economic situation, and the performance of and outlook for the Volkswagen Group, as well as how customary the remuneration is when measured against the peer group and the remuneration structure that applies to other areas of the Volkswagen Group. In this context, comparative studies on remuneration are conducted on a regular basis.

In this chapter, we provide an overview of the remuneration system for the Board of Management members in fiscal year 2021 before going into the components of the remuneration in fiscal year 2021.

II. Overview of the remuneration components

The table below provides an overview of the components of the remuneration system applicable for fiscal year 2021 for the members of the Board of Management. The table also outlines the composition of the individual remuneration components and explains their targets, particularly in respect of how the remuneration will promote the Company’s long-term performance. A more detailed description of the remuneration system applicable for fiscal year 2021 for the members of the Board of Management is available at www.volkswagenag.com/en/InvestorRelations/corporate-governance/Remuneration.html.

III. Remuneration of the Board of Management members appointed in fiscal year 2021

1. Board of Management members in fiscal year 2021

The members of the Volkswagen AG Board of Management in fiscal year 2021 were as follows:

• Herbert Diess, Chair of the Board of Management since April 13, 2018, member of the Board of Management since July 1, 2015
• Murat Aksel, member of the Board of Management since January 1, 2021
• Arno Antlitz, member of the Board of Management since April 1, 2021
• Oliver Blume, member of the Board of Management since April 13, 2018, also Chair of the Executive Board of Dr. Ing. h.c. F. Porsche AG
• Markus Duesmann, member of the Board of Management since April 1, 2020, also Chair of the Board of Management of AUDI AG
• Gunnar Kilian, member of the Board of Management since April 13, 2018
• Thomas Schmall-von Westerholt, member of the Board of Management since January 1, 2021
• Hiltrud Dorothea Werner, member of the Board of Management since February 1, 2017
• Frank Witter, member of the Board of Management from October 7, 2015, left the Board effective March 31, 2021

For their work on the Board of Management, its members do not receive additional remuneration for discharging other mandates on management bodies, supervisory boards or similar, especially in other companies of the Volkswagen Group. If such remuneration is nevertheless granted, it is counted toward the remuneration for their work as a member of the Board of Management of Volkswagen AG.

2. Remuneration granted and owed in fiscal year 2021

In accordance with section 162(1) sentence 1 of the AktG, the remuneration report must report on the remuneration granted and owed to each individual member of the Board of Management in the last fiscal year. These terms are understood as follows:

• The term “granted” (gewährt) refers to the actual receipt (Zufluss) of the remuneration component.
• The term “owed” (geschuldet) refers to all legally existing liabilities for remuneration components that are due but have not yet been fulfilled.
• This understanding differs from the terms “benefits granted” and “benefits received” used in previous remuneration reports. As per the 2017 version of the Code, “benefits granted” included, regardless of when they were to be paid out, all remuneration components that had been agreed at least in principle for a member of the Board of Management in the fiscal year and for which the amount could be estimated. With the introduction of section 162 of the AktG, it is no longer possible to maintain the distinction between “granted” and “received” as previously understood. Instead, the meaning of the term “granted” in section 162 of the AktG corresponds to the previous understanding of “received”.

2.1. Overview in the tables

The following tables show the remuneration actually received by members of the Board of Management in fiscal year 2021. The time of actual payment is not relevant. The remuneration reported as granted in fiscal year 2021 thus consists of the base salary paid out in fiscal year 2021, the fringe benefits, the annual bonus paid in the month following the approval of the Company’s consolidated financial statements for fiscal year 2021 and the LTI for the performance period 2018 to 2020 paid in fiscal year 2021. As the Company was not in default on the payment of remuneration components, no remuneration owed is reported in the tables.

The relative shares shown in the tables relate to the remuneration components granted and owed in the respective fiscal year in accordance with section 162(1) sentence 1 of the AktG. They thus include all benefits actually received in the respective fiscal year, regardless of the fiscal year for which the Board of Management members received them. The relative shares indicated here are thus not comparable with the respective relative shares of fixed and variable remuneration components as part of total remuneration in the description of the remuneration system according to section 87a(1) sentence 2 no. 3 of the AktG. The shares indicated in the remuneration system relate to the targets agreed for the relevant fiscal year, irrespective of the time at which the respective remuneration component was paid out.

Pension expense is reported as service cost within the meaning of IAS 19. The service cost in accordance with IAS 19 does not constitute remuneration granted or owed within the meaning of section 162(1) sentence 1 of the AktG as it is not actually received by the Board of Management member in the reporting year.

Maximum remuneration corresponds to maximum remuneration within the meaning of section 87a(1) sentence 2 no. 1 of the AktG in accordance with the remuneration system adopted by the Supervisory Board and approved by the Annual General Meeting. As in the past, in addition to maximum remuneration, a limit on cash remuneration, which includes the base salary paid out for the relevant fiscal year, the annual bonus granted for the relevant fiscal year and paid out in the subsequent year, the performance share plan paid out in the relevant fiscal year and any special payment granted for the relevant fiscal year, has been agreed with the members of the Board of Management.

Board of Management service contracts that are new or have been renewed since the Supervisory Board adopted the new remuneration system for the members of the Board of Management on December 14, 2020 also contain the penalty and clawback rules provided for in this remuneration system. The service contracts of the Board of Management members Ms. Werner, Mr. Blume and Mr. Duesmann, who were already appointed as of December 14, 2020, therefore do not contain penalty or clawback rules, nor did Mr. Witter’s service contract, which ended on June 30, 2021. Volkswagen AG did not make use of the existing penalty and clawback rules in fiscal year 2021.

ANNUAL BONUS

2.2 Explanation

2.2.1 Performance criteria for variable remuneration

a) Performance criteria for the annual bonus

aa) Financial subtargets

The following overviews show the threshold values, target values and maximum values set by the Supervisory Board for fiscal year 2021 for the financial subtargets operating result, including Chinese joint ventures (proportionate), and operating return on sales (RoS), along with the actual figures and target achievement levels in percent in fiscal year 2021.

bb) ESG factor

The following overview shows the minimum values, target values and maximum values set by the Supervisory Board for fiscal year 2021 for the environmental (decarbonization index) and social (sentiment rating and diversity index) subtargets along with the actual figures and target achievement levels in fiscal year 2021. The decarbonization index measures the emissions of CO₂ and CO₂ equivalents by the passenger car- and light commercial vehicle-producing brands over the entire life cycle and documents the progress we are making in improving our carbon footprint. The sentiment rating is an important parameter of the opinion survey – an employee poll with which the Group regularly gathers information regarding employee satisfaction. The diversity index is used worldwide to determine the development of the proportion of women in management and the internationalization of top management. The indicator provides incentives for an exemplary leadership and corporate culture. The governance factor is a means for the Supervisory Board to express its satisfaction with the expected and actual behavior of the Board of Management with regard to the criteria of integrity and compliance. As a rule, the governance factor should be 1.0 and may only be reduced to 0.9 or raised to 1.1 in exceptional circumstances based on a professional judgment of the Supervisory Board. For fiscal year 2021, the Supervisory Board has set the governance factor at the standard value of 1.0 for all current Board of Management members; it takes into account and assesses the collective performance of the Board of Management as a whole and the performance of each Management Board member individually.

LONG-TERM INCENTIVE (LTI): (PHANTOM) PERFORMANCE SHARE PLAN (PSP)

b) Performance criteria for the long-term incentive (LTI)

The four-year performance share plan has applied since January 1, 2021 to all Board of Management members with service contracts newly concluded or renewed after the Supervisory Board resolution of December 14, 2020. This includes Mr. Antlitz, Mr. Aksel and Mr. Schmall-von Westerholt. For the Board of Management members already appointed at the time of the Supervisory Board resolution of December 14, 2020, a three-year performance period continues to apply until their contracts are renewed. This is the case for Ms. Werner, Mr. Duesmann, Mr. Blume and Mr. Witter. The four-year performance share plan applies pro rata from July 10, 2021 for Mr. Diess and pro rata from December 10, 2021 for Mr. Kilian.

bb) EPS performance

The following overview shows the minimum value, target value and maximum value set by the Supervisory Board at the beginning of the performance period for the performance share plan 2018–2020, which was paid out in fiscal year 2021, along with the actual figure and target achievement level in percent.

The following overviews show the minimum value, target value and maximum value set by the Supervisory Board at the beginning of the performance periods 2019 −2021, 2020 −2022 and 2021–2023 or 2021–2024 along with the actual figures and target achievement levels attained in percent so far for the individual years of the assessment period up to and including 2021. The performance share plans for the performance periods 2019 −2021, 2020 −2022 and 2020–2023 or 2021–2024 were not due in fiscal year 2021 and have not yet been paid out; they therefore do not constitute remuneration granted or owed in fiscal year 2021.

cc) Reference prices/dividend equivalent for the performance periods

The relevant initial reference price, closing reference price and dividend equivalent for the performance period 2018–2020 can be found in the following overview.

The following overview shows the initial reference price, closing reference price and dividend equivalent for the performance share plans not yet due and not yet paid out for the performance periods 2019–2021, 2020–2022 and 2021–2023 or 2021–2024.

dd) Advances

In the introductory phase of the performance share plan, the members of the Board of Management who were Board members as of December 31, 2016 generally received advances of 80 % of their target amount for the 2017 to 2019 and 2018 to 2020 performance periods. Mr. Blume received corresponding advances for the performance periods 2018 to 2020 (proportionate) and 2019 to 2021. The advances were paid after the first year of the relevant performance period. Final settlement is based on actual achievement of targets at the end of the relevant three-year performance period.

2.2.2 Conformity with the remuneration system

The remuneration granted and owed to the Board of Management members in fiscal year 2021 meets the requirements of the remuneration system for the members of the Board of Management. There was no deviation from the applicable remuneration system in fiscal year 2021. There was no need to reduce the payments related to the annual bonus and performance share plan, as they did not exceed 180 % of the target amount for the annual bonus or 200 % of the target amount for the performance share plan. The total remuneration granted and owed to the Board of Management members in fiscal year 2021 did not exceed the maximum remuneration envisaged by the remuneration system. Due to the base salary paid out for fiscal year 2021, the annual bonus granted for fiscal year 2021 and paid out at the beginning of fiscal year 2022, and the performance share plan paid out in fiscal year 2021 for the 2018 to 2020 performance period, Board of Management member Ms. Werner would have received total cash remuneration above the agreed cash remuneration cap of €5.5 million gross in fiscal year 2021. Against this background, the payment amount from the annual bonus was reduced by the excess amount of €197,448.28. The table entitled “Remuneration granted and owed” therefore shows the reduced annual bonus amount for Ms. Werner. The Supervisory Board of Volkswagen AG reappointed Mr. Diess as a member of the Board of Management in fiscal year 2021 with effect from the beginning of July 10, 2021 and named him Chair of the Board of Management, thereby ending his existing appointment with effect from the end of July 9, 2021. A new service contract was concluded in this context, the terms of which correspond to the remuneration system applicable to members of the Volkswagen AG Board of Management from January 1, 2021. A four-year performance share plan has thus applied to Mr. Diess since July 10, 2021. For fiscal year 2021, the LTI was therefore based pro rata on a three-year performance share plan up to and including July 9, 2021 and a four-year performance share plan from July 10, 2021. The penalty and clawback rules were consequently only applicable as from July 10, 2021. Volkswagen AG also reappointed Mr. Kilian as a member of the Board of Management with effect from the beginning of December 10, 2021, thereby ending his existing appointment with effect from the end of December 9, 2021. A new service contract was concluded in this context, the terms of which correspond to the remuneration system applicable to members of the Volkswagen AG Board of Management from January 1, 2021. In line with the arrangements for Mr. Diess, a four-year performance share plan applied pro rata to Mr. Kilian starting on December 10, 2021, along with the penalty and clawback rules.

2.2.3 Benefits and pension commitments in connection with termination

a) Benefits and pension commitments to Board of Management members for early termination

The remuneration system for the members of the Board of Management and the service contracts of the Board of Management members provide for severance payments in the event that an appointment as member of the Board of Management is revoked. In such cases – except where there is good cause entitling the Company to terminate the service contract prematurely or where the appointment is revoked due to a gross breach of duty – the Board of Management member receives a gross severance payment in the amount of the total remuneration of the past financial year up to the end of the regular term of the appointment, for a maximum of two years, calculated as of the date of the termination of the appointment as member of the Board of Management. Any special payment will not be taken into account for the calculation. Should a Board of Management member leave during the course of the first fiscal year of the appointment, the calculation will by way of exception be based on the expected total remuneration for the current fiscal year. The severance payment will be paid in a maximum of 24 monthly installments from the time of the termination of the appointment as a member of the Company’s Board of Management. Contractual remuneration paid by the Company for the period from the termination of the appointment until the end of the service contract will be offset against the severance payment. Should Board of Management members take up other work after the termination of their appointment, the amount of the severance payment will be reduced by the amount of the income earned from that work. Should a post-contractual non-compete covenant be agreed, the severance payment will be offset against the compensation received for observing the post-contractual non-compete covenant.

The members of the Board of Management are also entitled to a pension and to a surviving dependents’ pension as well as the use of company cars for the period in which they receive their pension in the event of early termination of their service on the Board of Management.

b) Pension commitments to Board of Management members for regular termination of service

In the event of regular termination of their service on the Board of Management, the members of the Board of Management are entitled to a pension, including a surviving dependents’ pension, as well as the use of company cars for the period in which they receive their pension. The agreed benefits are paid or made available when the Board of Management member reaches the age of 63, or in Mr. Duesmann’s, Mr. Aksel’s, Mr. Schmall-von Westerholt’s and Mr. Antlitz’s case, when they reach the age of 65.

The Board of Management members received a defined contribution plan, which is based in principle on a works agreement that also applies to the employees of Volkswagen AG covered by collective agreements and includes retirement, invalidity and surviving dependents’ benefits. A pension contribution in the amount of 50 % of the base salary for Ms. Werner and Mr. Diess and in the amount of 40 % of the base salary for Mr. Aksel, Mr. Blume, Mr. Duesmann, Mr. Kilian, Mr. Schmall-von Westerholt and Mr. Antlitz is paid to Volkswagen Pension Trust e.V. at the end of the calendar year for each year they are appointed to the Board of Management. The pension contribution for Mr. Witter was 50 %. The annual pension contributions result in modules of what is, in principle, a lifelong pension in line with the arrangements that also apply to employees covered by collective agreements.

The individual pension modules vest immediately upon payment to Volkswagen Pension Trust e.V. Instead of a lifelong pension, benefits can optionally be paid out as a lump sum or in installments when the beneficiary reaches retirement age. Volkswagen AG has assumed responsibility for pension entitlements due to Mr. Witter from the time before his service with the Company. The earliest point at which he can draw his pension is when he reaches the age of 60; for his other pension entitlements, the earliest point at which Mr. Witter may retire is at the age of 62.

There were no changes to these commitments in fiscal year 2021.

The overview on the previous page shows the pensions for the individual members of the Board of Management in fiscal year 2021, indicating the present value and the pension expense for the Company during the last fiscal year.

c) Benefits and pension commitments to Board of Management members who left in fiscal year 2021

Mr. Witter left in fiscal year 2021. He was originally appointed as a member of the Volkswagen AG Board of Management until the end of June 30, 2021. Mr. Witter’s appointment to the Board of Management of Volkswagen AG was terminated early by mutual agreement, effective March 31, 2021. Due to this termination, Volkswagen AG concluded a termination agreement with Mr. Witter. The subject of this termination agreement included the continuation of his service contract until its regular termination date, i.e. until the end of June 30, 2021. Volkswagen AG agreed to continue paying Mr. Witter his monthly base salary until the termination date of his service contract and to grant the annual bonus for 2021 and the LTI for the performance period 2021–2023 on a pro rata basis (6/12). Until the end of his service contract, Mr. Witter retained private use of his company cars and was entitled to fringe benefits.

2.2.4 No clawback claims in fiscal year 2021

Volkswagen AG did not seek to claw back any variable remuneration components from individual Board of Management members in fiscal year 2021. The prerequisites for a clawback claim did not apply.

IV. Remuneration of former Board of Management members

In accordance with section 162(1) sentence 1 of the AktG, the remuneration granted and owed to former members of the Board of Management must also be reported.

1. Remuneration granted and owed in fiscal year 2021 (individualized)

Under section 162(5) sentence 2 of the AktG, the obligation to report individually on the remuneration granted and owed to former Board of Management members also extends to remuneration granted and owed in the ten years after their most recent term of office on the Board of Management or Supervisory Board at Volkswagen AG.

The following tables show the remuneration granted and owed in fiscal year 2021 to the individual former members of the Board of Management who left after fiscal year 2011. As with the current Board of Management members, the annual bonus paid at the beginning of 2022 to former Board of Management members for the 2021 fiscal year is counted as remuneration granted in fiscal year 2021.

2. Total remuneration granted to former Board of Management members

Section 162(5) sentence 2 of the AktG does not require the Company to report individually on the remuneration granted and owed in 2021 to former members of the Board of Management whose most recent term of office on the Board of Management or Supervisory Board at Volkswagen AG came to an end before the beginning of 2012 and who were then granted and owed remuneration for more than ten years after leaving Volkswagen AG. A total of €9.1 million was granted and owed to such former Board of Management members and their surviving dependents in fiscal year 2021. Obligations for pensions for this group of persons measured in accordance with IAS 19 amounted to €119.9 million.

V. Comparative presentation

The following table shows a comparison of the year-on-year percentage change in the remuneration of current and former Board of Management members with the earnings performance of Volkswagen AG and with the average remuneration of employees on a full time equivalent basis. For members of the Board of Management, the remuneration granted and owed in in the reporting year, is placed in relation to the equivalent figure for the previous year.

Earnings performance is shown on the basis of Volkswagen AG’s net income or loss for the year. However, the remuneration of the Board of Management members is based on Group KPIs. In order to demonstrate more transparently how the remuneration of the Board of Management members has changed compared with earnings performance, the earnings after tax, operating result and operating return on sales of the Volkswagen Group, as reported in the consolidated financial statements, are also used in determining earnings performance. This means that Group KPIs are not only applied in calculating the remuneration of the Board of Management members but also in determining earnings performance. The Group KPIs used in determining earnings performance show the overall effect of the business activities for which the Board of Management is responsible.

The comparison with the growth in average employee remuneration is based on the personnel expenses of Volkswagen AG reported in the notes to the annual financial statements of Volkswagen AG, adjusted for the remuneration of the members of the Board of Management. These adjusted personnel expenses are divided by the number of full time equivalent employees of Volkswagen AG as of December 31, 2021, excluding the members of the Board of Management.

VI. Peer group

The Supervisory Board regularly reviews and, if necessary, adjusts the level of the remuneration, the total remuneration cap and the individual targets. Among other things, the Supervisory Board performs a vertical comparison with the remuneration and employment terms of the Company’s employees and a horizontal comparison with the remuneration and employment terms of other companies’ management board members. The Supervisory Board conducts a peer group comparison to assess whether the specific total remuneration paid to the members of the Board of Management is customary when measured against that paid in other companies. This peer group is regularly reviewed and adjusted, most recently in February and December 2020. The peer group currently comprises the following companies: BMW, Daimler, Ford, General Motors, Stellantis, Nissan Motor Corporation, Toyota, BYD, Tesla (excluding CEO), hp, IBM, Uber, SAP, Samsung, General Electric, Siemens, Hitachi and Boeing.