The Supervisory Board comprises 20 members in accordance with the articles of incorporation. In accordance with the German Codetermination Act it is made up of equal numbers of shareholders and employees’ representatives. Whereas the shareholders’ representatives are elected by the Annual General Meeting, the employees’ representatives are appointed in accordance with the German Codetermination Act. Seven employees’ representatives are employees of the Group, another three are union representatives. The term of office of the previous Supervisory Board ended with the Annual General Meeting on April 23, 2008. A new election of employees’ representatives was held in January 2008; the shareholders’ representatives were elected by the Annual General Meeting on the recommendation of the Supervisory Board on April 23, 2008. In both cases, the elections are for five-year terms.

Following the examination of the efficiency of the Supervisory Board conducted by external consultants, the Supervisory Board implemented a self-evaluation in the form of a questionnaire-based efficiency examination in 2007. The results of this audit showed that expectations had been met.

Under the Supervisory Board’s rules of procedure every member of the Supervisory Board is subject to the principle of independence. Some representatives of the shareholders on the Supervisory Board occupy or occupied a senior position with other companies during the past year. Transactions conducted by Arcandor AG with these companies are conducted on the same terms and conditions as with third-party companies. In our judgment these transactions do not affect the independence of the members of our Supervisory Board associated with these companies.

Committees on the Supervisory Board

Under its rules of procedure the Supervisory Board forms several committees.

The Standing Committee is made up of the Chairman of the Supervisory Board, his representative and at least three further members to be chosen from amongst the Supervisory Board. At present the Standing Committee consists of six members. The standing committee is responsible for the regulation of matters between Management Board members and the corporation. Furthermore, in urgent matters, if a resolution of the Supervisory Board cannot be passed in due time at a meeting, the Standing Committee may decide in its stead on Management Board business requiring approval.

The Audit Committee is made up of the Chairman of the Supervisory Board, two representatives of the shareholders and two representatives of the employees. Dr. Diethart Breipohl, Chairman of the Audit Committee until December 14, 2007 and Prof. Dr. h. c. Karlheinz Hornung, Chairman since December 14, 2007, have special knowledge of and experience in the application of accounting principles and internal control procedures. As required, the Audit Committee prepared the Supervisory Board’s decision on the approval of the annual financial statements and the approval of the Group financial statements for the period to September 30, 2008, and in particular a preliminary audit of the annual financial statements, the Group financial statements and the summarized Management Report and the proposal for appropriation of the profit. This meeting of the Audit Committee was attended by the auditor. Furthermore, the Audit Committee implemented the agreement to be reached annually with the auditor. Finally, this Committee deals with compliance issues.

The duties of the Arbitration Committee, which is made up of two shareholders’ and two employees’ representatives, are determined in Section 27, Paragraph 3 of the German Codetermination Act. In accordance with it the Arbitration Committee submits proposals to the Supervisory Board for the appointment of Management Board members, if the necessary majority of two thirds of the votes of the Supervisory Board members is not achieved in the first ballot.

As the fourth committee of the Supervisory Board, the Nomination Committee was established in December 2007. The relevant recommendation in the German Corporate Governance Code has thus been implemented. This committee is responsible for preparing nominations of Supervisory Board candidates for the Annual General Meeting. The final decision on the nomination rests with the Supervisory Board as a whole. The Nomination Committee is composed of four shareholders’ representatives.

The committees formed by the Supervisory Board operate in compliance with the German Stock Corporation Act and the German Corporate Governance Code. The Supervisory Board has issued a comprehensive statement on the activities of the individual committees during the year under review in its report.

The remuneration report summarizes all of the policies applied to the determination of the remuneration of the Management Board of Arcandor AG, and explains both the structure and the amount of the income of the Management Board. It also describes the policies and amount of remuneration of the Supervisory Board.

Finally, it provides information about the shareholdings of the Management Board and Supervisory Board and transactions involving shares of Arcandor AG to be disclosed under the Securities Trading Act.

The report follows the recommendations of the German Corporate Governance Code and contains information which is required under the provisions of German commercial law, extended by the Management Board Remuneration Disclosure Act, pursuant to Sections 314, 315 of the German Commercial Code.

The remuneration report is an integral part of the Group Management Report and is included in full on pages 63 to 68 of the Group’s Annual Report 2007/2008.

In March 2007, a phantom stock option program was implemented for a select group of executives. The phantom stock program is a remuneration program based on the share price, which rewards a considerable increase in the enterprise value of Arcandor. Detailed information on the structure and the scope of the program can be found on pages 114 to 116 of the Group’s Annual Report 2007/2008.