The compensation report of Fresenius Medical Care AG & Co. KGaA summarizes the main elements of the compensation system for the members of the Management Board of Fresenius Medical Care Management AG as general partner of Fresenius Medical AG & Co. KGaA and in this regard notably explains the amounts and structure of the compensation paid to the Management Board. The compensation report is part of the group management report. The compensation report is prepared on the basis of the recommendations made by the German Corporate Governance Code and also includes the disclosures as required pursuant to the applicable statutory regulations, notably in accordance with the German Commercial Code (HGB).

I. Compensation of the Management Board

The entire Supervisory Board of Fresenius Medical Care Management AG is responsible for determining the compensation of the Management Board. The Supervisory Board is assisted in this task by a personnel committee, the Human Resources Committee. For fiscal year 2010, the Human Resources Committee was composed of Dr. Ulf M. Schneider, Dr. Gerd Krick, William P. Johnston and Dr. Walter Weisman..

In fiscal year 2010, the compensation of the Management Board of Fresenius Medical Care Management AG already took into account the newly worded requirements in accordance with the German Act on the Appropriateness of Executive Board Compensation (Gesetz zur Angemessenheit der Vorstandsvergütung – VorstAG), which entered into force on August 5, 2009. The Management Board compensation system was reviewed by an independent external compensation expert at the beginning of fiscal year 2010 and later submitted to Fresenius Medical Care AG & Co. KGaA’s shareholders’ meeting for approval. On May 11, 2010 the shareholders’ meeting approved of the Management Board compensation system with a majority of 99.26% of the votes cast.

The objective of the compensation system is to enable the members of the Management Board to participate reasonably in the sustainable development of the Company’s business with the compensation paid and to reward them based on their duties and performance as well as their success in managing the Company’s economic and financial position while giving due regard to the peer environment.

The compensation of the Management Board is, as a whole, performance-oriented and was composed of three elements in fiscal year 2010:

• performance-unrelated compensation (basic salary)
• performance-related compensation (variable bonus)
• components with long-term incentive effects (stock options and share-based compensation with cash settlement)

The individual components are designed on the basis of the following criteria:

In fiscal year 2010, the performance-unrelated compensation was paid in twelve monthly instalments as basic salary. Moreover, the members of the Management Board received additional benefits consisting mainly of insurance premiums, the private use of company cars, special payments such as foreign supplements, rent supplements, reimbursement of fees for the preparation of tax returns and reimbursement of certain other charges and additional contributions to pension and health insurance. The performance-related compensation will also be granted for the fiscal year 2010 as a short-term cash component (annual bonus) and a longerterm share-based compensation component (stock options, share-based compensation with cash settlement). The amount of the performance-related compensation component in each case depends on the achievement of individual and common targets:

The targets for the members of the Management Board are measured by reference to operating profit margin, growth of Group-wide after-tax earnings (EAT growth) as well as the development of free cash flow (cash flow before acquisitions). All values are derived from the comparison of estimated and actually achieved figures. Furthermore, targets are divided into Group level targets and those to be achieved in individual regions. Lastly, the various target parameters are weighted differently by their relative share in the aggregate amount of variable compensation depending on the respective (regional) areas of responsibility assumed by the members of the Management Board.

Variable compensation was based upon EAT growth of at least 6% and capped at 15%. Furthermore, the members of the Management Board assuming Group functions and the members of the Management Board with regional responsibilities were evaluated in terms of the development of the respective free cash flow within the Group or in the relevant regions during the period under review, with the targets subject to compensation being within a range of rates between 3% and 6% of the respective free cash flow with reference to the turnover. The regional operating profit margins achieved during 2010 were moreover compensated for the respective Board members with regional responsibilities, in each case, within a target range between 13% and 18.5%.

As a rule, EAT growth for members of the Management Board with Group functions – these are Messrs Dr. Ben Lipps, Michael Brosnan and Dr. Rainer Runte – are compensated at a share of 80% in variable compensation and are thus weighted higher than for Board members having responsibility for regional earnings (these are Messrs. Roberto Fusté, Dr. Emanuele Gatti and Rice Powell) or in the Global Manufacturing Operations division (Mr Kent Wanzek), where the share is 60%. The achievement of the target for free cash flow is assessed at the uniform rate of 20% of variable compensation for all members of the Management Board; likewise, the valuation of operating profit margins in the regions is weighted at 20% of the variable compensation component.

In fiscal year 2010, the bonus components to be paid via cash payment in principle consisted proportionately of a short-term annual bonus and a further sharebased compensation component (long-term), to be paid by way of cash settlement based on the performance of the stock exchange price of the ordinary shares of Fresenius Medical Care AG & Co. KGaA. Once the annual targets were or are achieved, the cash was or will be paid after the end of the respective fiscal year in which the target is achieved. The share-based compensation also to be granted yearly in case of achievement of the yearly targets is subject to a three-year vesting period, although a shorter period may apply in special cases (e.g. professional incapacity, entry into retirement, non-renewal by the company of expired service agreements). The amount of cash payment of this share-based compensation corresponds to the share price of Fresenius Medical Care AG & Co. KGaA ordinary shares upon exercise after the three-year vesting period. Therefore, the share-based compensation is attributed to the long-term incentive compensation components. The annual targets of the aforementioned and respectively applicable key data is valued at a maximum of 120% and subject to a fixed multiplier, thereby limiting the variable compensation. In determining the variable compensation, care was taken that the share of the longterm compensation components (including the stock option components described below) constitutes at least 50% of the total variable components. Should this not be the case mathematically, the Management Board members’ contracts provide that the share of the short-term annual bonus be reduced and the share of the long-term share-based cash components be correspondingly increased, in order to meet this quota. For the total performance-based compensation, the amount of the maximum achievable bonus for each of the members of the Management Board is respectively capped. The share-based compensation components also contain a limitation for cases of extraordinary developments.

In addition, a special bonus component applied in some cases for fiscal years 2006, 2007 and 2008 which was linked to the achievement of targets as measured only over this three-year period but whose payment to a certain extent is also subject to a vesting period of several years and consequently will take place up to 2012. This bonus component also included special components linked to the achievement of extraordinary financial targets related to special integration measures (e.g. in connection with the acquisition of Renal Care Group in the U.S.) and thus required the achievement of an extraordinary increase in earnings. The present report also reflects those payments based on this earlier bonus component but exercised and paid only in the year under review.

For fiscal years 2010 and 2009 the amount of cash payments of the Management Board of Fresenius Medical Care Management AG without long-term incentive components are shown in table 2.11.2.

In addition to the aforementioned share-based compensation component with cash settlement, stock options under Stock Option Plan 2006 were granted as (further) components with long-term incentive effects in fiscal year 2010. The principles of Stock Option Plan 2006 are described in more detail in the notes to the financial statements under the header “Conditional Capital VI“ and here.

As of January 1, 2010, the Company still had three additional Employee Participation Programs secured by conditional capital which entitled their participants to convertible bonds or stock options, and from which, however, in fiscal year 2010 no further options could be issued. In continuation with these successful employee participation programs of the past fiscal years, Fresenius Medical Care AG & Co. KGaA implemented the Stock Option Plan 2006 approved by resolution of the general meeting on May 9, 2006 and amended by resolution of the general meeting of May 15, 2007 (reflecting the share split 1:3).

During 2010, a total of 2,817,879 (2009: 2,585,196) stock options were granted under this Stock Option Plan of which 423,300 (2009: 348,600) were granted to the members of the Management Board.

For fiscal years 2010 and 2009 the number and value of stock options issued and the value of other sharebased compensation with cash settlement is shown individually in table 2.11.3.

The stated values of the stock options granted to the members of the Management Board in fiscal year 2010 correspond to their fair value at the time of being granted, namely a value of €8.07 (2009: €7.64) per stock option. The exercise price for the stock options granted is €42.68 (2009: €31.97).

At the end of fiscal year 2010, the members of the Management Board held a total of 2,178,699 stock options (2009: 2,041,121 stock options).

The development and status of stock options of the members of the Management Board in fiscal year 2010 are shown in more detail in the table 2.11.4.

Based on the targets achieved in fiscal year 2010, additional rights for share-based compensation with cash settlement totalling €1,963 THOUS (2009: €1,103 THOUS) were earned, on the basis of which the number of share-based compensation rights is distributed. Since the actual distribution will not take place until March 2011, the specific number of shares of such share-based compensation rights will be determined by the Supervisory Board at that time by reference to the then current price of the ordinary shares of Fresenius Medical Care AG & Co. KGaA. Such number of shares will then serve as a basis and multiplier for calculating of the payment after the three-year vesting period.

The amount of the total compensation of the Management Board of Fresenius Medical Care Management AG for fiscal years 2010 and 2009 is shown in the table 2.11.5.

Compensation components with long-term incentive effects, i.e. stock options as well as share-based compensation with cash settlement, can be exercised only after the expiry of the specified vesting period. Their value is recognized over the vesting period as expense in the respective fiscal year of the vesting period. Share-based compensation expenses attributable to fiscal years 2010 and 2009 are shown in table 2.11.6.

II. Commitments to Members of the Management Board for the Event of the Termination of their Appointment

There are individual contractual pension commitments for the Management Board members Roberto Fusté, Dr. Emanuele Gatti and Dr. Rainer Runte. Under these commitments, Fresenius Medical Care as of December 31, 2010 has aggregate pension obligations of €6,061 THOUS (as of December 31, 2009: €2,937 THOUS).

Each of the pension commitments provides for a pension and survivor benefit as of the time of conclusively ending active work, at age 65 at the earliest, however, depending on the amount of the recipient’s most recent basic salary. The pension commitment for Management Board member Dr. Emanuele Gatti was amended, effective for the 2010 fiscal year, in that the earliest age at which retirement benefits may be received was reduced from 65 to 60. The present value of the pension commitments has increased by €1,496 THOUS due to this amendment.

With regard to the retirement pension, the starting percentage of 30% from the last base salary increases with every complete year of service by 1.5 percentage points up to a maximum of 45%. Current pensions increase according to legal requirements (Sec. 16 of the German Law to improve company pension plans, “BetrAVG”). 30% of the gross amount of any later income from an activity of the Management Board member is set off against the pension obligation. Any amounts to which the Management Board members or their surviving dependants, respectively, are entitled from other company pension rights of the Management Board member, even from service agreements with other companies are to be set off. If a Management Board member dies, the widow receives a pension amounting to 60% of the resulting pension claim at that time. Furthermore, the deceased Management Board member's own legitimate children (leibliche eheliche Kinder) receive an orphan’s pension amounting to 20% of the resulting pension claim at that time, until the completion of their education or they reach 25 years of age, at the latest. All orphans’ pensions and the widow pension together reach a maximum of 90% of the Management Board member’s pension, however. If a Management Board member leaves the Management Board of Fresenius Medical Care Management AG before he reaches 65 or (in the case of Dr. Gatti) 60, except in the event of a disability (Berufs- oder Erwerbsunfähigkeit), the rights to the aforementioned benefits remain, although the pension to be paid for a covered event is reduced in proportion to the ratio of the actual years of service as a Management Board member to the potential years of service until reaching 65 or (in the case of Dr. Gatti) 60 years of age.

With the Chairman of the Management Board, Dr. Ben Lipps, there is an individual agreement instead of a pension provision, to the effect that, taking account of a non-compete covenant upon termination of his employment contract/service agreement with Fresenius Medical Care Management AG, he will be retained to render consulting services to the Company for a period of 10 years. The annual consideration for such services would amount to approximately 33% of the non-performance-linked compensation components paid to him in fiscal year 2010. The present value of this agreement amounted to €2,153 THOUS as of December 31, 2010.

Management Board members Rice Powell, Michael Brosnan and Kent Wanzek participated in the USbased 401 (k) savings plan in 2010. This plan generally allows employees in the US to invest a portion of their gross salaries in retirement pension programs. The company supports this investment, for permanent employees with at least one year of service, via 50% of the investment made, up to a limit of 6% of income – whereupon the allowance paid by the Company is limited to 3% of the income – or a maximum of $16,500 ($22,000 for employees 50 years of age or older). The aforementioned Management Board members were each contractually enabled to participate in this plan: in the past fiscal year the company paid out $9,383.50 respectively in this regard.

Furthermore, the Management Board members Dr. Ben Lipps, Rice Powell and Michael Brosnan have acquired non-forfeitable benefits from participation in employee pension plans of Fresenius Medical Care North America, which provide payment of pensions as of the age of 65 and the payment of reduced benefits as of the age of 55. Due to plan cuts in March 2002, the rights to receive benefits from the pension plans have been frozen at the level then applicable.

Additions to pension obligations in fiscal year 2010 amounted to €3,217 THOUS (2009: €958 THOUS) The pension commitments are shown in table 2.11.7.

A post-employment non-competition covenant was agreed upon with all Management Board members. If such covenant becomes applicable, the Management Board members receive compensation amounting to half their annual base salaries for each year of respective application of the non-competition covenant, up to a maximum of two years. The employment contracts of the Management Board members contain no express provisions for the case of a change of control.

With Mr Mats Wahlstrom, who resigned from the Management Board on December 31, 2009 it was agreed that all outstanding cash-settled sharebased compensation related to the special bonus component from the years 2006 to 2008 became vested at the time of his resignation from the Board on December 31, 2009. Mr Wahlstrom completely exercised these rights, as agreed, in the amount of €1,723 THOUS in February 2010.

All members of the Management Board have received individual contractual commitments for the continuation of their payments in cases of sickness for a maximum of 12 months, although as of six months’ of sick leave, insurance benefits may be set off therewith. If a Management Board member dies, the surviving dependants will be paid three more monthly amounts after the month of death, until the end of the respective service agreement at the longest, however.

III. Miscellaneous

In fiscal year 2010, no loans or advance paymentsof future compensation components were made to members of the Management Board of Fresenius Medical Care Management AG.

The payments to Management Board members Michael Brosnan and Kent Wanzek were paid in part in the US (U.S. dollar) and in part in Germany (euro). The part paid in Germany was agreed in net amounts, so that varying tax rates in both countries may retroactively change the gross amounts. Since the actual tax burden can only be calculated later in the context of the tax returns, subsequent adjustments may have to be made, which will then be retroactively covered in future compensation reports.

To the extent permitted by law, Fresenius Medical Care Management AG undertook to indemnify the members of the Management Board from claims against them arising out of their work for the Company and its affiliates, if such claims exceed their liability under German law. To secure such obligations, the Company has obtained Directors & Officers liability insurance with an excess, which complies with the requirements of the German Act on the Appropriateness of Executive Board Compensation (VorstAG). The indemnity applies for the time in which each member of the Management Board is in office and for claims in this connection after termination of membership on the Management Board in each case.

Former members of the Management Board did not receive any compensation in fiscal year 2010 other than that mentioned under point II. Pensions obligations for this group exist in an amount of €499 THOUS (2009: €379 THOUS).

IV. Further Adjustments to System of Compensation of Members of the Management Board

Since the expiry of fiscal year 2010, no further stock options can be granted to Management Board members or employees out of the Stock Option Plan 2006 of Fresenius Medical Care. However, allotments from the existing Stock Option Plan form a significant element of the compensation component with longterm incentive effect. It is intended to implement a new program with long-term compensation components covering the next five years in fiscal year 2011.

The new compensation concept with long-term incentive effect is based on a combination plan, which includes, on the one hand, a stock option program which is backed by conditional capital. The additional component of the compensation concept is a likewise long-term oriented and share-based component with cash settlement.

The structure of the stock option plan backed by a conditional capital is oriented mainly on the parameters of the existing Stock Option Plan 2006. The plan also complies with the amended requirements of the VorstAG, in particular with regard to the waiting periods prolonged to four years, and further requires the achievement of demanding targets. The new stock option plan requires, for its introduction, the approval of the shareholders at the ordinary General Meeting of Fresenius Medical Care AG & Co. KGaA.

The further element of the new long-term compensation system is an additional, independent, long-term oriented and share-based compensation component with cash settlement. The granting of this compensation component is now also intended to be subject to a four-year waiting period and to require the achievement of demanding targets. The amount of the cash payment under the terms of this share-based compensation component will then be guided by the stock exchange price of the Fresenius Medical Care AG & Co. KGaA ordinary shares at the time of exercise after the expiry of the four-year waiting period.

Compared to the Stock Option Plan 2006, the total number of stock options to be granted is intended to be smaller in view of the additionally planned longterm oriented share-based compensation component with cash settlement.

The granting of stock options or the share-based compensation with cash settlement, respectively, is intended to be available to management board members as well as to other leading executives. In compliance with the corporate law allocation of powers and responsibilities, the supervisory board shall make the allocations to the Management Board members which will make the allocations to other leading executives.

Compensation of the FMC AG & CO. KGAA Supervisory Board

The compensation of the FMC AG & CO. KGAA Supervisory Board is set out in clause 13 of the Articles of Association.

In accordance with this provision, the members of the Supervisory Board are to be reimbursed for the expenses incurred in the exercise of their offices, which also include the applicable VAT.

As compensation, each Supervisory Board member receives a fixed salary of $80,000, payable in four equal instalments at the end of a calendar quarter. Should the General Meeting resolve on a higher compensation, with a majority of three-fourths of the votes cast and taking the annual results into account, such compensation shall apply.

The chairman of the Supervisory Board receives additional compensation of $80,000 and his deputy additional compensation of $40,000 per respective complete fiscal year. As a member of a committee, a Supervisory Board member of FMC AG & CO. KGAA additionally annually receives $30,000, or, as chairman of a committee, $50,000, respectively payable in identical instalments at the end of a calendar quarter.

Should a member of the FMC AG & CO. KGAA Supervisory Board be a member of the Supervisory Board of the General Partner Fresenius Medical Care Management AG at the same time, and receive compensation for his work on the Supervisory Board of Fresenius Medical Care Management AG, the compensation for the work as a FMC AG & CO. KGAA Supervisory Board member shall be reduced by half. The same applies to the additional compensation for the chairman of the FMC AG & CO. KGAA Supervisory Board and his deputy, to the extent that they are at the same time chairman and deputy, respectively, of the Supervisory Board of Fresenius Medical Care Management AG. If the deputy chairman of the FMC AG & CO. KGAA Supervisory Board is at the same time chairman of the Supervisory Board at Fresenius Medical Care Management AG, he shall receive no additional compensation for his work as deputy chairman of the FMC AG & CO. KGAA Supervisory Board to this extent.

The total payments to the Supervisory Board of FMC AG & CO. KGAA as well as the individual payments to each Supervisory Board member in the 2010 fiscal year are listed in table 2.11.8.

The compensation for the Supervisory Board of Fresenius Medical Care Management AG and the compensation for its committees were charged to FMC AG & CO. KGAA in accordance with clause 7 of the Articles of Association of FMC AG & CO. KGAA. In the 2010 fiscal year, the compensation for the Supervisory Board of Fresenius Medical Care Management AG totalled €596 THOUS and the compensation for its committees, contained therein, totalled €310 THOUS, on the basis of the currency exchange rate respectively applicable on the day of payment.

The entire compensation of the Supervisory Board, including the amount charged by Fresenius Medical Care Management AG to FMC AG & CO. KGAA, is listed in table 2.11.9.