• DEUTSCH

Compensation Report¹⁾

For the adidas Group, transparent and comprehensible reporting on the compensation of the Executive Board and Supervisory Board are essential elements of good corporate governance. In the following, we summarise the principles of the compensation system and outline the structure and level of Executive Board and Supervisory Board compensation. We are also reporting on the benefits the members of our Executive Board will receive if they resign from office or retire.

Compensation system for the Executive Board

Following preparation by the General Committee, the compensation system for our Executive Board and the total compensation of each member of the Executive Board is determined and regularly reviewed by the entire Supervisory Board. The compensation system and compensation level are intended to form an incentive for sustainable long-term management.

The compensation of the Executive Board members is designed to reflect the size and global orientation of the company as well as its economic situation and prospects and is orientated towards the typical structure and level of executive board compensation at comparable companies. Taking into account the compensation structure at the adidas Group, the tasks and the contribution of each Executive Board member to the Group’s success, his individual performance as well as the performance of the entire Executive Board are considered. Thus, an appropriate level of compensation can be ensured.

Components of the compensation system

The target annual income of our Executive Board members provides for a fixed compensation component amounting to around 35% and a variable, i.e. performance-related, compensation component amounting to around 65% in the case of 100% target achievement.

• The fixed compensation consists of a contractually agreed, non-performance-related annual salary that is paid in twelve monthly instalments.
• The variable compensation consists of a Performance Bonus and a compensation component with a long-term incentive effect, the Long-Term Incentive Plan 2009/2011 (LTIP 2009/2011) measured over a three-year period. The variable compensation components are designed in such a way that the incentive to achieve the sustainable targets set by the LTIP 2009/2011 is significantly higher than for achieving the targets necessary for granting the Performance Bonus. Corresponding contractual provisions ensure that this weighting will also be maintained in the future.
• The Performance Bonus serves as compensation for the Executive Board’s performance in the past financial year in line with the short-term development of the company. It is determined by the Supervisory Board in a two-stage process: At the beginning of the 2010 financial year, the Supervisory Board determined as performance criteria both the business-related criteria (increase in income before taxes and retail margin) and the individual performance of each Executive Board member and defined explicit targets. The target achievement of business-related criteria can be rated with a maximum of 150%. At the end of the financial year, the Supervisory Board stipulates a concrete bonus for each Executive Board member depending on the respective degree of target achievement.
• The bonus resulting from the LTIP 2009/2011 (LTIP Bonus) serves as compensation for the long-term performance of the Executive Board in line with corporate planning.

When determining the LTIP 2009/2011 of the Executive Board members, the Supervisory Board defined the following performance criteria with different weightings:

• Increase of consolidated net income
• Reduction of net debt (adjusted for non-operating effects)
• Sales growth with regard to the Reebok, Rockport and Reebok-CCM Hockey brands
• Absolute and relative share price development.

When calculating the LTIP Bonus payable following the three-year period, the degrees of target achievement of the performance criteria are accumulated and multiplied by the individual target amount. The payout of the LTIP 2009/2011, which is limited to a maximum of 150% of the individual target amount (Cap), will be effected following the adoption of the annual financial statements for the period ending on December 31, 2011. Should the degree of target achievement for the three-year period lie below the threshold value of 50%, the Executive Board members are not entitled to the LTIP Bonus.

A compensation component resulting from a management share option plan does not exist and is not planned.

1) This Compensation Report is a component of the audited Group Management Report and is also part of the Corporate Governance Report including the Declaration on Corporate Governance.

Executive Board compensation in detail

The total compensation paid to our Executive Board in the 2010 financial year amounted to € 11.494 million (2009: € 10.494 million).

Benefits in case of resignation from office as Executive Board member

All Executive Board members have individual contractual pension commitments which essentially include the following provisions:

Pension commitments
The retirement pension commences with the termination of the Executive Board mandate upon reaching the age of 65. In the case of permanent occupational disability or survivor’s benefits in the case of death, different provisions apply.

• The retirement pension is determined in accordance with a modular system, i.e. starting from a base amount totalling 10% of the pensionable income, a module of 2% of the pensionable income is formed for each full year of tenure as an Executive Board member, which currently corresponds to the fixed annual salary indicated in the adjacent table.²⁾ The retirement pension can reach a maximum level of 40% of the pensionable income.
• In the event of occupational disability of an Executive Board member prior to reaching the retirement age, he receives a disability pension amounting to the pension entitlements achieved up to this point.
• If an Executive Board member dies during the term of his service contract or after retiring, the spouse is entitled to a survivor’s benefit amounting to 50%, dependent children are entitled to a half-orphan’s pension of 15% or an orphan’s pension of 30% of the pension entitlements. The maximum limit of the survivor’s benefits is 100% of the pension entitlements. If an Executive Board member dies during the term of his service contract, his spouse receives or, alternatively, any dependent children additionally receive the pro-rata annual fixed salary for the month of death and the following three months but no longer than until the agreed end date of the service contract.

In the event that an Executive Board member leaves the company prior to reaching the retirement age, the non-forfeiture of the pension entitlement will be in line with the legal provisions. From the second year of pension payments, the current pension payments will increase by at least 1% of the amount of the prior year pension and additionally by any income from the pension trust fund allocable to the respective Executive Board member.

2) Herbert Hainer and Erich Stamminger were both first appointed on April 1, 1997. Robin J. Stalker was first appointed on January 1, 2001. For Glenn Bennett, instead of his first appointment date (April 1, 1997), January 1, 2000, is used for the calculation of his pension entitlements. His base amount totals 20% of the pension entitlements.

Commitments to Executive Board members upon premature end of tenure
In the service contracts of the Executive Board members Glenn Bennett, Robin J. Stalker and Erich Stamminger, a severance payment cap in the case of premature termination of tenure which is not due to good cause is not provided for due to the relatively short contractual terms of up to three years. The service contract of Herbert Hainer, on the other hand, which has a contractual term of more than three years, does provide for a severance payment relating to payment claims for the remaining period of his service contract. However, the severance payment has been limited to a maximum of twice the overall annual compensation (Severance Payment Cap). In this respect, the overall annual compensation means the overall compensation for the last full financial year prior to his resignation from the Executive Board while considering the expected total compensation for the current financial year. If the service contract is terminated due to a change of control, a possible severance payment is limited to 150% of the Severance Payment Cap.

Commitments to Executive Board members upon regular end of tenure
In case of regular termination of the service contract, i.e. in case of non-renewal of the service contract or termination due to reaching the retirement age, the respective Executive Board member is entitled to a follow-up bonus as individually agreed. This bonus amounts to 75% for Glenn Bennett, 100% for Robin J. Stalker and 125% for Herbert Hainer and is based on the Performance Bonus granted to the respective Executive Board member for the last full financial year. The follow-up bonus is payable in two tranches, 12 and 24 months following the end of the contract.

Instead of the follow-up bonus, the service contract with Erich Stamminger contains a severance payment of 100% of the last annual fixed salary in the event that adidas AG decides not to renew his contract although he would be willing to continue his function as Executive Board member under the existing conditions. In this case, the amount is based on the annual fixed salary of the financial year at the time of retirement from office. The severance payment is granted instead of the follow-up bonus. The Supervisory Board has aligned this contractual provision to the system valid for the other Executive Board members as of the 2011 financial year and set a follow-up bonus in the amount of 125%.

Other benefits and additional commitments to the Executive Board

• Except for the other benefits listed in the table, the Executive Board members did not receive any additional payments.
• The Executive Board members did not receive any additional compensation for mandates within the adidas Group.
• The Executive Board members did not receive any loans or advance payments from adidas AG.
• The company maintains a consequential loss and liability insurance for Board members of the adidas Group (D&O Insurance). It covers the personal liability in the event of claims raised against Executive Board members for indemnification of losses incurred in connection with their acts and omissions. For cases of damage occurring after July 1, 2010, there is a deductible in accordance with the statutory provisions and recommendations of the German Corporate Governance Code. This deductible amounts to 10% of the damage up to a maximum of one and a half times the fixed annual salary for all cases of damage within one financial year.

Payments to former members of the Executive Board and their surviving dependants

In the 2010 financial year, pension payments to former Executive Board members or to their surviving dependants amounted to € 3.235 million (2009: € 2.607 million). As at December 31, 2010, the provisions for pension entitlements of this group of persons totalled € 45.884 million (2009: € 45.658 million). The dynamisation of the pension payments is made in accordance with statutory regulations or regulations under collective agreements unless a surplus from the pension fund is used after the commencement of retirement for an increase in retirement benefits.

Compensation of the Supervisory Board

The compensation of our Supervisory Board members is determined by the Annual General Meeting and regulated by § 18 of the Articles of Association of adidas AG. The compensation is linked to the size of the Group and to the responsibility and scope of activities of the Supervisory Board members. After the respective financial year, the members receive fixed compensation for their function as well as compensation for the chairmanship of or membership in committees. There is no variable compensation granted in addition see Corporate Governance Report including the Declaration on Corporate Governance. Supervisory Board members who have not been members of the Supervisory Board for the entire financial year receive a pro-rated amount of compensation.

The fixed annual compensation for each member of the Supervisory Board amounts to € 40,000. Three times this amount is paid to the Chairman of the Supervisory Board and twice this amount is paid to each Deputy Chairperson. Members of the General Committee or the Audit Committee receive an allowance of € 20,000 and € 40,000, respectively. The Chairman of the General Committee receives an additional annual allowance of € 40,000, while the Chairman of the Audit Committee receives an allowance of € 60,000. The remuneration paid for committee chairmanship also covers the membership in such committee. The members of the Steering Committee, the Mediation Committee, the Nomination Committee and committees which are established ad hoc do not receive additional compensation. If a Supervisory Board member is in more than one committee, the member receives only compensation for his/her task in the committee with the highest compensation. The Supervisory Board members are reimbursed for all expenses incurred in connection with their mandates as well as for the VAT payable on their compensation, insofar as they charge for it separately.

With the new arrangement of memberships in committees and the chairmanships on May 7, 2009 following the election of the new Supervisory Board, the overall compensation of the Supervisory Board increased to € 920,000 in the 2010 financial year (2009: € 898,871).

Other benefits and additional commitments to the Supervisory Board

• The Supervisory Board members did not receive any loans or advance payments from adidas AG.
• The company maintains a consequential loss and liability insurance for Board members of the adidas Group (D&O Insurance). It covers the personal liability in the event of claims raised against Supervisory Board members for indemnification of losses incurred in connection with their acts and omissions. For cases of damage occurring after July 1, 2010, there is a deductible of 10% of the damage up to a maximum of one and a half times the fixed annual compensation for all cases of damage within one financial year in accordance with the recommendations of the German Corporate Governance Code.