Remuneration Report

The Remuneration Report outlines the principles, structure and amount of compensation paid to the Management Board and Supervisory Board. The Remuneration Report reflects the legal provisions and the respective principles of the German Corporate Governance Code. The Remuneration Report is part of the Management Report as well as the Corporate Governance Report.

REMUNERATION OF THE MANAGEMENT BOARD

The remuneration system for the Management Board is intended to provide an incentive for successful and sustainable corporate management. The aggregate annual compensation paid to Management Board members consists of several components such as fi xed components, a yearly cash bonus based on the achievement of Company and individual goals (short-term incentive – STI), a long-term incentivizing component in the form of a share performance plan (long-term incentive – LTI) and additional benefits. Each year, the structure and appropriateness of the aggregate annual compensation packages are reviewed by the Remuneration and Nomination Committee. The amount of compensation payable to the Management Board members is dependent in particular on the achievement of the duties and goals of the individual Management Board member, and on the business situation, success and prospects of the Company relative to its competitive environment. The aggregate compensation packages are compared with the results of an annual Management Board compensation analysis. All resolutions on adjustments to the aggregate annual compensation packages are adopted by the plenum of the Supervisory Board. The last occasion on which the salaries of the Management Board members were adjusted was in July 2012.

fig. 17 /// RISK-BASED INTERNAL AUDIT PLAN

OVERVIEW

In the 2012 financial year, the total compensation of the Management Board amounted to € 3,534,475 (2011: € 3,917,373).

Of this total amount, € 2,419,475 was attributable to cash compensation, and € 1,115,000 or 32 % to share-based compensation (long-term incentivizing compensation – LTI).

The table below shows a detailed breakdown of the compensation paid to the members of the Management Board:

TAB. 16A /// COMPENSATION OF THE MANAGEMENT BOARD IN 2012

Fixed Compensation   Short-term Incentive Compensation  Long-term Incentive Compensation (Target Attainment Depends on Company Goals)   Total Compensation 
  Base Salary in €  Other Compensatory Benefits in  €  Variable Compensation in €  No. of Performance Shares Granted  Fair Value at The Time of the Grant in  €  in € 
Dr. Simon E. Moroney 401,980 139,5551 226,689 18,976 365,000 1,133,224
Jens Holstein 271,867 129,8362 176,890 12,997 250,000 828,593
Dr. Arndt Schottelius 272,700 103,8413 164,155 12,997 250,000 790,696
Dr. Marlies Sproll 272,700 96,6094 162,653 12,997 250,000 781,962
Total 1,219,247 469,841 730,387 57,967 1,115,000 3,534,475

1 Includes € 109,882 in annual contributions to a private pension fund and allowances for insurances
2 Includes € 72,999 in annual contributions to a private pension fund and allowances for insurances
3 Includes € 76,898 in annual contributions to a private pension fund and allowances for insurances
4 Includes € 76,789 in annual contributions to a private pension fund and allowances for insurances

TAB. 16B /// COMPENSATION OF THE MANAGEMENT BOARD IN 2011

Fixed Compensation   Short-term Incentive Compensation  Long-term Incentive Compensation (Target Attainment Depends
on Company Goals) 
Total
Compensation 
  Base Salary  in  €  Other Compensatory Benefits  in  €  Variable Compensation in  €  No. of Performance Shares Granted  Fair Value at The Time of the Grant in  €  in € 
Dr. Simon E. Moroney 386,862 135,1311 181,825 17,676 377,206 1,081,024
Dave Lemus* 132,119 479,0092 72,026 683,154
Jens Holstein** 167,500 181,5843 83,750 12,107 258,363 691,197
Dr. Arndt Schottelius 256,000 99,0464 107,520 12,107 258,363 720,929
Dr. Marlies Sproll 262,259 94,5635 125,884 12,107 258,363 741,069
Total 1,204,740 989,333 571,005 53,997 1,152,295 3,917,373

* Left the Management Board of MorphoSys AG on 10 March 2011
** Joined the Management Board of MorphoSys AG on 1 May 2011
1 Includes € 107,233 in annual contributions to a private pension fund and allowances for insurances
2 Includes € 35,629 in annual contributions to a private pension fund and allowances for insurances
3 Includes € 53,001 in annual contributions to a private pension fund and allowances for insurances
4 Includes € 73,613 in annual contributions to a private pension fund and allowances for insurances
5 Includes € 74,868 in annual contributions to a private pension fund and allowances for insurances

During 2012, members of the Management Board did not exercise convertible bonds or share options. As required by law, all transactions involving MorphoSysʼs shares were reported and published in the Corporate Governance Report and on the Companyʼs website.

FIXED COMPENSATION

The Management Board’s fi xed compensation consists of the base salary as well as other compensatory benefits which primarily encompass the use of company cars, allowances for health, social care and invalidity insurances. In the 2012 financial year, Management Board member Jens Holstein was compensated an amount of € 16,117 for costs incurred in moving to Munich. Furthermore, all members of the Management Board participate in private pension funds or another type of pension scheme (Altersversorgung). MorphoSys pays monthly contributions into these funds or other pension schemes. These payments amount to a maximum of 10 % of the annual fi xed salary of each Management Board member plus tax contributions, and are included in the other compensatory benefits. In addition, all Management Board members participate in a pension scheme which was established in cooperation with Allianz Pensions- Management e.V. Pension commitments from this ”Unterstützungskasse” are fulfi lled by Allianz Pensions-Management e.V.

SHORT-TERM INCENTIVIZING COMPENSATION (STI)

Each Management Board member is eligible for performance-related compensation in the form of an annual cash bonus payment of up to 70 % of his or her annual base salary at 100 % target attainment as of July 2012. Such bonus payments are dependent on the achievement of Company and individual goals, which are set by the Supervisory Board at the beginning of each financial year. The Company goals account for two thirds of the bonus payment and are based on the operating performance of the Company, as measured by revenues, operating profit and progress in the partnered and proprietary pipeline. The individual goals account for one third of the payment and comprise operational objectives for which each Management Board member is responsible. At the end of the year, the Supervisory Board evaluates the level of attainment of the Company and individual goals and sets the bonus payment accordingly. The bonus is subject to a cap of 125 % of the target amount. If goals are missed, the variable component may not be paid at all. The bonus for the 2012 financial year will be paid out in February 2013.

LONG-TERM INCENTIVIZING COMPENSATION (LTI)

In 2011, MorphoSys introduced a new long-term incentive (LTI) program for its Management Board and Senior Management Group. The LTI program is based on the issuance of performance shares, linked to the achievement of certain pre-defined objectives over a four-year period. The following description of the 2012 LTI program is illustrative of each year’s program.

Each year, the Supervisory Board decides on the number of performance shares to be allocated to the members of the Management Board and the Management Board decides on the allocation for the Senior Management Group. On 1 April 2012, 57,967 performance shares were allocated to members of the Management Board, and 33,533 were allocated to members of the Senior Management Group, with each member receiving a defined allocation of shares (for further details, see Section 29 of the Notes to the Consolidated Financial Statements). Another 2,292 performance shares were allocated to members of the Senior Management Group on 1 October 2012. During the month of April, the Company purchased 91,500 MorphoSys shares in the market in order to service the 2012 LTI program.

Concurrent with the allocation of shares in a given year, certain long-term performance targets are defined by the Supervisory Board. For the 2012 LTI program, the target is the performance of the MorphoSys share in comparison to an artifi cial index comprising the NASDAQ Biotechnology Index and the TecDax Index, equally weighted. Performance shares are earned annually, based on a daily comparison of the MorphoSys share vs. the artifi cial index. Performance in a given year is subject to a threshold of 50 % and a cap of 200 %, meaning that under-performance of the MorphoSys share vs. the artifi cial index by at least 50 % will result in no shares being earned, while an out-performance of at least 200 % results in no additional shares being earned.

The number of performance shares to be released to the program’s benefi ciaries is fi nally determined at the conclusion of a program, i.e. after four years. The calculation considers the number of shares originally allocated, adjusted by the performance of the company’s share against the artifi cial index, and the discretion of the Supervisory Board using a so-called “company factor”. The company factor is a number between 0 and 2 which can be applied by the Supervisory Board based on the company’s circumstances at the time. The default value of the Company factor is 1. The LTI program therefore contains a cap, as per the requirements of the German Corporate Governance Codex.

VARIA

No credits, loans or similar benefits were granted to members of the Management Board. In the year under review, the Management Board members received no benefits from third parties that were either promised or granted in view of their position as members of the Management Board.

NON-REAPPOINTMENT/NON-PROLONGATION

The service agreements of the Management Board members stipulate that in the event of a non-reappointment or non-prolongation of the service agreement, each member of the Management Board is entitled to receive a severance payment in the amount of one yearʼs fi xed salary. Such a severance payment will be off - set against any salary payments received in the event of a leave of absence of a Management Board member. If the Management Board memberʼs service agreement is terminated by death, his/ her spouse or life partner is entitled to the monthly fi xed salary for the month of death and the following twelve months. In the event that (i) MorphoSys transfers its assets or material parts of its assets to a non-affi liated third party, (ii) MorphoSys is merged into a non-affi liated company or (iii) a shareholder holds more than 30 % of the voting rights of MorphoSys, each member of the Management Board is allowed to extraordinarily terminate his/her service agreement and may demand the outstanding fi xed salary for the remaining contractually provided term of contract or for two years, whichever is greater. Furthermore, in such a case all granted stock options, convertible bonds and performance shares will be treated as immediately vested.

REMUNERATION OF THE SUPERVISORY BOARD

Compensation of the members of the Supervisory Board is based on the provisions of the Articles of Association and the respective resolutions of the shareholders at the Annual General Meetings regarding the remuneration of the members of the Supervisory Board. In 2012, the members of the Supervisory Board received fi xed compensation and an attendance fee for attending board and committee meetings. According to the resolution of the Annual General Meeting on 31 May 2012, each Supervisory Board member receives an annual board membership flat fee (€ 85,400 for the Chairman, € 51,240 for the Deputy Chairman and € 34,160 for the other Supervisory Board members). The Chairman receives € 3,000 per board meeting chaired and the other members receive € 1,500 per board meeting attended. For the work in the committees, the Chairman of a committee receives € 9,000, the other committee members € 6,000 each. In addition, committee members receive € 1,000 per committee meeting attended. Compensation is paid out proportionally on a quarterly basis.

In addition, the Supervisory Board members are reimbursed for travel costs and for any value-added tax to be paid on their remuneration. The overall compensation package takes into account the responsibilities and range of tasks of the Supervisory Board members.

In the 2012 financial year, the members of the Supervisory Board received a total of € 478,197 (2011: € 384,750) excluding reimbursement of travel expenses. This amount consists of fixed remuneration and the attendance fee.

The Company did not provide loans to members of the Supervisory Board.

The table below shows a detailed breakdown of the compensation paid to the Supervisory Board:

TAB. 17 /// COMPENSATION OF THE SUPERVISORY BOARD

Fixed Compensation   Attendance Fees   Total Compensation  
in €  2012  2011  2012  2011  2012  2011 
Dr. Gerald Möller 94,400 70,000 37,000 26,000 131,400 96,000
Prof. Dr. Jürgen Drews* 26,264 57,750 9,500 17,500 35,764 75,250
Dr. Walter Blättler 43,160 39,500 21,500 13,500 64,660 53,000
Dr. Daniel Camus 41,939 36,500 23,500 19,000 65,439 55,500
Dr. Marc Cluzel** 27,116 19,000 46,116
Dr. Metin Colpan* 16,678 36,500 6,000 8,500 22,678 45,000
Karin Eastham** 23,591 15,000 38,591
Dr. Geoffrey N. Vernon 51,549 39,500 22,000 20,500 73,549 60,000
Total 324,697 279,750 153,500 105,000 478,197 384,750

* left the Supervisory Board of MorphoSys AG on 31 May 2012
** Member of the Supervisory Board of MorphoSys AG since 31 May 2012

Information in accordance with sec. 315 para. 4 of the German Commercial Code (HGB) as well as the Clarifying Report of the Management Board

COMPOSITION OF COMMON STOCK

As of 31 December 2012, the Companyʼs share capital amounted to € 23,358,228.00, divided into 23,358,228 no-par bearer shares. With the exception of 255,415 Company treasury shares, this total represents subscriber shares with voting rights, whereby each share grants one vote in the Annual General Meeting.

RESTRICTIONS AFFECTING VOTING RIGHTS OR THE TRANSFER OF SHARES

The Management Board is not aware of any restrictions which affect voting rights or the transfer of shares. This also relates to restrictions which could result from agreements between shareholders.

Restrictions on voting rights can further arise from provisions in the German Stock Corporation Act (AktG), such as according to sec. 136 of the German Stock Corporation Act or for treasury shares pursuant to sec. 71b of the German Stock Corporation Act.

SHAREHOLDINGS IN THE SHARE CAPITAL EXCEEDING 10 % OF THE VOTING RIGHTS

Direct or indirect shareholdings in the Companyʼs share capital that exceed 10 % of the voting rights have not been shared with us and are also unknown in any other way.

SHARES WITH SPECIAL RIGHTS CONFERRING POWERS OF CONTROL

No shares exist with special rights conferring powers of control.

RIGHT TO CONTROL VOTES WITH REGARD TO SHAREHOLDINGS IN THE CAPITAL HELD BY EMPLOYEES

Employees who hold shares in the Company exercise their voting rights in the same manner as other shareholders in direct accordance with legal regulations and the Articles of Association.

APPOINTMENT AND DISMISSAL OF MEMBERS OF THE MANAGEMENT BOARD AS WELL AS AMENDMENTS TO THE ARTICLES OF ASSOCIATION

The determination of the number of Management Board members, their appointment and dismissal, as well as the nomination of the Chief Executive officer are carried out according to sec. 6 of the Articles of Association and sec. 84 of the German Stock Corporation Act by the Supervisory Board. The Companyʼs Management Board is currently made up of the Chief Executive officer and three further members. Members of the Management Board may be appointed for a maximum period of up to five years. A reappointment or extension of the period of office are permissible up to a maximum of five years in each case. The Supervisory Board can repeal the appointment of a Management Board member and the nomination of a Chief Executive officer if an important reason exists in the context of sec. 84 para. 3 of the German Stock Corporation Act. If an essential member of the Management Board is not present, then in urgent cases this is judicially appointed according to sec. 85 of the German Stock Corporation Act.

The Companyʼs Articles of Association can only be amended by a resolution by the Annual General Meeting, in accordance with sec. 179 para. 1 line 1 of the German Stock Corporation Act. In accordance with sec. 179 para. 2 line 2 of the German Stock Corporation Act, in conjunction with sec. 20 of the Articles of Association, the Annual General Meeting can rule on amendments to the MorphoSys Articles of Association with a simple majority of the votes submitted and a simple majority of the share capital represented in the passing of the resolution. To the extent that the law stipulates a mandatory greater vote or capital majority, this shall be applied. Amendments to the Articles of Association, which solely concern their formulation, can however be decided by the Supervisory Board pursuant to sec. 179 para. 1 line 2 of the German Stock Corporation Act in conjunction with sec. 12 para 3 of the Articles of Association.

POWERS OF THE MANAGEMENT BOARD IN THE ISSUING OF SHARES

The powers of the Management Board in the issuance of shares arise from sec. 5 para. 5 to para. 6e of the Articles of Association and the legal provisions:

  1. Authorized capital
    1. aa. Pursuant to sec. 5 para. 5 of the Articles of Association and with the approval of the Supervisory Board, the Management Board is authorized to increase the Companyʼs share capital for cash contributions and/or in kind on one or several occasions, but to no more than a maximum total of € 8,864,103.00, by issuing up to 8,864,103 new bearer shares up to 30 April 2013. (Authorized capital 2008-I). The Management Board is authorized with the approval of the Supervisory Board to exclude preemptive rights of shareholders in the following cases:
      1. in the case of a capital increase for cash contributions, to the extent that this is necessary to avoid fractional shares; or
      2. in the case of a capital increase in kind to the extent that the capital increase is used for the acquisition of companies, shareholdings in companies, patents, licenses or other industrial property rights, license rights or of assets which constitute a business in their entirety; or
      3. in the case of a capital increase in cash to the extent that young shares are placed on a stock exchange in context with a listing.
    2. bb. Pursuant to sec. 5 para. 6 of the Articles of Association and with the approval of the Supervisory Board, the Management Board is authorized to increase the Companyʼs share capital for cash contributions and/or in kind on one or several occasions, but to no more than a maximum total of € 2,311,216, by issuing up to 2,311,216 new bearer shares (authorized capital 2012-II) up to the 30 April 2017. Shareholders are fundamentally entitled to preemptive rights. The shares can also be taken over by one or several credit institutes with the obligation to offer them to shareholders for subscription. The Management Board is, however, authorized with the approval of the Supervisory Board to exclude the preemptive rights of shareholders in the following cases:
      1. to the extent that this is necessary to avoid fractional amounts; or
      2. if the issuing amount of the young shares does not fall significantly below the stock exchange rate of the currently listed shares of the same class at the time of the conclusive determination of the issuing amount, and the shares issued pursuant to, or following a corresponding application of, sec. 186 para. 3 line 4 of the German Stock Corporation Act under exclusion of the preemptive rights during the period of this authorization do not exceed a total 10 % of the share capital, and further, neither at the time of the authorization taking effect nor at the time of the authorization being exercised. The Management Board is empowered with the approval of the Supervisory Board to determine the further specifics of the capital increase and its implementation.
  2. Conditional capital
    1. aa. Pursuant to sec. 5 para. 6a of the Articles of Association, the Companyʼs share capital is increased conditionally by € 70,329.00, divided into up to 70,329 no-par bearer shares (Conditional capital 1999-I). The conditional capital increase shall only be accomplished by an amount of € 3,255.00 (Conditional capital II aa) to the extent that the holders of option rights, conferred by MorphoSys from 21 July 1999 to 20 July 2004 on the basis of the authorization by the Annual General Meeting, exercise said rights, and regarding an amount of € 5,299.00 (Conditional capital II bb) only implemented in so far as the holders of option rights, conferred by MorphoSys in the period from 21 July 2004 to 30 April 2009 on the basis of the authorization by the Annual General Meeting on 11 May 2004, exercise said rights. The conditional capital increase shall only be accomplished by an amount of € 61,845.00 (Conditional capital II b) in so far as the holders of option rights, conferred by MorphoSys from 5 July 2001 to 4 June 2006 on the basis of the authorization by the Annual General Meeting, exercise said rights. The young shares – to the extent that they are formed through the exercising of rights up to the start of the Companyʼs ordinary Annual General Meeting – participate in profits from the start of the coming financial year, otherwise individually from the start of the financial year, by being formed through the exercising of preemptive rights.

    2. bb. Pursuant to sec. 5 para. 6b of the Articles of Association, the Companyʼs share capital is conditionally increased (Conditional capital 2011-I) by up to € 6,600,000.00, divided into up to 6,600,000 bearer shares. The conditional capital increase shall only be accomplished to the extent that the holders of warrants or conversion rights from option or convertible bonds from up to 30 April 2016, conferred by the Company pursuant to the resolution by the Annual General Meeting on 19 May 2011, exercise said rights, or the holders of the convertible bonds to be issued or their direct or indirect domestic or foreign 100 % holding companies fulfi ll the obligation to convert these before 30 April 2016. The young shares participate in profits from the start of the financial year by being formed through the exercising of conversion rights or the fulfi llment of conversion obligations.

    3. cc. Pursuant to sec. 5 para. 6c of the Articles of Association, the Companyʼs share capital is conditionally increased by up to € 725,064.00 through the issuing of up to 725,064 new Company no-par ordinary shares (Conditional capital 2003-II). The conditional capital increase shall only be accomplished to the extent that the holders of the issued convertible bonds exercise their conversion rights for conversion into ordinary Company shares. The young shares carry full dividend rights for the financial year for the first time, for which no Annual General Meeting resolution on the use of net profit has been passed. The Management Board is empowered with the approval of the Supervisory Board to determine the further specifics of the conditional capital increase and its implementation.

    4. dd. Pursuant to sec. 5 para. 6d of the Articles of Association, the Company’s share capital is conditionally increased by € 763,515.00, divided into up to 763,515 no-par bearer shares (Conditional capital 2008-II). The conditional capital increase shall only be accomplished to the extent that the holders of option rights, conferred by the Company on the basis of the authorization by the Annual General Meeting up to 30 April 2013, exercise said rights. The young shares participate in profits from the start of the financial year by being formed through the exercising of conversion rights or the fulfi llment of conversion obligations.

    5. ee. Pursuant to sec. 5 para. 6e of the Articles of Association, the Company’s share capital is conditionally increased by up to € 450,000.00 through the issuing of up to 450,000 new Company no-par ordinary shares (Conditional capital 2008-III). The conditional capital increase shall only be accomplished to the extent that the holders of the issued convertible bonds exercise their conversion rights for conversion into ordinary Company shares. The young shares participate in profits from the start of the financial year for the first time by being formed through the exercising of conversion rights. The Management Board is empowered with the approval of the Supervisory Board to determine the further specifics of the conditional capital increase and its implementation.


POWERS OF THE MANAGEMENT BOARD IN THE REPURCHASE OF SHARES

The powers of the Management Board in the repurchase of treasury shares result from sec. 71 ff . of the German Stock Corporation Act as well as the authorization by the Annual General Meeting on 19 May 2011:

The Management Board is authorized up to 30 April 2016 to acquire Company treasury shares in the amount of up to 10 % of the existing share capital up to the point at which the resolution was passed (or if necessary, the lower amount at the time the authorization comes into effect) for any permissible purpose within the framework of the legal restrictions. Acquisitions are made according to a vote by the Management Board on the stock exchange or by means of a public purchase bid or by means of a public invitation to enter such a bid. The authorization may not be used for the purpose of trading in treasury shares. The uses of treasury shares acquired on the basis of this authorization can be extracted from point 7 on the agenda Annual General Meeting on 19 May 2011. In particular, the shares can be used as follows:

  1. The shares can be withdrawn without the withdrawal or its implementation requiring a further resolution by the Annual General Meeting.
  2. The shares can be sold in ways other than via the stock exchange or via an offer to shareholders if the shares are offered for cash payment at a price that does not fall significantly below the stock exchange rate of Company shares of the same class at the time of the sale.
  3. The shares can be sold for payment in kind, especially also in conjunction with the acquisition of companies, parts of companies or company shareholdings as well as mergers of companies.
  4. The shares can be used for the fulfi llment of conversion rights from convertible bonds conferred by the Company or group entities of the Company.
  5. The shares can be sold to Company employees and affi liated companies, as well as members of the executive board and/or for the fulfi llment of confi rmations of the acquisition or obligations to acquire Company shares, granted to Company employees and affi liated companies, as well as members of the executive board.

In the case of shares being used for the purposes mentioned above, with exception of the withdrawal of shares, the shareholders ʼ preemptive rights are excluded.

The Supervisory Board can specify that measures taken by the Management Board on the basis of this authorization may only be implemented with its approval.

SIGNIFICANT AGREEMENTS BY THE COMPANY THAT FALL UNDER THE CONDITION OF A CHANGE OF CONTROL AS A RESULT OF A TAKEOVER BID

In 2012, MorphoSys and Novartis Pharma AG expanded their original cooperation agreement from 2004, first amended in 2006, and subsequently in 2007. According to this agreement, Novartis Pharma AG is permitted, but not obligated, in specifi c cases of a change of control to take appropriate measures, including the partial or complete cancellation of the cooperation agreement.

A change of control includes in particular the acquisition of 30 % or more of the voting rights of a company in the context of Secs. 29 and 30 of the German Takeover Act (Wertpapiererwerbs- und Übernahmegesetz – WpÜG).

COMPANY COMPENSATION AGREEMENTS REACHED WITH THE MEMBERS OF THE MANAGEMENT BOARD OR SUPER VISORY BOARD OR EMPLOYEES FOR THE EVENT OF A TAKEOVER BID

After a change of control transaction, each member of the Management Board is allowed to terminate his/her service agreement and may demand the outstanding salary for the remaining contractually provided term of contract. Furthermore, in such a case, all granted (i) stock options and convertible bonds will be treated as immediately vested and (ii) performance shares are deemed to be non-forfeitable with immediate effect.

After a change of control, all performance shares granted to the directors are non-forfeitable with immediate effect. Furthermore, a number of directors hold options or conversion rights which will be treated as immediately vested after a change of control.

The following cases in particular count as a change of control: (i) MorphoSys transfers all or a significant portion of Company assets to a business not linked to the Company, (ii) MorphoSys is merged with an unaffi liated company or (iii) a shareholder directly or indirectly holds more than 30 % of the MorphoSys voting rights.