CORPORATE GOVERNANCE AND LEADERSHIP

Whatever SAP does in business, it is important that investors, customers, and employees remain confident in the sound governance of the Company. Even before the German Corporate Governance Code was officially introduced in Germany, SAP was quick to recognize the need for implementing transparent corporate governance rules that meet the demands of the financial markets for responsible, value-oriented company leadership and administration. The Executive Board, Supervisory Board, and employees share the same understanding of good corporate governance, ensuring that SAP actively practices it. In 2004, the Company’s corporate governance officer again monitored compliance with SAP’s Principles of Corporate Governance and reported to the Supervisory Board on their implementation.

UPDATES TO SAP’S PRINCIPLES OF CORPORATE GOVERNANCE

SAP sees corporate governance as a process of continuous adaptation. The Company continually reviews and, if necessary, amends its Principles of Corporate Governance in line with new German and international standards and amended legal requirements. In early 2004, SAP updated its Principles of Corporate Governance to reflect the changes made to the German Corporate Governance Code in 2003 and to comply with the legal requirements of the Sarbanes-Oxley Act. SAP also closely examined the corporate governance rules of the New York Stock Exchange (NYSE). As a result, it published a corporate governance report along with its updated Principles. SAP’s Principles of Corporate Governance, its compliance declaration pursuant to the German Stock Corporation Act, section 161, and the corporate governance report are available on SAP’s Web site at www.sap.com/corpgovernance.

ALTERATIONS TO SAP’S PRINCIPLES OF CORPORATE GOVERNANCE IN 2004

The amendments made to the Principles to reflect the changes made to the German Corporate Governance Code in 2003 were mostly minor. In most cases, the Principles already contained appropriate provisions. SAP had already implemented others in practice although they were not laid down explicitly in the Principles. The following amendments to SAP’s Principles of Corporate Governance were thus of a purely formal nature:

• The compensation of Executive Board members must include long-term incentive and risk components.
• Each different component of the compensation must be reasonable and appropriate.
• The exercise of rights under stock options and comparable instruments must be related to significant relevant comparators.
• The Chairperson of the Supervisory Board must report the salient features of the compensation package and any changes to it to the Annual General Shareholders’ Meeting.
• The Notes to the Consolidated Financial Statements must set out the compensation of the individual members of the Supervisory Board, broken down into the different components.

The following amendments to the Principles of Corporate Governance required a change in practice at SAP:

• The full Supervisory Board must discuss the structure of the compensation package.

To fulfill this requirement, the full Supervisory Board now discusses the structure proposed by the Compensation Committee for the compensation package. Previously, the Compensation Committee held the entire responsibility.

• The collective performance of the Executive Board must be a criterion for determining reasonable and appropriate compensation for the Executive Board.

Previously, Executive Board compensation was linked to operating income. The Supervisory Board now sets additional collective targets for the Executive Board.

• The Supervisory Board must agree a cap on extraordinary unforeseen appreciation for Executive Board compensation.

SAP therefore amended the option terms for Executive Board members. The Supervisory Board decides whether the cap applies on a case-by-case basis.