Employees

Effective January 1, 2005, the basis of personnel statistics was changed. Since this time, employees in the phase of the non-active period of age-related part-time employment are included in the figure for the ”total workforce” but are no longer counted as members of the ”core workforce”, the aim being to give a more precise overview of the employees in full-time employment.

To facilitate comparison, the data as per December 31, 2004, are also net of the figure pertaining to non-active age-related part-time employees.

In 2005, the core workforce decreased by 225, from 17,261 down to 17,036 (−1.3%). As per December 31, 2005, this total comprised 66.1% wage laborers, 26.5% salaried employees covered by the collective agreement system and 7.4% non-tariff employees.

A breakdown by divisions shows the following changes:

Steel Division: −85; Tubes Division: −32; Trading Division: + 22; Services Division: −126 employees. The number of employees of the holding company fell by 4. When considering employee figures, the restructuring of the divisions upon which these figures are based should be taken into account; the figures for 2004 also reflect the new structure.

The decline in the workforce of the Steel Division is mainly due to cancellation agreements and entry into the active period of age-related part-time employment at SZST. The balance of employees leaving the Services Division was primarily the result of 51 employees leaving the company under a social plan and 240 employees who entered into the non-active period of age-related part-time employment, which was juxtaposed to the hiring of 165 trainees.

The core workforce at the various divisions developed as follows:

As of December 31, 2005, the Group employed 1,022 trainees (2004: 983). A total of 18 trainees were offered permanent positions in the Group upon completion of their training, and 215 were offered 12-month contracts in accordance with the terms of the collective agreement.

In comparison to previous years during which up to 1.1% of the core workforce left the Group of their own volition, this fluctuation rate came to a mere 0.5% in 2005. This is a reflection of the situation on the labor market. The traditional tool of adjusting personnel by not replacing employees has therefore mainly been dispensed with. The Executive Board has thus resolved to make available funds for agerelated part-time employment contracts, thereby securing the requisite personnel adjustments. This enabled us to conclude 343 age-related part-time contracts. Changes in the legal environment make it increasingly difficult to use this tool to adjust workforce levels, taking social considerations into account. With the additional funds available, however, achieving the medium-term personnel goals has been secured.

Salzgitter AG initiated the ”Personnel 2025” project in April 2005. This project is designed to enable the company to react in good time to the demographic changes and their consequences for the business environment, thus safeguarding the innovative and competitive capabilities of the Salzgitter Group in the long term.

The project has been set up as a process of collective learning and development. Employees from all segments of the Group are developing ”tools” in the various areas of activity to master the tasks that are related to future changes in the demographic environment. In this process, six areas of action were identified: Corporate culture and management, personnel marketing and recruiting, human resource development and qualification, organization of workflows, working time and remuneration, health, fitness and ergonomics, along with integration management. Project groups have been set up for each area.

The time horizon for the ”Personnel 2025” project is three years, though the shaping of demographic change will not have been concluded by the end of the project and not even when the various measures, developed in close cooperation, have been implemented. This is a concept which is embedded in a continuous process.

The process of change trigged by the demographic trend necessitate dialog between all those involved and cannot be steered successfully by instructions issued centrally. The project is based on this consideration and thus takes account of the heterogeneous structure of the Group.

Using a variety of bonus models, the health insurance funds in the Salzgitter Group, especially BKK Salzgitter, have initiated programs which will benefit both the employees and the companies.

Under the ”BKK BonusPlus” model, the 20 guarantor companies of BKK Salzgitter, with around 8,800 policy holders, have pledged themselves to anchoring corporate healthcare more firmly, to regularly assessing the status of employees' health and to organizing activities which promote their health. These activities include, for instance, anti-smoking campaigns, back muscle training sessions, support in dealing with addictions and arranging jogging groups. The knowledge gained from health developing programs initiated by the company will also be incorporated into the ”Personnel 2025” project.

In May, a works agreement on the variable remuneration of non-tariff employees was reached with the Works Council of the holding company. Accordingly, besides general managers and management executives, non-tariff employees will also receive remuneration which contains a performance-related component as well as a component based on the success of the company. This agreement is a pilot scheme for the whole Group and has also been implemented in a number of other Group companies.

The works agreements on profit sharing concluded in 2004 for nearly all Group companies for salaried employees were applied for the first time in 2005. As a result of the sound operating results, 14,200 employees of the Group received a share in the profit. Depending on the results of the respective company, the profit share ranged between € 100 and € 300, plus 16 free shares for employees of Group companies. 3,000 Group employees were not included as the companies they work for did not achieve sufficient results.

We have thus come much closer to our objective of installing consistent profit- and target-related income components, covering not only Executive Board members and general managers, executives and non-tariff employees, but also, ultimately, salaried employees and wage laborers.

Within the Group, administration and accounting tasks for company pensions are carried out for around 36,000 retired employees in total from 13 Group companies. Of this number, about 22,000 Mannesmann retired employees were administrated centrally by Salzgitter Mannesmann Altersversorgung Service GmbH (SZMA). To improve efficiency and reduce costs, a concentration of all pension payments at SZMA is planned. For this reason, the administration and accounting tasks for 10,000 plant pensioners of Salzgitter AG were transferred to SZMA as from July 1, 2005. Similarly, the remaining 4,000 plant pensioners will be assigned to SZMA in 2006.

With effect from September 1, 2005, the collectively bargained wages and salaries of persons employed in the iron and steel industry were raised by 3.5 %. For the period from April 1, 2005, until August 31, 2005, a flat rate amount of € 500 was granted. The term of the collective agreement will run for a full 17 months and will end on August 31, 2006.

As from December 1, 2005, the employees of SZST will also receive a standard rate of remuneration which has been raised by 3.5 %. For the period from July 1, 2005, until November 30, 2005, a flat rate amount of € 500 was granted; persons in age-related part-time employment received a flat rate payment of € 425. This agreement concerning remuneration for services cannot be terminated earlier than November 30, 2006.

At the end of August, a 2.2% increase in remuneration with a term from August 1, 2005, to July 31, 2007, was agreed for SMHD, the Group's trading activities. This will be supplemented by a one-off payment of € 230 at mid-term in August 2006.

Management conferences took place in January and September. These conferences were each attended by 125 general managers and management executives of the Salzgitter Group. Activities were focused on the dissemination of up to date information on the Group's position and reports on projects in the various companies.

The Groupwide Forum 2005 was held on May 17 and 18 under the motto of ”Unser Kurs bewegt” (”Our course is motion”). The forum was attended by 486 managers from all the companies. Along with presentations made by Mr. Leese, Dr. Fuhrmann and Mr. Schneider on the Group's position, participants were able to inform themselves of topical issues in the companies in the forums on steel, trading and tubes. The contribution by Prof. Ameling, president of the German Federation of the Steel Economy, on the subject of ”Hard or soft landing? China will continue to fly!” forged the link to the current commercial situation of the steel sector worldwide, thereby rounding off the topics presented at the Groupwide Forum.