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This report is based on the recommendations of the German Corporate Governance Code and includes disclosures in line with the requirements of the German Accounting Standard (GAS) 17, the Handeslgesetzbuch (HGB -- German Commercial Code) and the International Financial Reporting Standards (IFRS). Disclosures pursuant to IAS 24 are included in the notes to the consolidated financial statements.

Main features of the compensation system for the Managing Board

Decisions concerning the compensation system for the Managing Board as well as regular discussion and review of the compensation system are the responsibility of the Supervisory Board. Proposals are to be prepared by the Personnel Committee. The compensation system that has applied to the members of the HUGO BOSS AG Managing Board since fiscal year 2010 was approved with a vast majority by the Annual Shareholders’ Meeting on May 10, 2011.

The total compensation for the Managing Board consists of non-performance-related (fixed) compensation components and performance-related (variable) compensation components. The compensation structure is oriented toward sustainable growth of the Company by including compensation components with a multi-year assessment basis. The total compensation of the individual Managing Board members is determined by the Supervisory Board based on a performance assessment, taking into consideration any payments by Group companies. Criteria for determining the appropriateness of the compensation are both the responsibilities of the individual member of the Managing Board, his/her personal performance, the economic situation, the performance and outlook of the company, as well as the common level of the compensation taking into account the peer companies and the compensation structure in place in other areas of the Company. In the event of extraordinary services or success of a Managing Board member, the Supervisory Board may decide on special payments at its due discretion.

By resolution of the Annual Shareholders’ Meeting on June 21, 2010, no disclosures are to be made on the individual compensation of Managing Board members. The information required in Section 285 Sentence 1 No. 9 Letter a Sentences 5 to 8 and Section 314 Paragraph 1 No. 6 Letter a Sentences 5 to 8 of the German Commercial Code will accordingly not be disclosed for five years. This resolution applies to the fiscal year that began on January 1, 2010 and the four subsequent fiscal years, namely until December 31, 2014. The remuneration is therefore reported in total broken down into individual compensation components.

Basic compensation and additional benefits

The fixed compensation components consist of a fixed basic compensation, additional benefits and a contribution to retirement benefits. The fixed basic compensation is paid as a monthly salary. The members of the Managing Board receive additional benefits such as a company car, supplemental payments for health and nursing insurance, conclusion of and contributions to accident and D&O insurance and other benefits in kind forming part of the salary, as well as other equipment and services necessary for Managing Board members to fulfill their duties.

In accordance with Section 93 Paragraph 2 Sentence 3 of the German Stock Corporation Act (AktG), the deductible for the D&O insurance corresponds to 10% of the relevant loss, but no more than one-and-a-half times the fixed annual compensation. Tax on the non-monetary benefit resulting from private use of the company car is to be paid by the Managing Board member.

Performance-related compensation

The performance-related compensation includes variable compensation components with a long-term incentive effect. In addition to the personal performance of each member of the Managing Board, the variable compensation is also determined based on the development of the Group's key performance indicators. The quantitative targets are oriented toward increasing the enterprise value and are based on the development of the two key performance indicators EBITDA before special items and trade net working capital over a period of three years. The amount of the variable compensation for a fiscal year depends on the fulfillment of the pre-defined quantitative targets for the multi-year period and the achievement of the personal targets agreed with the Supervisory Board. Earnings-related targets are defined for the multi-year period of three years, whereas individual performance targets are defined for each individual fiscal year. For each of the three targets, however, the degree of target achievement is determined over the multi-year period and then weighted. The weighted average of the target achievement for all three targets is what determines the payout amount.

In the event of full target achievement, 100% of the amount contractually agreed for each member of the Managing Board is paid out. The maximum payout in the event of target achievement of 120% or more is 150% of the contractually agreed amount. If the level of target achievement is less than 75%, no payout takes places.

For a transition period following the introduction of the multi-year bonus agreement in 2010 and ending in fiscal 2012, the members of the Managing Board received advance payments on their expected variable compensation in 2010 and 2011. The final settlement for the transition period takes place after the end of fiscal 2012. If the advance payments received exceed the bonus earned for the three-year period from 2010 to 2012, the difference must be repaid to HUGO BOSS AG by the Managing Board member.

Share-based payments

The Managing Board members currently in office do not hold any participation rights from the tranches of the stock appreciation rights program issued in the fiscal years 2001 to 2009

Benefits in the event of termination of employment

For the event of early termination, the employment contracts include regulations which – except for the deviation stated in the Declaration of Compliance from December 2012 – comply with the requirements of the German Corporate Governance Code. For the event of regular termination, the employment contracts do not include any regulations other than pension regulations.

In addition, the company has provided pension benefits for Managing Board members. The amount of future pension benefits is based on each member’s base salary and years of service.

Pension expenses

03|40 Pension expenses

(in EUR thousands)   2012   2011
Service Costs (IFRS)   1,793   1,055
Present value provision (IFRS) after offsetting of the plan assets   3,897   137
Expenses of earned pension commitments (HGB)   2,259   1,103
Present value provision (HGB) after offsetting of the plan assets   1,386   (72)

Total compensation

The Managing Board received total remuneration of EUR 7,053 thousand in 2012 (2011: EUR 5,348 thousand). EUR 3,303 thousand of this related to the fixed salary components including additional benefits (2011: EUR 2,873 thousand) while the bonus for the 2010-2012 three-year period including the outstanding amounts for the transition period amounted to EUR 3,750 thousand (2011: EUR 2,475 thousand).

Other disclosures

Former members of the Managing Board and their surviving dependents received total remuneration of EUR 15,226 thousand in 2012 (2011: EUR 10,202 thousand). This includes post-employment benefits for Managing Board members and payments relating to the exercise of outstanding participation rights from the stock appreciation rights program in the amount of EUR 15,035 thousand (2011: EUR 10,016 thousand). The sale of the call options held to secure participation rights did not result in any additional cash outflow for the Group. The members of the Managing Board were not granted any loans in fiscal 2012, nor were contingent liabilities entered into for the benefit of these persons.

Compensation of the Supervisory Board

The compensation of the Supervisory Board, which is determined by the Annual Shareholders’ Meeting, is regulated in Article 12 of the Articles of Association of HUGO BOSS AG. It is based on the size of the company and the scope of activities performed by the Supervisory Board member. The compensation of Supervisory Board members is divided into a fixed and a variable component. The variable component is determined on the earnings per share in the consolidated financial statements. The position of the chairman of the Supervisory Board and his deputy are taken into account when determining the level of compensation. The fixed and variable compensation is paid out after the end of the Annual Shareholders’ Meeting that decides on the approval of the actions of the Supervisory Board for the past fiscal year. Members of the Supervisory Board who were on the Supervisory Board or a committee for only part of a fiscal year receive pro rata compensation for each month commenced in this position. Expenses arising in connection with performing their duties are reimbursed to members of the Supervisory Board. Any value added tax is reimbursed by the company, provided the members of the Supervisory Board are entitled to bill the company separately for value added tax and exercise this right. The Supervisory Board received total remuneration of EUR 1,956 thousand for its services in 2011. For fiscal year 2012, total remuneration is expected to amount to EUR 2,014 thousand, including a provision for the variable component of EUR 1,259 thousand (2011: EUR 1,156 thousand), calculated on the basis of anticipated earnings per share in the consolidated financial statements.

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