Corporate Governance

German Corporate Governance Code

The German Corporate Governance Code (the “Code”) presents essential statutory regulations for the management and supervision (governance) of German listed companies and contains internationally and nationally recognised standards for good and responsible governance. The Code aims at making the German Corporate Governance system transparent and understandable. Its purpose is to promote the trust of international and national investors, customers, employees and the general public in the management and supervision of listed German stock corporations.

¹⁾ Member of the Supervisory Board since the AGM in June 2020
²⁾ Member of the Supervisory Board until the AGM in June 2020

In accordance with the Code’s recommendations, the members were appointed to the Supervisory Board regardless of gender, nationality or age based on the following criteria: qualification, work experience and competence, independence and diversity. However, the age limit set by the Supervisory Board determines that a candidate may not be older than 72 years at the time of the proposal. In addition, the Supervisory Board has agreed on two full terms as the regular limit of length of membership. Adequate female representation on the Supervisory Board is also intended with a gender quota requiring a minimum of 30% of men and women. 

Furthermore, the Supervisory Board has set specific targets for its composition and competencies and developed a Profile of Competencies and Expertise which reflects the company-specific situation. These targets and profiles provide that in consideration of the company-specific situation, the majority of the Supervisory Board members must have national and international experience in the following areas: (i) research and development, (ii) finance, capital markets, law, corporate governance, (iii) marketing, distribution and operations, and (iv) (public) health. In addition, thorough screening of candidates for the Supervisory Board early in the selection process is meant to avoid potential conflicts of interest. The Supervisory Board shall be composed in such a way that the majority of its members are independent and that its members as a group possess the knowledge, ability and expert experience required to properly complete its tasks.

Currently, the composition of Evotec’s Supervisory Board fulfils all those objectives: Five members are considered independent within the meaning of the German Corporate Governance Code. Two members are female, and two nationalities are represented on the Board. Only Dr Mario Polywka, who served as COO of Evotec until 31 December 2018 and who was elected to the Supervisory Board on the recommendations of a group of shareholders who together hold more than 25% of the total number of voting rights in the Company, is regarded as not independent. Prof Dr Wolfgang Plischke (member of the Supervisory Board of Bayer AG) is independent. Dual membership of two companies with business relations does not constitute a relationship of dependency, as the members of the Supervisory Board primarily have control and monitoring functions and are not involved in any operating activities. The situation could be different in individual cases if a member held a special position on the Supervisory Board, but this is not the case here. Prof Dr Iris Löw-Friedrich (Chief Medical Officer and Head of Development & Medical Practices of UCB S.A.) is also independent in the opinion of the Company. Her position on the Executive Board of UCB S.A., which has a business relationship with Evotec SE, does not constitute dependency. Business relationships constitute a material and prolonged conflict of interest only in exceptional cases. The Supervisory Board has no influence on the volume of orders or the continuation or expansion of business relationships. This is the responsibility of the Management Board of Evotec SE, which not only represents the Company (section 78 of the German Stock Corporation Act (AktG)), but also makes decisions on these matters under its own responsibility (section 76, paragraph 1 of the German Stock Corporation Act (AktG)). There is also no intersecting executive body position. Mr Kasim Kutay is to be considered an independent member of the Supervisory Board despite his position on the Management Board of Novo Holding A/S. Novo Holding A/S holds 10.58% of the voting shares in Evotec SE and is therefore not a controlling shareholder. A controlling position leading to the independence of the shareholder (and thus also of Mr Kutay) would be given if a control agreement had been concluded with the shareholder or if the shareholder held an absolute majority of the voting rights or at least a sustainable majority at the Annual General Meeting. A voting interest of only 10.58% does not constitute a sustainable majority of the voting rights in favour of Novo Holding A/S and therefore does not constitute a conflict of interest, especially since the number of validly cast votes at past general meetings regularly amounted to well over 40% of the share capital. Dr Elaine Sullivan (the former CEO of Carrick Therapeutics Ltd) is also independent. Evotec SE holds approximately 4.5% of the shares in Carrick Therapeutics Ltd., and it is not a significant partner of Carrick Therapeutics Ltd. at present. Therefore, there is no conflict of interest that could hinder the position of independence, for two reasons: (1) Evotec SE's participation rights in Carrick Therapeutics Ltd. are exercised by the Management Board of Evotec SE on its own responsibility pursuant to section 76 paragraph 1 of the German Stock Corporation Act (AktG). In particular, a member of the Supervisory Board has no influence on the voting on the resolutions of the shareholders of Carrick Therapeutics Ltd. (e.g. on any formal approval). (2) There is also no intersecting executive body position, nor are there any other significant connections to members of the company's Management Board through their involvement in other companies or organisations. Mr Roland Sackers (CFO of Qiagen N.V.) is independent. Qiagen N.V. has no significant business relationship with Evotec SE, and no other circumstances leading to dependency are apparent.

The current composition of the Supervisory Board fully represents the competence profile as set out above and last confirmed by the Supervisory Board at the by-election in 2020:

The members of the Supervisory Board assume full responsibility for any training and educational measures required for their duties.

The Supervisory Board appoints a Chairman and a Vice Chairman from amongst its members. The Chairman of the Supervisory Board coordinates the work of the Supervisory Board and externally represents the concerns of the body. The Chairman is available to discuss issues pertaining to the Supervisory Board with investors upon request. 

The members of the Supervisory Board are elected for a period of five years and may be re-elected for a maximum of two full terms of office. 

The Supervisory Board appoints and dismisses the members of the Management Board and advises and oversees the Management Board in the management of the Company. The Management Board and the Supervisory Board maintain an open dialogue which is treated with confidentiality by both parties. The Supervisory Board, in particular the Chairman of the Supervisory Board, exchanges information with the Management Board on a regular basis. In numerous conference calls as needed, the Management Board continuously informed the Supervisory Board of the Company’s operational business and further current issues such as strategy, planning, risk management, and compliance management systems, providing in-depth analyses both orally and in writing.

Pursuant to Recommendation D.7 of the Code, the Supervisory Board held regular board meetings also without the attendance of the Management Board. 

In addition, the Supervisory Board is directly involved in fundamental decisions. The areas of fundamental importance which require prior approval by the Supervisory Board mainly include:

• Matters which legally require the consent of the Supervisory Board
• The strategic and operational direction of the Company
• Annual budget targets and major deviations from related resolutions
• Material changes to the development pipeline
• Investments outside of the ordinary business exceeding € 5 m, including in-licensing transactions
• The establishment or acquisition of companies or material changes in the corporate structure, either by +/- 5% of ownership or to the effect that control in such entity is assumed or lost
• Business contracts outside the Company’s ordinary course of business that have significantly different risk profiles 
• Out-licensing agreements with a total value exceeding € 300 m
• The granting of loans, guarantees or liens and the issuance of bonds or other securities
• The acquisition or disposal of land
• The establishment of new business operations or material changes in existing business operations

The articles of association provide that resolutions by the Supervisory Board shall typically be passed in meetings. However, in individual cases and upon the Chairman’s instruction, resolutions can be passed and meetings held by written notice, by telephone, by telex, by fax or by other means of telecommunication. The articles of association further provide that more than half of the members of the Supervisory Board must participate in voting on a resolution, either in person or in writing or in another permissible form, to constitute a quorum. If such a quorum is not met, a new meeting shall be called with a notice period of two weeks, in which case three present board members constitute a quorum. Absent members may participate in a resolution by delivering a written vote to the Supervisory Board. Resolutions of the Supervisory Board are passed by a simple majority of the votes cast. The Supervisory Board has its own internal rules of procedure (see www.evotec.com; Invest section). 

It has been ensured that each member of the Supervisory Board has sufficient time to fulfil its duties. None of the members of the Supervisory Board have accepted more than five supervisory board mandates in listed companies outside the Group. Equally, of the members of the Supervisory Board who at the same time are members of the executive boards of listed companies, none have accepted more than two supervisory board mandates in listed group companies or similar functions, and none have accepted to chair the supervisory board of a listed company outside the Group. 

The Supervisory Board was not informed of any conflict of interest among its members in the course of 2020. 

The Supervisory Board report, which is published as part of the Annual Report in the Invest section of the Company’s website (www.evotec.com), provides an overview of the Board’s activities.

The members’ mandates and their professional relations with related parties are listed on page 138f and 132 of the Annual Report 2020.

The activities of the Supervisory Board comply with the Corporate Governance Code

A significant proportion of the Supervisory Board’s work is conducted in committees. From among its members, Evotec’s Supervisory Board has established, pursuant to the German Stock Corporation Act and the recommendations of the Code, an Audit and Compliance Committee as well as a Remuneration and Nomination Committee. Members of both committees are appointed in accordance with the Code.

Evotec’s Audit and Compliance Committee, comprising three members, supports the Supervisory Board in independently overseeing the Company’s financial reporting activities and in auditing reports. In particular, the Audit and Compliance Committee scrutinises the Company’s accounting processes, the effectiveness of the internal control systems, and the audit. In this context, it discusses the quarterly and half-year reports as well as the risk management and compliance management systems with the Management Board. Within the scope of the audit of the financial statements commissioned by the Supervisory Board, the Audit and Compliance Committee also discusses certain steps and procedures of the audit with the appointed auditing firm, including the auditors’ independence, the additional services rendered by the auditor, the issuing of the audit mandate to the auditing firm, the determination of auditing focal points, the fee agreement and compliance issues. The members of the Audit Committee possess the required skills and experience. As Chief Financial Officer, Roland Sackers is not only independent but also has the required specialist knowledge and experience in the application of accounting principles and internal control processes. Neither the Chairman of the Supervisory Board nor a former member of the Management Board may become Chairman of the Audit Committee. The Audit and Compliance Committee meets at least four times per year. The Audit Committee’s charter can be found on the company website at https://www.evotec.com/en/invest/corporate-governance.

The main duties and responsibilities of the Company’s Remuneration and Nomination Committee are to prepare the appointment of Management Board members and to prepare their remuneration system and Share Performance Plan. Decisions in this context are made by the full Supervisory Board. 

Members of committees are appointed in accordance with the Code. Detailed information on the composition of the Supervisory Board’s committees is shown in the table above.

Efficiency review

The Supervisory Board and its committees regularly examine their efficiency as recommended in the Corporate Governance Code. The required efficiency review was conducted internally by means of questionnaires. In 2020, the review led to the conclusion that the Supervisory Board is organised efficiently and that the Management Board and the Supervisory Board interact professionally and constructively. In their cooperation, the members of the Supervisory Board maintain a highly trusting and open relationship with each other and with the Management Board. In addition, the efficiency review confirms that the Management Board adequately provides information to the Supervisory Board. The Supervisory Board discussed the outcome of the efficiency review in its December meeting in 2020. It did not identify any need for fundamental changes. A few suggestions were adopted and implemented. The next review is planned for 2022.

Remuneration of Board members

Evotec complies with the recommendations of the German Corporate Governance Code to disclose details of the remuneration of each individual member of the Management Board and the Supervisory Board. Detailed information on the remuneration of Management Board members divided into fixed and variable compensation components as well as on any fringe benefits and on the remuneration of Supervisory Board members is reported in a separate section of the Management Report (“Remuneration Report”). The Management Report as part of the Annual Report is published in the Invest section of the company website at https://www.evotec.com/en/invest/financial-publications. In addition, the remuneration of Board members is also disclosed in the Invest section of the company website at www.evotec.com/en/invest/corporate-governance.

The remuneration system for the Management Board was last presented to the Annual General Meeting in 2019 and approved by a majority of 89% of votes.

Evotec procured directors and officers liability insurance cover for its Management and Supervisory Board members, its senior management and the directors of its subsidiaries. The costs of the insurance were assumed by the Company. An appropriately sized deductible was agreed upon for the members of the Supervisory Board. The deductible for the members of the Management Board is in line with the stipulations of the German law governing the appropriateness of board remunerations (VorstAG).

Directors’ Dealings

Under the European Market Abuse Regulation, the members of the Supervisory Board and the Management Board, senior management members as well as persons who have a close relationship with these persons are obligated to report trading in Evotec stock so far as the transactions exceed in aggregate € 5,000.00 (the de minimus threshold) per calendar year. In addition, Evotec has established an Insider Trading Policy (see www.evotec.com; Invest section) that sets standards for Board members’ and employees’ trading in Evotec shares and thus ensures transparency.

During 2020, the following Directors’ Dealings were reported:

Directors’ Shareholdings

As of 31 December 2020, the members of the Management Board and the Supervisory Board owned the following shares in the Company:

Changes in the directors’ shareholdings will be published in the Invest section of Evotec’s website at https://www.evotec.com/en/invest/corporate-governance.

Annual General Meeting

The shareholders exercise their rights, including their voting rights, at the Annual General Meeting. Each share confers the right to one vote. An audio-visual broadcast of the entire Annual General Meeting was provided online to all shareholders duly registered or to their proxies on 16 June 2020 from 10:00 CET in the password-protected section of the company website at https://www.evotec.com/en/invest/annual-general-meeting. All shareholders duly registered were sent personal access codes for the Company’s protected online service.  

Unregistered shareholders or other interested parties were able to follow the first part of the Annual General Meeting, in particular the Management Board presentation, via a special unrestricted link on the company website. The subsequent responses to questions submitted by shareholders prior to the event were not open to the public. 

Transparency

Evotec SE regularly and equally communicates with shareholders, financial analysts, the media and the public. In doing so, the Company complies with all requirements of the Code regarding transparency, timeliness, openness and equality. It is a prime concern of corporate communications that all relevant target groups receive the same information at the same time. For this reason, the disclosure of information is governed by the Company’s Disclosure Policy. Evotec provides all of its publications simultaneously in both English and German. The Company’s publications are available on its website at www.evotec.com in the Invest section.

This section of Evotec’s website maintains information such as news releases, the financial calendar containing the publication dates of the financial statements, the IR events calendar, annual and quarterly reports, other regulatory news and regularly updated corporate governance information. This also includes the Articles of Association, the Rules of Procedure of the Supervisory Board, the Audit Committee Charter, the Code of Conduct, the Insider Trading Policy and all declarations of compliance.

Moreover, the Company regularly communicates with analysts and investors and offers conference calls to discuss its quarterly results. Evotec precludes any preferential treatment of stakeholder groups in its communications. In 2020, Evotec management participated in various national and international investor conferences.

In addition, the company website at www.evotec.com provides comprehensive information on the Evotec Group and the Evotec share.

Accounting and auditing

Evotec regularly provides information to its shareholders and other interested parties by publishing its annual Consolidated Financial Statements, the half-year report and quarterly interim statements. As an incorporated company whose registered head office is located within the European Union, Evotec SE must prepare and publish Consolidated Financial Statements in accordance with the International Financial Reporting Standards (IFRS) whilst observing section 315a of the German Commercial Code (HGB). The consolidated and the individual financial statements are audited by the audit firm and by the Supervisory Board. The audit firm is appointed by the shareholders at the Annual General Meeting and commissioned by the Supervisory Board. It participates at the Supervisory Board’s deliberations on the financial statements and reports the most significant results of its audit. The Audit Committee uses this information as a guideline for its own evaluation of the statements and reports.

The disclosed financial statements and the management reports for Evotec SE, as well as the Consolidated Financial Statements together with the consolidated management report of the Evotec Group, are audited by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Hamburg. These audits also cover risk management and compliance with corporate governance reporting requirements pursuant to section 161 of the German Stock Corporation Act (AktG). Following its consultations, the Supervisory Board also approves the financial statements and the Consolidated Financial Statements.

Compliance organisation

Compliance and Code of Conduct

The Management Board ensures the observance of legal requirements and internal corporate guidelines, working to achieve compliance throughout the Group. Evotec’s corporate culture is committed to the highest standards of openness, integrity and accountability. Compliance is a key element of integrity, which means adherence to applicable laws and the Company’s internal policies. Evotec’s commitment to a compliance-oriented culture is reflected in the Company’s Code of Conduct, which stipulates fundamental ethical principles that apply to board members and other employees alike, such as integrity and professionalism.

The Code of Conduct mainly sets standards for:

• Accounting and the permissible use of the Company’s funds and assets
• Anti-money laundering principles
• Compliance with insider trading laws and prevention of conflicts of interest
• Compliance with antitrust legislation
• Compliance with anti-corruption laws and associated internal guidelines
• A work environment free of any form of discrimination and harassment
• Occupational health & safety and environmental aspects
• Animal welfare
• Non-disclosure and protection of intellectual property and business secrets
• Data protection and the use of personal data
• Global trade
• The duty to report upon the suspicion of an infringement of the Code of Conduct (whistle-blowing)

Evotec does not tolerate any violation of applicable laws or internal policies.

The Code of Conduct was revised in 2019 and is published on the Company’s website at www.evotec.com in the Invest section.

Compliance Office

The responsible management of compliance risks inherent in Evotec’s business activities requires a suitable and efficient compliance management system. The Compliance Programme of Evotec SE is overseen by the Company’s Compliance Officer, functioning as an independent and objective body that reviews and evaluates compliance issues within the organisation. In this context, group-wide electronic compliance training or face-to-face trainings tailored to the Company’s specific compliance issues and associated risks are organised on a regular basis. The aim is to maintain permanent compliance awareness within all areas of Evotec’s business to ensure that any decision is in line with Evotec’s compliance guidelines and to mitigate compliance risks. Said training is mandatory for all board members and other employees. The Company’s Compliance Officer monitors the participation in the training at regular intervals.

The Compliance Office helps to communicate the values underlying the Code of Conduct and anchor them firmly in the Group. It ensures group-wide implementation of the Compliance Programme.

Another important aspect of accountability and transparency is a mechanism to enable all Evotec employees and business partners to voice concerns in a responsible and effective manner. Suspected compliance violations can be reported to an employee’s responsible line manager, the Company’s Compliance Officer or may also be reported to a worldwide compliance (whistle-blowing) hotline which is available 24 hours a day, 7 days a week. In case that a suspected compliance violation would affect a member of the Management Board, such report would be addressed to the Supervisory Board. In 2020, five reports were registered via the central compliance hotline. Of these, three were related to the same situation and the other two to another situation. Therefore, the compliance hotline registered two cases of suspected violations in 2020, which were both solved and closed in 2020.

In addition, Evotec also complies with the statutory requirements of the capital market. An ad-hoc committee comprising the Chief Financial Officer, the head of Legal & Compliance, the heads of Investor Relations and Corporate Communications as well as the Management Board Assistant reviews the ad-hoc relevance of insider information and ensures it is managed in accordance with applicable law. The ad-hoc committee reports to the Chief Executive Officer.

Further information can be found in the Sustainability Report in accordance with section 289c and section 315c of the German Commercial Code (HGB). This report can be found in the Invest section of Evotec’s website under Financial Publications.

Sustainability

Sustainability is the underlying principle guiding our business. #researchneverstops – this truth will not change until effective treatments and cures have been found for every last one of more than 3,300 diseases that are undruggable today. Our mission to develop first-in-class or best-in-class treatments in an unbiased and efficient manner is at the core of our sustained corporate development.

The structural integration of sustainability management within Evotec has made visible progress. In line with the announcement made in the 2019 Non-financial Statement, Evotec created the new function Head of Global ESG in 2020, which reports directly to the CEO. For 2021, additional headcount is budgeted for the coordination of relevant ESG topics, and the position was filled shortly after the reference date of this report. In addition, we are expanding the infrastructure to support Evotec’s sustainability management within the Environmental, Health & Safety (EHS) division. We reviewed strategically important sustainability issues in a workshop in December 2020, and we intend to refine this process and our sustainability management in future.

Our corporate goals for 2021 now include a Sustainability Goal. In this context, each functional area of the organisation is required to define and implement specific scientific ESG goals that resonate with their respective sphere of influence. In 2021, the promotion and roll-out of a long-term diversity strategy will be in focus.

Our strategy addresses a broad range of sustainability factors. Aside from fostering education and efforts to create the most innovative environment (in-house and in collaboration with academia), we are pursuing a great variety of research approaches. This also includes the focus on molecular phenotypes. The use of patient-derived samples and induced pluripotent stem cells (iPSC) helps to dramatically reduce the number of animal models in the discovery process, and state-of-the-art technologies help to preserve resources. More specifically, they help to reduce waste and energy consumption, and protect employees by reducing contact with hazardous materials. In an environment where the protection of intellectual property is a key competitive factor, the Company’s good reputation will hinge upon the security, quality and integrity of its data. As a foundation for sustainable growth, it is therefore firmly anchored in our sustainability strategy.

Diversity

Our working environment is defined by respect, cooperation, openness and flexibility in the way we think and act. Whether in recruiting, staff development, promotion or pay – Evotec practices equality. In 2020, we launched a project to analyse our gender pay gap at the group level, including factors such as seniority, performance, position level, and others.   With this broad range of factors, the analysis is more comprehensive than legally required in some countries (UK, France), and it is still ongoing.

At the end of 2020, Evotec’s workforce represented 75 different nationalities (2019: 69 nationalities).  The average age of Evotec’s employees at the end of 2020 was 38.8 years. 1.2% of our employees have a recognised disability.

With regard to gender diversity, 54.1% of our global workforce were women in 2020. Our corporate gender goal for senior management below the board is a 30% proportion of women by 2022 (unchanged versus previous years). In 2020, the share of women in senior management amounted to 26.5% after 25.8% in 2019. 

In recent years, as part of our people development efforts and recruitment, we put our focus on developing the ratio of women on level 2.  With a proportion of 28 %, we have nearly reached our target rate. This will help us to feed a pipeline that will be ready to increase our ratio on level 1 in the coming years (18% currently).

Risk Management

The early identification of risks, in particular risks that could jeopardise the Company’s continued existence, and the systematic and responsible management of risks are fundamental elements of efficient corporate governance. Evotec’s risk and opportunity management is based on international standards (COSO – The Committee of Sponsoring Organizations) and allows the Management Board to identify and respond to material risks in a timely manner. The Management Board reports risk-related matters to the Supervisory Board. The Company’s risk and opportunity management is audited as part of the annual financial statements. Details can be found on page 58ff of the Annual Report 2020.

Directors' Shareholdings

as of 31 December 2020

For a detailed description of the stock option plans and Share Performance Awards for the directors and employees of Evotec Group, please refer to the latest financial reports.

Supervisory Board committees

^{1) In the Supervisory Board since AGM in June 2020
2) In the Supervisory Board until AGM in June 2020}

^{* Commercially rounded
1 In the Supervisory Board since AGM in June 2020
2 In the Supervisory Board until AGM in June 2020}

Overall target and maximum Management Board remuneration

Considering the remuneration levels in the peer group and the development of the compensation for the top management tier and overall staff as well as corresponding thoughts on appropriateness, the Supervisory Board determined the total target compensation in fiscal year 2020 for the individual members of the Management Board as shown further below in the “Remuneration Granted” table.

The minimum and maximum remuneration amounts of a Management Board member for fiscal year 2020 are also shown in the table. The maximum possible remuneration constitutes the maximum expenditure of Evotec SE for each member of the Management Board for 2020. The amounts were calculated as the total of all components of the remuneration for the Management Board in the event of minimum and maximum target achievement, respectively. Please note that the maximum pay-out for 2020 is 100% of target value for the short-term variable compensation and 350% of target value for the long-term variable compensation.

Non-Performance-based Remuneration

Non-Performance-based remuneration comprises fixed base compensation paid in 12 monthly instalments at the end of each month and fringe benefits such as pension allowances, contribution to commuting expenses, contributions to certain premiums for insurance policies as well as the benefit derived from the private use of a company car or a car allowance. In addition to the aforementioned remuneration, business-related private payments, expenditures, and expenses are reimbursed.

Performance-based Remuneration

With reference to the principles mentioned above, Management Board remuneration is linked to company performance and sustainable growth of the company. Consequently, the Management Board remuneration comprises both a short-term and a long-term performance-based element: A short-term variable compensation (“Bonus”) and a long-term share-based compensation (“Share Performance Plan”), which was approved by the AGMs 2015 and 2017. The pay-out amount of these two components depend on the extent predefined goals were attained. In case these goals were not met, the pay-out amount of the performance-based components may be reduced to zero. If, however, the targets were significantly exceeded, the pay-out amount is subject to a ceiling or “cap”.

Short-term variable compensation (Bonus)

The Bonus is determined based on the attainment of certain targets specified by the Remuneration and Nomination Committee of the Supervisory Board and subsequently approved by the Supervisory Board for each financial year.

The STI bonus scheme for the Management Board is based on the achievement of clearly measurable corporate objectives equally set for each Management member by the Supervisory Board rather than individual objectives. Such corporate objectives are geared to support the mid- and long-term growth strategy of the Company. They generally relate to financial objectives, such as growth in total revenues, adjusted EBITDA and total deal value from new partnerships and alliances, as set in accordance with the relevant guidance for that specific financial year, as well as additional operational, strategic, cultural and sustainability objectives. In its March meeting after a financial year, the Supervisory Board reviews the achievement of these corporate objectives and approves the respective bonus pay-outs.

The target bonuses for the one-year variable compensation amount to 100% of the fixed remuneration for the Chief Executive Officer (2019: 100%) and to 70% of the fixed remuneration for all other members of the Management Board (2019: 70%). Currently, the remuneration system does not account for over-achievement of corporate objectives. As a result, the pay-out amount cannot exceed the target value. However, the Supervisory Board plans to allow for up to 150% pay-out of the target values in case of success as part of the revised Management Board remuneration system.

Long-term variable compensation (Share Performance Plan)

In addition to the one-year variable compensation, the members of the Management Board are eligible for an annual grant of Share Performance Awards (SPAs) under Evotec’s Share Performance Plan 2017. The Evotec Share Performance Plan is an important step in supporting the interests of the Company’s shareholders and in establishing an attractive state-of-the-art long-term compensation that is in line with remuneration and corporate governance standards as well as the German Corporate Governance Code.

The number of granted SPAs is determined by dividing a defined percentage of the Board member’s total direct compensation (base salary, target annual bonus and target long-term incentives) by the applicable fair market value of an SPA. The percentage amounts to 50% of total direct compensation for the Chief Executive Officer (2019: 50%) and to 35% of total direct compensation for all other members of the Management Board (2019: 35%). To provide for a more concise approach to calculate target values, the Supervisory Board plans to show the target value as percentage of base salary instead of percentage of total direct compensation beginning in 2021 (200% of base salary for CEO and 91.5% of base salary for other members of Management Board).

The Share Performance Plans are based on a forward-looking, multi-year assessment period. For each annual award of SPAs, a Performance Measurement Period of four consecutive calendar years applies. Two equally weighted Key Performance Indicators (KPIs) have been set forth by the Annual General Meeting 2017 oriented on long-term value creation and consisting of “Share Price” (Aktienkurs) and “Relative Total Shareholder Return” (relative Aktienrendite). Relative Total Shareholder Return is a measure to determine the performance of an investment in the shares of the Company compared to the TecDAX. Relative Total Shareholder Return measures the return on a share investment over time, including dividends as well as share price performance (positive and negative) and adjusted for any equity issues or share-splits. The KPIs are measured for each year of the Performance Measurement Period. The achieved performance for a year is locked-in for the remaining Vesting Period.

For each of the two KPIs there is a “Minimum Target”, which has to be reached for Share Performance Awards to be exercised (partially), and a “Maximum Target”, which, once it is met, allows for all Share Performance Awards for the respective KPI (100%) to be exercised to the full amount, once the Vesting Period has expired (one Share Performance Award entitles the holder to subscribe to no more than two shares of Evotec SE).

100% of the KPI “Share Price” (the “Target Share Price”) is achieved for a calendar year if the average share price of the Company stock in the closing auction of XETRA trading (or a corresponding successor system) on the last thirty (30) trading days in the respective performance period, i.e. a calendar year (the “Closing Price”) exceeds by 8% the average share price of the Company stock in the closing auction of XETRA trading (or a corresponding successor system) on the last thirty (30) trading days before the start of the respective performance period (the “Opening Price”). The Minimum Target for the KPI “Share Price” is reached if the Closing Price is higher than the Opening Price. The Maximum Target for the KPI “Share Price”, which entitles all Share Performance Awards for this KPI to be exercised for the respective performance period, is reached if the Closing Price is 16% or more above the Opening Price.

100% of the KPI “Relative Total Shareholder Return” is achieved for a calendar year (the “Target Relative Total Shareholder Return”), if the Total Shareholder Return for the shares of the Company (average share price of the Company at the closing auction of XETRA trading, or a successor system, on the 30 trading days prior to the relevant date plus dividends, and adjusted for any equity issuance or share-splits), matches the Total Shareholder Return of the German TecDAX index during the same period. The Minimum Target for the KPI “Relative Total Shareholder Return” is achieved when the annual Total Shareholder Return for the shares of the Company is 10%-points below the Total Shareholder Return of the TecDAX during the respective performance period (i.e. each calendar year). The Maximum Target, at which all the Share Performance Awards for the KPI “Relative Total Shareholder Return” can be exercised, is achieved when the annual Total Shareholder Return for the shares of the Company is at least 10%-points above the average Total Shareholder Return of the TecDAX during the respective performance period. Relevant values of the Total Shareholder Return of the Company and of the Total Shareholder Return of the TecDAX will be calculated annually and based on the average TecDAX (Total Return Index) during the 30 trading days prior to the relevant date.

The right to exercise awards from the Share Performance Plan arises only on expiry of the Vesting Period. Depending on the achievement of the Key Performance Indicators for each of the four years, each Share Performance Award entitles the participant to the subscription of up to a maximum of two Company shares (200% cap). After each of the four performance periods (i.e. each calendar year) for a tranche of Share Performance Awards has ended, the target achievement for the two KPIs is determined for the respective calendar year and the corresponding numbers of subscription rights are calculated and provisionally set. At the end of all the four performance periods, i.e. the four calendar years of one tranche, the subscription rights determined for each year are added and represent the total number of exercisable subscription rights.

Each participant is required to make a payment of the nominal amount of € 1 (one Euro) per share to Evotec upon exercising, independent from the trading price of the Evotec share at that point in time. The new shares received are not subject to any specific lock-up; they are freely tradable immediately subject to insider trading rules which are the sole responsibility of each participant.

The Supervisory Board reserves the right at its sole discretion to replace the shares to be allocated to the participants with a cash payment and/or Evotec shares kept in treasury by the Company. The value of the shares to be used in calculating the cash payment shall be the average share price during the 30 day trading period immediately before the Vesting date.

While the Share Performance Plan 2017 includes a monetary cap with a maximum pay-out of 350% of the initial target value, the preceding Share Performance Plan 2015 defines a maximum regarding the number of share-based awards (SPA) upon allocation. The monetary value of the allocated shares under these plans is primarily determined by the market price at execution and not capped.

Exceptional Developments

The criteria for the assessment of the performance-related compensation and the annual targets set at the beginning of a fiscal year by the Supervisory Board do not change over the fiscal year. Any retroactive amendment of the target figures or the comparison parameters is excluded.

Exceptional developments, whose effects substantially distort the actual target achievement may be appropriately taken into consideration by the Supervisory Board for the target assessment in justified and rare exceptional cases. This may result in an increase or decrease of the STI pay-out amount (Bonus). Possible exceptional developments during the year include, for example, exceptional changes in the economic situation (for example, due to an economic crisis, healthcare crisis with an impact on the global economy) because of which the original corporate targets become irrelevant, provided that they were unforeseeable. Generally unfavourable market developments are not considered exceptional intra-year developments. Should exceptional developments requiring an adjustment emerge, the Company will report on them in detail and with transparency. The Supervisory Board may also take appropriate account of such exceptional developments in justified and rare exceptional cases by limiting the content and the extent of the subscription rights granted under LTI. 

If justified, the Supervisory Board may retain or reclaim variable remuneration components (clawback). Such clawback provisions are included in the actual service contracts with all Management Board members.

Remuneration Report of the Management Board

The Management Board compensation for 2020 was carried out in full compliance with the Company’s Remuneration System as approved by the AGM and the monetary caps for both the total compensation and the respective compensation components.

The 2020 corporate objectives related to financial objectives, such as growth in total revenues, adjusted EBITDA and total deal value from new partnerships and alliances. This was, among other things, to be achieved by executing significant integrated collaboration in EVT Execute and EVT Innovate with a total volume of more than €100 million in transaction value. Further targets included building at least two new academic BRIDGEs and preparing the Company for sustainable growth. The individual Corporate Objectives for 2020 are set out in the following table:

The bonus for the financial year 2020 will be paid out to the Management Board members in March 2021. Based on the actual achievement of the Corporate Objectives 2020 the total bonus for the members of the Management Board for the financial year 2020 amounts to T€ 1,211 (for 2019: T€ 1,157), thereof T€ 476 for Dr Werner Lanthaler (for 2019: T€ 470), T€ 277 for Dr Cord Dohrmann (2019: T€ 252), T€ 236 for Craig Johnstone (for 2019: T€ 238) and T€ 222 for Enno Spillner (for 2019: T€ 197). 

In addition to their one-year variable compensation, the members of the Management Board received a total of 77,214 SPAs in January 2020 (2019: 86,283) under the Company’s Share Performance Plan, thereof 38,400 SPAs for Dr Werner Lanthaler, 14,647 SPAs for Dr Cord Dohrmann, 12,450 SPAs for Craig Johnstone and 11,717 SPAs for Enno Spillner. The fair value of all SPAs granted as multi-year variable compensation amounted to T€ 1,930 on the day of calculation on 1 January 2020. The reduced amount of SPAs in 2020 compared to 2019 is due to the increased fair market value recognised per SPA. The SPAs that were granted in January 2020 vest and become exercisable after four years in January 2024. The SPAs can be exercised either by selling the respective shares that were granted pursuant to the achievement of the relevant KPIs on the open market or by lodging the shares into a personal share account.

The first SPA grant under the current Share Performance Plan 2017 occurred after the Annual General Meeting on 14 June 2017. Given a vesting period of four years, these SPAs will vest in September 2021 and will be reported on in the remuneration report 2021.

Remuneration tables

For 2020, the performance-unrelated and one-year variable compensation of the active members of the Management Board totalled T€ 3,079 of which the variable part amounted to T€ 1,311. 

The following tables present for each Management Board member:

• The remuneration granted in the year under review including fringe benefits (such as pension allowances, contribution to commuting expenses, contributions to certain premiums for insurance policies as well as the benefit derived from the private use of a company car or a car allowance) and including the maximum and minimum amounts for variable compensation components
• The allocation of fixed compensation, fringe benefits, short-term variable compensation and long-term variable compensation in the year under review, broken down into the relevant reference years

Term of contract and early termination clauses

In accordance with the Code, new members of the Management Board are appointed for three years. Prolongations of existing contracts might be up to five years as has been agreed with the Chief Executive Officer and with the Chief Scientific Officer.

The contracts of the Management Board members contain a change-of-control clause, which allows them to terminate their current contracts in the event of a change of control. Should members of the Management Board make use of their right to terminate their contracts in the event of a change of control, they are entitled to severance payments determined as follows: for Dr Werner Lanthaler, the severance payment shall be equal to 24 times his monthly base salary (changed to 18 months of base salary plus target bonuses for this period of timein new contract starting March 2021); and for Dr Cord Dohrmann, Dr Craig Johnstone and Enno Spillner, the payment shall be equal to 18 times their monthly base salary plus target bonuses for this period of time. In no case shall the respective severance payment be higher than the total compensation due for the remaining term of the respective Management Board member’s contract.

In accordance with the Code, in case of an early termination of their respective service agreement in the absence of a change-of-control situation, payments to the members of the Management Board shall not exceed the amount of two annual remunerations and shall not exceed the amount of remuneration that would be due until the expiration date of the service agreement.

Remuneration paid to Management Board for other board mandates

Members of the Management Board do not receive any remuneration for intra-group director or board roles. If Supervisory Board mandates are assumed at non-group entities, the Supervisory Board decided that such remuneration received for non-group supervisory board or board of director mandates shall not be offset.

Pension provisions for former Management Board members

The Company has made a provision for a pension for one former Management Board member amounting to T€ 205 (2019: T€ 190). No such further provisions are due for other former Management Board members or their surviving dependants.

Remuneration of the Supervisory Board

The remuneration of the members of the Supervisory Board is prescribed in the Company’s Articles of Association.

According to section 113 AktG, Supervisory Board remuneration is to be appropriate to the task of the Supervisory Board members and the situation of the Company. The personal requirements of Supervisory Board members, especially of the Chairman of the Supervisory Board, regarding qualification and the amount of time have increased significantly in recent years. Evotec SE expects this trend to continue in the future, which is accompanied by an increasing risk exposure and higher liability risks of Supervisory Board members. 

The members of Evotec’s Supervisory Board are entitled to fixed payments as well as out-of-pocket expenses. In accordance with the recommendations of the Code, the Chairman and the Vice Chairman positions on the Supervisory Board as well as the Chair positions and memberships in committees are considered when determining the remuneration of individual members. Consequently, following the approval of the AGM 2019, the fixed compensation is T€ 50 per Supervisory Board member. The Chairman of the Supervisory Board is paid T€ 125, and the Vice Chairman is paid T€ 60. Supervisory Board members serving on its committees shall be paid T€ 10 per committee membership; the Chairman of a committee shall be paid T€ 25.

For their contributions in 2020, the individual members of the Evotec Supervisory Board received the following compensation in 2020:

 ^{1) Cash remuneration
* Tenure ended at AGM 2020
** Tenure started at AGM 2020}

There are currently no consultancy agreements in place between Evotec and current or former members of the Supervisory Board.

Directors’ and Officers’ Liability Insurance (D&O Insurance)*

Evotec procured directors’ and officers’ liability insurance cover for its Management and Supervisory Board members, its senior management and the directors of its subsidiaries at a cost to the Company of T€ 139 (2019: T€ 132). An appropriately sized deductible was agreed upon for the members of the Supervisory Board. The deductible agreed upon for the members of the Management Board is in line with the stipulations of the legal provisions of the VorstAG.

^{*This section of the management report is not subject to audit}

Share Performance Plan

To incentivise executives via variable long-term incentive compensation, the 2012, 2015 and 2017 Annual General Meetings approved the contingent capital necessary to support the so-called Share Performance Plans (SPP 2012, SPP 2015 and SPP 2017). SPP 2017 is replacing SPP 2012 and SPP 2015. However, this does not affect subscription rights issued before 14 June 2017.

The concrete design of the Share Performance Plans 2012, 2015 and 2017 lean on the concept of a share performance programme. They are characterised by the fact that participating executives are entitled to a variable remuneration in shares, when attaining a demanding target. In contrast to a common stock option programme, when attaining a target, shares are not issued in an amount that at least corresponds to the market rate of the company stock at the time of granting the subscription rights, but at the respectively lowest issue amount of currently € 1.00. The essential reason for this lies in the fact that in a Share Performance Programme, the value of the respective stock takes the place of cash compensation, so that stocks ideally should be issued without counter performance. A special economic advantage, compared to a common stock option programme, does not result for the participants as at the time the subscription rights are granted, and therefore at the outset, it is taken into consideration that the participants receive the total value of the shares (minus the respectively lowest issue amount of currently € 1.00), and not only, as in regular stock option plans, the difference between the market rate when granting subscription rights and the market rate at issue of the shares. The determination of an issue amount of currently € 1.00 is imperative from a corporate law perspective, as the issue of new shares under the respective pro-rata amount of the share capital is not permitted.

Under these plans, Share Performance Awards may be granted to a level that may result in in a total of up to 13,000,000 (4,000,000 for SPP 2012, 3,000,000 for SPP 2015 and 6,000,000 for SPP 2017) bearer shares of the Company being issued at maturity to members of the Management Board and other key employees. During the fourth quarter of 2016, a total of 793,903 SPAs (2015: 796,617 awards) were granted to the Management Board and key employees. These awards could result in a maximum of 1,587,806 bearer shares (2015: 1,593,234) being issued at maturity. This is because each Share Performance Award grants up to two subscription rights to Company shares, each of which in turn entitle the holder to the subscription of one Company share. Previous awards can be found the respective annual financial reports. The holder has to contribute € 1.00 per share at the date of issue. Share Performance Awards can only be exercised, if, when and to the extent that key performance indicators are achieved. Key performance indicators of SPP 2012 and 2015 are “Group Revenues”, “Operating Income Before Impairments”, “Net Cash Generated by Operating Activities” and “Share Price” upon which the Supervisory Board had to determine at least two per grant and define their weighting. SPP 2015 also includes the key performance indicator of “Total Shareholder Return”. Equally weighted key performance indicators of SPP 2017 are only “Share Price” and “Total Shareholder Return”.

Key parameters of the Company’s Share Performance Plan 2017 are depicted in the graphic below.

Detailed information on the Company’s current SPP 2017 as well as previous Share Performance Plans 2012 and 2015 can be found below.

Expiration of stock option schemes

SPP 2012, SPP 2015 and SPP 2017 were implemented to replace the stock option programme as the Company’s long-term incentive compensation scheme for executives. Stock options issued in existing stock option schemes I to VII remain valid.

Detailed information duration of the Company’s previous stock option programmes and exercising of options can be found below.

Policies and Charters

Charters

Reporting Compliance Concerns

The Evotec Group provides employees and external stakeholders with EVOwhistle as a channel to report compliance-related concerns such as suspected or observed misconduct, violations of the Evotec Code of Conduct or other legal violations. EVOwhistle is Evotec Group´s dedicated and secure website hosted outside the Evotec Group´s network. It aims to create a trusted system with protection for a Whistleblower and the person, which may be subject of an addressed concern. The link to website is https://evotecgroup.integrityline.org.

Auditors

On 19 June 2019, the Annual General Meeting elected Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft to audit the financial statements and the consolidated financial statements for the fiscal year ending 31 December 2019. Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft has been serving as the Company’s auditor since 2014.