As an EEA state, Liechtenstein is obliged to incorporate the EU directive 2010/76/EU, in which the European Union set down compensation standards, in national law. With the coming into force of Appendix 4.4 of the Ordinance on banks and securities firms (the banking ordinance) on 1 January 2012, Liechtenstein fulfilled this requirement. On 18 August 2011, the Board of Directors of LLB approved Group “Compensation Standards” for Liechtensteinische Landesbank AG and its Group companies based on Appendix 4.4 of the Banking Ordinance; it was revised on 1 January 2016. It regulates the framework for the Group-wide compensation policy, in particular, in regard to its alignment to risk management. It stipulates the basis, values and objectives and sets out the minimum requirements for the design of the compensation systems. In addition, it regulates Group-internal and Group- external reporting as well as related responsibilities.
The Group regulation applies to the Board of Directors, the Group Executive Board, senior managers exercising control functions, risk takers as well as to employees who receive an overall compensation comparable to that of at least the lowest total compensation that a member of Executive Board has received, and whose decisions have a significant influence on the risk profile.
To implement the Group regulation regarding compensation standards at Liechtensteinische Landesbank AG, the Board of Directors also issued a regulation concerning compensation standards (which came into force on 1 April 2012 and was revised on 1 January 2016). As a company exempt from the provisions of art. 12, para. 2 of the OaECV, the Liechtensteinische Landesbank has not issued any regulations concerning compensation, participation and loans.
The Group companies issue company-specific compensation guidelines, which take into consideration the applicable (special) legal regulations. Deviating provisions of company-specific compensation guidelines take precedence over these provisions provided they stem from prevailing law or special legal rulings or they go beyond these provisions.
The compensation for employee work performance complies with the business strategy as well as with the goals and values of the LLB Group and is based on the following principles:
- Sustainability and risk adjustment:
Compensation practices must contribute to long-term corporate development. They must support risk management and the pursuit of both continuous increases in the company’s value and long-term client and employee retention. Compensation policy has to offer incentives in a manner that allows for adequate risk behaviour by individual persons in order to counteract any conflicts of interest.
- Foundation of trust:
The design of the compensation regulations and processes is based on a mutual foundation of trust between employees and employers. This is necessary because there are time differences between the provision of the performance and the acceptance of responsibility on the one hand, and the payment of the compensation on the other. Furthermore, a performance appraisal has subjective elements. Accordingly, the voluntary nature of the payment of the variable component must be ensured and attention must be drawn to the scope of discretion in this respect.
- Performance and success orientation:
Compensation practices also have to reward both individual performance and company-related performance. Focus on the Group’s success promotes and is in line with the LLB Group’s long-term business interests. Acknowledging individual performance serves performance motivation, the management of individual performance contributions towards achieving company goals as well as the retention of top performers.
- Simplicity, clarity and comprehensibility:
The compensation regulations and models are to be kept simple, clear and comprehensible. Employees as well as third parties should be able to easily understand the basic concepts.
- Fair remuneration in accordance with responsibilities and management level:
Compensation assessment also has to consider the workload as well as the degree of responsibility and reflect the different management level requirements in a clear and fair manner.
- Group orientation:
Compensation also has to promote Group orientation. It aims to further commitment towards Group success and increased identification with the Group through employee participation in the long-term development of values and in shared ownership by means of an appropriate share option scheme.
The compensation policy forms the basis for the compensation standards stipulated in appropriate regulations and for the compensation model. The compensation standards define the targets, processes and requirements for the structure of the compensation. They also contain rules for the coordination between compensation and risk management. For the recipient, the compensation model specifies a variable compensation component, the ration between fixed and variable portions and the allocation mechanism for the variable portion.