Compensation Report

Compensation of the Board of Management

The compensation of the Board of Management basically comprises four components: a fixed annual salary, a short-term incentive award on a yearly basis in relation to a target amount, a long-term incentive award for a three-year period in relation to a target amount, and a company pension plan conferring pension entitlements that increase with years of service. Remuneration in kind and other benefits are also provided, such as the use of a company car for private purposes or reimbursement of the cost of health screening examinations.

The fixed salary consists of two parts: a base salary and a fixed supplement.

The short-term incentive award for 2008 is calculated partly according to the Group’s EBITDA margin before special items, and partly according to the weighted average target attainment of the HealthCare, CropScience and MaterialScience subgroups. The latter is based mainly on the subgroups’ target attainment measured by EBITDA before special items as well as on a qualitative appraisal in relation to the market and competitors. The short-term incentive award for 2007 also contained a one-time special individual performance bonus granted in connection with the structural changes in the Bayer Group.

The directly effected remuneration (non-performance-related remuneration and short-term incentive) of members of the Board of Management in 2008 amounted to €8,813 thousand (2007: €8,883 thousand), comprising €2,105 thousand (2007: €1,986 thousand) in base salaries, €1,042 thousand (2007: €983 thousand) in fixed supplements and €5,498 thousand (2007: €5,769 thousand) in short-term incentive awards to be paid out in 2009 as well as €168 thousand (2007: €145 thousand) in remuneration in kind and other benefits. Remuneration in kind mainly consists of values assigned to remuneration in kind and other benefits in accordance with German taxation guidelines.

The members of the Board of Management participate in the long-term stock-based compensation program Aspire i (annual tranches 2005 through 2008). Under this program, awards are paid out provided that the performance of Bayer stock (both in absolute terms and relative to the EURO STOXX 50^SM benchmark index) meets defined criteria over a three-year period. Further details of this program are provided in Note [26.6] to the consolidated financial statements. The fair value of the stock-based compensation newly granted in 2008 as of its grant date is included in the calculation of total remuneration (see table below), although the award entitlement was only partially earned as of the balance sheet date.

The following table shows the remuneration components of the individual members of the Board of Management in 2008.

		Werner Wenning	Klaus Kühn	Wolfgang Plischke	Richard Pott	Total
		€ thousand	€ thousand	€ thousand	€ thousand	€ thousand
Base salary	2008	794	437	437	437	2,105
Base salary	2007	749	413	412	412	1,986
Fixed supplement	2008	344	336	181	181	1,042
Fixed supplement	2007	325	316	171	171	983
Remuneration in kind and other benefits	2008	61	36	38	33	168
Remuneration in kind and other benefits	2007	51	36	25	33	145
Non-performance-related remuneration	2008	1,199	809	656	651	3,315
Non-performance-related remuneration	2007	1,125	765	608	616	3,114

Short-term incentive	2008	2,105	1,305	1,044	1,044	5,498
Short-term incentive	2007	2,169	1,380	1,110	1,110	5,769
Directly effected remuneration	2008	3,304	2,114	1,700	1,695	8,813
Directly effected remuneration	2007	3,294	2,145	1,718	1,726	8,883

Fair value of newly granted stock-based compensation as of grant date	2008	352	240	191	191	974
	2007	299	203	162	162	826
Aggregate benefits (according to the German Commercial Code)	2008	3,656	2,354	1,891	1,886	9,787
	2007	3,593	2,348	1,880	1,888	9,709

The award entitlements earned in 2008 – both from the 2008 tranche and from previous years’ tranches on which the entitlements were only partially earned – are shown separately in the following table along with the changes in the value of entitlements from previous years’ tranches based on the performance of Bayer stock in 2008. The fair value of the award entitlement already earned in 2008 from the 2008 tranche is included under “Stock-based compensation entitlements earned in the respective year.” Since certain components of the award entitlements are included in both tables, the figures in the following and the preceding table should not be added together.

		Werner Wenning	Klaus Kühn	Wolfgang Plischke	Richard Pott	Total
		€ thousand	€ thousand	€ thousand	€ thousand	€ thousand
Long-term incentive (stock-based compensation entitlements earned in the respective year)	2008	569	364	267	309	1,509
	2007	1,150	699	359	631	2,839
Change in value of existing entitlements	2008	(195)	(135)	(97)	(106)	(533)
Change in value of existing entitlements	2007	890	510	101	492	1,993

The current members of the Board of Management are generally entitled to receive a pension from the age of 60 in an annual amount equal to at least 30% of the last yearly fixed salary. No such pensions are currently being paid. This percentage increases depending on years of service as a Board of Management member and, according to the inception of the respective service contract, is capped between 60 and 80%. We refer to the maximum such percentage a member of the Board of Management can reach as his final target pension level. Pension provisions for the current members of the Board of Management amounted to €28,726 thousand (2007: €25,810 thousand).

The current service cost for the pension entitlements of the members of the Board of Management was as follows:

		Werner Wenning	Klaus Kühn	Wolfgang Plischke	Richard Pott	Total
		€ thousand	€ thousand	€ thousand	€ thousand	€ thousand
Current service cost for pension entitlements earned in the respective year	2008	-	505	182	197	884
	2007	-	588	187	224	999

The aggregate remuneration of the Board of Management according to IFRS does not include the fair value of newly granted stock-based compensation, but rather the stock-based compensation entitlements earned in the year under report plus the change in the value of stock-based compensation entitlements from previous years that have not yet been paid out. The current service cost for pension entitlements must also be added.

The components of the Board of Management’s remuneration are summarized in the following table:

	2007	2008
	€ thousand	€ thousand
Directly effected remuneration	8,883	8,813
Long-term incentive (stock-based compensation entitlements earned in the respective year)	2,839	1,509
Change in value of existing entitlements	1,993	(533)
Current service cost for pension entitlements earned in the respective year	999	884
Aggregate benefits (according to IFRS)	14,714	10,673

For active Board of Management members whose service contracts were concluded prior to the entry into force of the amendments to the German Corporate Governance Code in June 2008, a general severance indemnity clause applies if the service contract is terminated at the company’s instigation prior to a member’s 60th birthday. The basic principles according to this clause are as follows:

If a member of the Board of Management is not offered a new service contract upon expiration of his existing service contract because he is not reappointed to the Board of Management, or if the member is removed from the Board of Management prematurely during the term of his contract in the absence of grounds for termination without notice, he will receive a monthly bridging allowance amounting to 80% of his last monthly fixed salary for a maximum period of 60 months from the date of expiration of his service contract less the period for which he was released from his duties on full pay or otherwise compensated. (If he were removed during the term of his contract, he would also receive the payment due for the rest of the term, though this would be reduced to the amount of his annual fixed salary plus the target amount for the short-term incentive payment for at least twelve months). His earnings from any new employment elsewhere would be offset against the bridging allowance. In the case of premature termination at the instigation of the company, further years of service might be credited under certain circumstances for the purpose of computing his Board of Management pension entitlement, though not beyond his 60th birthday.

This clause is now obsolescent and of only limited significance. The Supervisory Board has decided to follow the recommendation of the German Corporate Governance Code, as amended in June 2008, and limit severance payments under new service contracts. In the case of the only Board of Management member to have his contract renewed since then, it was contractually agreed during the second half of 2008 that payment claims can only arise in the event of premature contract termination by the company without cause and that their amount is limited. Such payments, including ancillary benefits, are limited to the value of two years’ compensation (severance payment cap) and may not compensate more than the remaining term of the contract. The severance payment cap is to be calculated on the basis of the total compensation (fixed salary plus target value of the short-term incentive) for the previous year and, if appropriate, also the expected total compensation for the current year.

Special supplementary arrangements apply in the event of a change of control, see “Information Required Under Takeover Law.”

There were no loans to members of the Board of Management outstanding as of December 31, 2008, nor any repayments of such loans during the year.

We currently pay former and retired members of the Board of Management a monthly pension equal to 80% of the last monthly base salary received while in service. The pensions paid to former members of the Board of Management or their widows are reassessed annually as of January 1, 2009 and adjusted taking into account the development of consumer prices. These benefits are in addition to any amounts they receive under previous employee pension arrangements. Pension payments to retired members of the Board of Management and their surviving dependents totaled €11,697 thousand (2007: €10,997 thousand). Pension provisions for former members of the Board of Management and their surviving dependents amounted to €107,863 thousand (2007: €115,104 thousand).

Compensation of the Supervisory Board

The compensation of the Supervisory Board is determined according to the relevant provisions of the Articles of Incorporation, which provisions were approved by the Annual Stockholders’ Meeting on April 29, 2005. This provides that, in addition to reimbursement of their expenses, each member of the Supervisory Board receives fixed annual remuneration of €60,000 and a variable annual remuneration component. The variable remuneration component is based on corporate performance in terms of the gross cash flow reported in the consolidated financial statements of the Bayer Group for the respective fiscal year. The members of the Supervisory Board receive €2,000 for every €50 million or part thereof by which the gross cash flow exceeds €3.1 billion, but the variable component for each member may not exceed €30,000.

In accordance with the provisions of the German Corporate Governance Code, additional remuneration is paid to the Chairman and Vice Chairman of the Supervisory Board and for chairing and membership of committees. The Chairman of the Supervisory Board receives three times the basic remuneration, while the Vice Chairman receives one-and-a-half times the basic remuneration. Members of the Supervisory Board who are also members of a committee receive an additional one quarter of the amount, with those chairing a committee receiving a further quarter. However, no member of the Supervisory Board may receive total remuneration exceeding three times the basic remuneration. It has been agreed that no additional remuneration shall be paid for membership of the Nominations Committee. If changes are made to the Supervisory Board and its committees during the fiscal year, members receive remuneration on a pro-rated basis. No member of the Supervisory Board received compensation or any other benefits for personally performed services such as consultancy or agency services. The company has purchased insurance for the members of the Supervisory Board to cover their personal liability arising from their service on the Supervisory Board.

In addition to their remuneration as members of the Supervisory Board, those employee representatives who are employees of Bayer Group companies receive compensation unrelated to their service on the Supervisory Board. The total amount of such compensation was €591 thousand (2007: €687 thousand).

There were no loans to members of the Supervisory Board outstanding as of December 31, 2008, nor any repayments of such loans during the year.

Remuneration of the Members of the Supervisory Board of Bayer AG in 2008	Fixed Remuneration	Variable Remuneration	Total
	€ thousand	€ thousand	€ thousand
Dr. Paul Achleitner	75	38	113
Willy Beumann	60	30	90
Dr. Clemens Börsig	60	30	90
Karl-Josef Ellrich	75	38	113
Dr.-Ing. Thomas Fischer	75	38	113
Peter Hausmann	75	38	113
Prof. Dr.-Ing. e.h. Hans-Olaf Henkel	75	38	113
Reiner Hoffmann	60	30	90
Dr. rer. pol. Klaus Kleinfeld	60	30	90
André Krejcik	60	30	90
Petra Kronen	75	38	113
Dr. rer. nat. Helmut Panke	60	30	90
Hubertus Schmoldt	75	38	113
Dr. Manfred Schneider (Chairman)	180	90	270
Dr.-Ing. Ekkehard D. Schulz	60	30	90
Dr. Klaus Sturany	90	45	135
Dipl.-Ing. Dr.-Ing. e.h. Jürgen Weber	75	38	113
Thomas de Win	120	60	180
Prof. Dr. Dr. h.c. Ernst-Ludwig Winnacker	60	30	90
Oliver Zühlke	60	30	90