Long-term incentive compensation

In addition–with the exception of the Chairman of the Executive Board, Dr. Jürgen Großmann, and Dr. Leonhard Birnbaum, who was only appointed to the Executive Board effective October 1, 2008–performance shares Glossary were awarded to members of the Executive Board as part of the Beat 2005 long-term incentive plan (“Beat” for short). Performance shares are granted on condition that the Executive Board members invest in RWE shares a sum, which is equal to one-third of the value of the performance shares granted after taxes. The shares must be held for the respective Beat tranche’s entire three-year waiting period. Any necessary notifications of directors’ dealings in relation to this were submitted and published.

The “Beat” programme supplements the compensation system with a long-term incentive component by rewarding the sustainable contribution made by executives to the company’s success. The company’s performance is measured using Total Shareholder Return (TSR) of RWE shares, which covers both the development of the share price and reinvested dividends. The payout factor is determined by comparing RWE’s TSR with the TSR of other companies in the Dow Jones STOXX Utilities Index.

Executives entitled to participate in Beat receive a conditional allocation of performance shares Glossary every year. A performance share consists of the conditional right to receive a pay-out in cash following a waiting period of three years. However, a payout only takes place if, on conclusion of the waiting period, the RWE share’s performance is better than the performance of 25 % of the companies in the peer group, measured in terms of their index weighting as of the inception of the programme. Consequently, the decisive factor is not only RWE’s position among the companies in the peer group, but also which of the companies RWE outperforms.

Payment corresponds to the average RWE share price during the last 20 trading days prior to expiration of the programme, the number of conditionally allocated performance shares, and the pay-out factor. Payment for Executive Board members is limited to three times the value of the performance shares as of the grant date for the 2005 tranche, and one-and-a-half times this value for all subsequent tranches.

Performance shares granted under Beat in the year under review break down as follows:

The long-term incentive 2005 Beat tranche was paid out as follows in the year under review:

Executive Board members still hold performance shares from the Beat programme’s 2006 and 2007 tranches from Executive Board activity in previous years. These allocations are not part of total compensation for the 2008 financial year. Instead, they are part of total compensation for fiscal 2006 and 2007 and as such are presented in the compensations reports for these two prior years. The following overview of these allocations is voluntary and aims to convey a complete picture of the compensation history.

German Accounting Standard (DRS) 17 mandates that the portion of the total expense recognized for share-based payments allocable to Executive Board members must be disclosed and itemized. The following expenses were recognized for long-term incentive share-based payments in the period under review: