Infineon Global Compensation Philosophy GEO DACH Chapter Konferenz, Frankfurt a. M., 13. September 2012

Infineon Technologies AG Maik Metzdorf Vice President HR Compensation & Benefits Copyright © Infineon Technologies 2012. All rights reserved.

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About Infineon Infineon at a Glance Focus

Our Target Markets

 Energy Efficiency

 Automotive  Industrial Power Control

 Mobility

 Power Management & Multimarket

 Security

 Chip Card & Security

 Revenue FY 2010/2011 (30.09.): 3,997 billion EUR  Forecast FY 2011/2012*: ~ 3,8 – 3,9 billion EUR

 26,526 employees worldwide (as per August 31, 2010)  APAC (w/o Japan): 13,568  Germany: 8,364  Europe (w/o GER): 3,990

 America: 490  Japan: 114 * Note: according to IFX press release, July 31, 2012

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Preface What is a Compensation Philosophy for? The Compensation Philosophy …

… describes the core principles for compensating and rewarding employees. … sets a framework for developing compensation programs and policies. … applies – in general – to all employees in all countries. … should be stable for longer period of time. … communicated proactively, creates a common understanding between the different stakeholders. Copyright © Infineon Technologies 2012. All rights reserved.

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The Compensation Philosophy is based on 5 Core Principles to lever High Performance Comparability

Affordability & Flexibility

External Competitiveness

Compensation Philosophy Employee Contribution Success Participation Copyright © Infineon Technologies 2012. All rights reserved.

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 As functions naturally are different regarding their value to the organization, we need a systematic approach to evaluate and structure these differences.  Within IFX we use the Global Grading System to structure jobs by level.

Job Level

Compensation Philosophy Comparability

 Therefore, we have developed a comprehensible and transparent framework to ensure internal and external comparability as well as having a basis for the definition of eligibility and individual differences in our compensation programs. Copyright © Infineon Technologies 2012. All rights reserved.

Compensation

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Compensation Philosophy External Competitiveness We strive for both competitive and attractive compensation packages as well as competitive compensation cost structures.

To be able to balance both objectives, we orientate on the market and external competitiveness.

Competitiveness of

Compensation

Costs

Attractiveness Market Orientation

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Compensation Philosophy Employee Contribution

 We honor our employees' contributions to the company success.  In this respect, we reward individual performance, competency development and increases in job responsibility through differentiated … 

performance-based income development (differentiation within a job level)



career progression / development

(moving to and performing at a higher job level)

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Employee Contribution

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Compensation Philosophy Affordability & Flexibility

 Compensation at Infineon is designed to keep personnel costs flexible, calculable and predictable.

Downturn

Market

 Our compensation Upturn structures are flexible in order to maintain affordable costs, support changing business environments and achieve financial objectives over the cycle.

Boom

Time

Crisis

 Rather than simply focusing on costs, we consider compensation as an investment in our employees that will enhance performance and lead to increased productivity. Copyright © Infineon Technologies 2012. All rights reserved.

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Compensation Philosophy Success Participation

Variable Income

Fixed Income

 We share risks and success with our employees through strong correlation between compensation and company success.

 We enhance the employees’ identification with the company goals and encourage their commitment to achieve Infineon’s business objectives and, hence, contribute to the overall company success.

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Variable Compensation (Short Term) Plan Design

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Variable Compensation Annual Success Bonus vs. other Short Term Incentives

Global Grade 12+

Annual Success Bonus (ASB)



Employees can be only on one short-term incentive scheme at a time.



The predominant short-term incentive scheme at Infineon is the Annual Success Bonus (ASB).



There might be other Short Term Incentives (STI) as locally defined schemes, where the ASB is not applicable or implementation not possible due to legal reasons.



Other STI may use local criteria to consider special circumstances (e.g. production site productivity schemes), but ensure that those schemes also consider the overall company success.

ASB Global Grade 11-

or

Other STI Other STI ASB gilt in Deutschland auch für Tarifangestellte

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Variable Compensation STI - Annual Success Bonus 250%

Annual Success Bonus (100 %) 0%

Annual Fixed Income

 The ASB currently applies globally to all employees in GG/TL 12 and higher (for GG/TL 11 and lower where agreed locally and legally feasible).  The purpose of the ASB is to  let employees directly participate in Infineon’s success and profit  enhance employee identification with the overall company success and encourage their commitment  align all employees with the company targets  underline the importance of results orientation  support Infineon to achieve mid-term and longterm strategic, operational and financial targets  The terms and conditions of the ASB (e.g. target structure, key performance indicators, etc.) are governed in the annually renewed IFX Bonus Guideline.

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Variable Compensation ASB - Target Structure (KPIs and Target Weights) Divisions

Operations

Central Functions

SMD

Return on Capital Employed (ROCE) 1) 25%

Free Cash Flow (FCF) 1) 25%

Division Segment Result Margin 1)

Infineon Segment Result Margin 1)

50%

50%

Division Segment Result Margin 2) 25% Specific Sales Targets3) 25%

1) ROCE, FCF and Segment Result Margin all from continuing operations 2) For SMD employees who do not dedicatedly work for one specific Division, the Infineon Segment Result Margin target has to be applied. 3) Targets according to SMD Incentive Guideline FY 11/12; targets preferably within own area of responsibility (e.g. regional/customer-related revenue, design-win volume or must-win projects); Target functions for ROCE, FCF and Division/Infineon Segment Result Margin approved by IFX Management Board. Copyright © Infineon Technologies 2012. All rights reserved.

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Outlook: New Long Term Incentive Plan Design as of FY 13/14

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Long-Term Incentive Plan Design Basic model employees (summary)

DRAFT

Topic

Regulation

Plan type

Performance Share Plan (PSP) with equity share settlement, Performance Unit Plan (PUP) with cash settlement

Vesting period

4 years

Allocation

LTI allocation amount (in EUR, per Global Grade; will be converted in no. of allocated shares upon grant based on average stock price in last business quarter prior to grant date)

Performance hurdle / payout conditions

50% of total allocation amount depending on achievement of relative performance hurdle: outperformance of Philadelphia Semiconductor Index (SOX) over total duration of vesting period

Settlement

in shares / in cash [tbd.]

Personal investment

• voluntary (but prerequisite for participation in LTI plan) • x% of actual LTI allocation amount (to be held privately in custody account during vesting period) [tbd.] Copyright © Infineon Technologies 2012. All rights reserved.

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Long-Term Incentive Plan Design Basic model employees (details)

DRAFT

 Example: performance hurdle after vesting period met Allocation

Self Investment

Conditional LTI allocation amount

Payout Final LTI allocation amount

Performance hurdle 

value 60.000

25.000

15% self investment

7.500

50.000

+/-0%

50.000

50.000

25.000 4 years

share price development

40.000

LTI allocation amount (replacement SOP)

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Long-Term Incentive Plan Design Basic model employees (details)

DRAFT

 Example: performance hurdle after vesting period not met Allocation

Self Investment

Conditional LTI allocation amount

Payout Final LTI allocation amount

50.000

value 30.000

25.000

15% self investment

7.500

Performance hurdle 

50.000 25.000

+/-0%

4 years LTI allocation amount (replacement SOP)

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share price development

25.000 20.000

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Vielen Dank für Ihre Aufmerksamkeit!

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