The compensation model of the LLB Group
The LLB Group’s compensation model aims at ensuring that compensation is performance-linked. Among other elements, this means that an above-average performance has a positive and a below-average performance has a negative effect on the amount of compensation. In accordance with the compensation policy, the compensation model focuses on sustained, long-term-oriented action. To design the compensation model, the consultancy firm, FehrAdvice & Partners AG, was brought in 2013.
In general, total compensation is composed of a fixed and a variable component. The fixed component encompasses all contractually agreed or statutory compensation, which is already stipulated prior to the provision of any performance. The variable component includes, in particular, those elements of compensation which vary depending on various criteria, such as the business success of the company, the individual performance of the employee, or the results attained by the organisational unit. In general, the amount and payment of the variable component is at the free discretion of the employer.
Fixed component of total compensation
The fixed component must be reasonably proportionate to the variable component. It is to be calculated in such a manner that indeed the payment of the variable component could be dispensed with. This proportionate relationship is specified in the individual compensation guidelines of Liechtensteinische Landesbank AG and of the LLB Group companies.
Variable component of total compensation
The payment of the variable component of total compensation is made in cash and / or in the form of share entitlements. Other financial instruments, such as options or bonds, are not considered. The variable component may not exceed 100 percent of the fixed component of the total compensation for each person.
The variable component of total compensation must be reasonably proportionate to the following criteria in particular:
- performance of the LLB Group, which is determined on the basis of a relative performance indicator based on the Total Shareholder Return;
- performance of the individual organisational unit;
- multi-year performance appraisal of the person concerned (with financial as well as non-financial criteria);
- the share proportion of the variable compensation must be at least 40 percent. The share proportion is to be awarded in the form of entitlements to LLB shares;
- a proportion of at least 40 percent of the variable compensation is blocked for at least three years. The block applies only to the share proportion. The block remains in place even if the employee leaves the company.
A clawback ruling applies to the blocked portion of the variable compensation, which is largely governed by the individually attained performance and the risks. If a significant change occurs to the estimate of performance and risks during the blocking period (for example, inadequate due diligence, untrustworthy business management, or incurring excessive risks), the acquired share entitlements are to be reduced accordingly. The company authority, which decides on the amount of the variable compensation during the annual compensation process, will decide about the reduction of the share entitlements. Moreover, the share entitlement in the year concerned will be forfeited if the average Group net profit in the last three years is negative.
A guaranteed variable compensation, for example in the form of a minimum bonus, may only be promised in exceptional circumstances and must be limited to the first working year. Basically, no additional, voluntary annuity payments will be made to employees who leave the company. The relevant Board of Directors will decide about any exceptions to this ruling.
The fixed compensation component and the variable target compensation are insured for old age, death and invalidity in the pension fund. The employees of the LLB Group receive fringe benefits in the form of preferential conditions on bank products as customary in the industry, a limited preferential interest rate for mortgage loans and on credit balances.
Group Internal Audit is responsible for reviewing the implementation of the Group regulation “Compensation standards” once a year. The results of this review are reported in writing to the Board of Directors. The remuneration of senior executives in risk management and compliance at the parent bank and at the LLB Group companies is reviewed once a year by the relevant Board of Directors or by the Compensation Committee (if such a body exists in the Group company). The Group Nomination & Compensation Committee carries out these tasks for the Group functions.