Elements of compensation

The compensation model of the LLB Group

The compensation model is geared towards performance-linked compensation. An above-average performance has a positive and a below-average performance a negative effect on compensation. It is geared towards sustainable, long-term action and was developed in conjunction with HCM International.

Group Performance Indicator

A key performance indicator is the Group Performance Indicator (GPI). With it, employees with a variable salary component can participate directly in the earnings generated. Net profit over the last three years serves as the basis, weighted at 60 (current year): 30 (last year) : 10 (year before last year).

The Board of Directors defines a percentage of the net profit to flow into the bonus pool. This percentage is maintained over the strategy period, but may be reviewed in exceptional circumstances, such as in the case of major acquisitions, for instance.

The Board of Directors can also adjust the bonus pool qualitatively by up to 20 per cent so as to ensure the distribution is a fair reflection of actual performance.

The focus on the GPI promotes, and is also in line with, the LLB Group’s long-term interests.

The compensation system of the LLB Group

The compensation system is based, in particular, on the following principles:

• Clear performance incentives, performance orientation and transparency: Each employee has a defined target compensation (total target compensation). A bonus-malus logic creates clear performance incentives.
• Uniform focus on the structure of the LLB Group: The system is applied consistently across the Group and is aligned with the management structure.
• Fair compensation in accordance with responsibilities and management level: Compensation considers the workload and the value of the function and reflects the different requirements fairly.
• Objective orientation: The variable part depends on the salary model and the attainment of objectives and promotes alignment with the LLB Group’s long-term interests.
• Fairness and freedom to act: The variable component is a significant part of the target compensation. Internal transfers and departures are calculated fairly on a pro rata basis.
• Integrity and trust: Trust is of central importance given performance appraisals are subjective and compensation is deferred; LLB stands by its employees in difficult times, too.

These guidelines are intended to ensure how the compensation system works is understood and that it is fair for all employees.

Target compensation

Around 36 per cent of employees receive a fixed compensation only. For 64 per cent, the target compensation consists of fixed and variable components. 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 target compensation

The fixed component must be reasonably proportionate to the variable component. Depending on the salary model, it amounts to 67 to 100 per cent of the target compensation.

Variable component of target compensation

The variable compensation is paid in cash or in cash and share entitlements. For certain groups of employees, it is subject to:

• a deferral or blocked period of five years (senior management and risk takers);

• of six years (Group Executive Board).

Other financial instruments, such as options or bonds, are not used. The variable part may not exceed the fixed part.

A clawback ruling applies to the blocked portion, which is largely governed by the individually attained performance and the risks taken. If a significant change occurs in the assessment of performance and risks during the blocking period (for example, inadequate due diligence, untrustworthy business management or excessive risk taking), the acquired share entitlements are to be reduced accordingly. The body which determines the amount of the variable compensation during the annual compensation process will decide about the reduction of the share entitlements.

Shares that have been transferred into the ownership of the employees can be clawed back by the company within three years should there be a material negative impact on its interests. The deferred portion will also be forfeited before the transfer of ownership should average net profit over the respective deferral period be negative.

A guaranteed variable compensation, for example in the form of a minimum bonus, is permitted only in exceptional circumstances and only in the first year of employment. Severance compensation or voluntary pension payments are generally not granted.

The fixed compensation component and the variable target compensation are insured in the staff pension scheme for old age, death and invalidity. The employees of the LLB Group receive fringe benefits as customary in the industry in the form of preferential conditions on bank products as well as limited preferential interest rates for mortgage loans and on credit balances.

Group Internal Audit reviews the implementation of the Group regulation “Compensation policy of the LLB Group” once a year. The results of this review are reported to the Board of Directors in writing. The compensation of senior executives in the areas of 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.