34 – Employee Benefits


Share-Based Compensation Plans

The Group made grants of share-based compensation under the DB Equity Plan. This plan represents a contingent right to receive Deutsche Bank common shares after a specified period of time. The award recipient is not entitled to receive dividends during the vesting period of the award.

The share awards granted under the terms and conditions of the DB Equity Plan may be forfeited fully or partly if the recipient voluntarily terminates employment before the end of the relevant vesting period. Vesting usually continues after termination of employment in cases such as redundancy or retirement.

In countries where legal or other restrictions hinder the delivery of shares, a cash plan variant of the DB Equity Plan was used for granting awards.

The following table sets forth the basic terms of these share plans.

Grant year(s)

Deutsch Bank Equity Plan

Vesting schedule

Early retirement provisions

Eligibility

1

For regulated employees share delivery after a further retention period of six months. For members of the Management Board a different schedule applies.

2

For regulated employees share delivery after a retention period of six months. For members of the Management Board share delivery after a retention period of three years.

2012/2011

Annual Award

1/3: 12 months1
1/3: 24 months1
1/3: 36 months1

Yes

Select employees as annual retention

 

Retention/New Hire

Individual specification

Yes

Select employees to attract or retain key staff

 

Annual Award - Upfront

Vesting immediately at grant2

No

Regulated employees

2010

Annual Award

Graded vesting in nine equal tranches between 12 months and 45 months

Yes

Select employees as annual retention

 

 

Or cliff vesting after 45 months

Yes

Select employees as annual retention

 

Retention/New Hire

Individual specification

No

Select employees to attract or retain key staff

2009

Annual Award

50 %: 24 months
25 %: 36 months
25 %: 48 months

No

Select employees as annual retention

 

Retention/New Hire

Individual specification

No

Select employees to attract or retain key staff

Furthermore, the Group offers a broad-based employee share ownership plan entitled Global Share Purchase Plan (“GSPP”). Employees in select countries are granted up to ten shares per employee after a savings period of one year and a subsequent vesting period of one more year. As of December 31, 2012, entities in 37 countries enrolled in the new plan.

The Group has other local share-based compensation plans, none of which, individually or in the aggregate, are material to the consolidated financial statements.

Activity for Share Plans

 

Share units (in thousands)

Weighted-average grant date fair value per unit

Balance as of December 31, 2010

68,915

€ 40.31

Granted

28,022

€ 40.54

Issued

(24,150)

€ 49.12

Forfeited

(3,092)

€ 37.86

Balance as of December 31, 2011

69,695

€ 37.37

Granted

38,648

€ 30.00

Issued

(43,425)

€ 33.80

Forfeited

(2,419)

€ 38.37

Balance as of December 31, 2012

62,499

€ 35.25

The table also includes the grants under the cash plan variant of the DB Equity Plan.

Share-based payment transactions resulting in a cash payment give rise to a liability, which amounted to approximately € 44 million, € 35 million and € 33 million for the years ended December 31, 2012, 2011 and 2010, respectively.

As of December 31, 2012, the grant volume of outstanding share awards was approximately € 2.2 billion. Thereof, € 1.6 billion had been recognized as compensation expense in the reporting year or prior to that. Hence, compensation expense for deferred share-based compensation not yet recognized amounted to € 0.6 billion as of December 31, 2012.

In addition to the amounts shown in the table above, approximately 14.8 million shares were issued to plan participants in February 2013, resulting from the vesting of DB Equity Plan awards granted in prior years (thereof 0.6 million units under the cash plan variant of this DB Equity Plan).

Furthermore, in February 2013 the Group granted awards of approximately 23.2 million units, with an average fair value of € 36.07 per unit under the DB Equity Plan with modified plan conditions for 2013. Approximately 0.7 million units of these grants were made under the cash plan variant of this DB Equity Plan.

Taking into account the units issued and granted in February 2013 the balance of outstanding shares awards as of month-end February 2013 is approximately 71 million units.

Post-employment Benefit Plans

Nature of Plans

The Group sponsors a number of post-employment benefit plans on behalf of its employees, both defined contribution plans and defined benefit plans. The Group’s plans are accounted for based on the nature and substance of the plan.

The Group’s defined benefit plans are classified into retirement benefit plans, such as pension plans, and post-employment medical plans. The majority of the Group’s defined benefit plan commitments relate to beneficiaries of retirement benefit plans in Germany, the United Kingdom and the United States. For such plans, the value of a participant’s accrued benefit is based primarily on each employee’s remuneration and length of service. The Group maintains various external pension trusts to fund the majority of its retirement benefit plan obligations.

The Group also maintains various post-employment medical plans for a number of current and retired employees who are mainly located in the United States. These plans pay stated percentages of medical expenses of eligible retirees after a stated deductible has been met. The Group accrues for these obligations over the service of the employee and pays the benefits from Group assets when the benefits become due. Once a retiree is eligible for Medicare the retiree is no longer eligible under the Group’s medical plan and the Group makes a contribution to a Health Reimbursement Account for that retiree.

The Group’s Pensions Risk Committee oversees risks related to the Group’s post-employment benefit plans around the world. Within this context it develops and maintains guidelines for governance and risk management, including funding, asset allocation and actuarial assumption setting.

The Group’s funding policy is to maintain coverage of the defined benefit obligation (“DBO”) by plan assets within a range of 90 % to 100 % of the obligation, subject to meeting any local statutory requirements. Nevertheless, the Group has determined that certain plans should remain unfunded. Obligations for the Group’s unfunded plans are accrued on the balance sheet.

In Germany, the Group is a member of the BVV together with other financial institutions. The BVV offers retirement benefits to eligible employees in Germany as a complement to post-employment benefit promises of the Group. The BVV provides annuities of a fixed amount to individuals on retirement and increases these fixed amounts if surplus assets arise within the BVV. The subsidiary liability for providing the benefits lies with the employer in Germany. The Group classifies the BVV plan as a multi-employer plan and accounts for it as a defined contribution plan since insufficient information is available to identify assets and liabilities relating to the Group’s current and former employees. In 2012, expenses for the contributions to the BVV were € 51 million (2011: € 53 million). In addition, the Group’s expenses for defined contribution plans also include annual contributions by Deutsche Postbank AG to the special pension fund for postal civil servants of € 105 million (2011: € 112 million).

Reconciliation in Movement of Liabilities and Assets – Impact on Balance sheet

 

Retirement benefit plans

Post-employment medical plans

in € m.

2012

2011

2012

2011

1

Includes opening balance of first time application of smaller plans.

2

For funded plans only.

Change in defined benefit obligation:

 

 

 

 

Balance, beginning of year

12,974

12,071

164

154

Current service cost

257

248

4

3

Interest cost

619

600

7

7

Contributions by plan participants

19

19

Actuarial loss (gain)

1,503

458

(7)

18

Exchange rate changes

45

136

(3)

5

Benefits paid

(618)

(563)

(9)

(8)

Past service cost (credit)

30

21

(15)

Acquisitions

Divestitures

(17)

Settlements/curtailments

(2)

(1)

Other1

3

2

8

Balance, end of year

14,830

12,974

164

164

thereof: in unfunded plans

1,351

1,162

164

164

thereof: in funded plans

13,479

11,812

Change in fair value of plan assets:

 

 

 

 

Balance, beginning of year

12,594

11,076

Expected return on plan assets

577

531

Actuarial gain (loss)

650

1,165

Exchange rate changes

85

152

Contributions by the employer

160

117

Contributions by plan participants

19

19

Benefits paid2

(481)

(464)

Acquisitions

Divestitures

(12)

Settlements

(2)

9

Other1

0

1

Balance, end of year

13,602

12,594

Funded status, end of year

(1,228)

(380)

(164)

(164)

Past service cost (credit) not recognized

0

Asset ceiling

(0)

Reclassification as held for sale

(0)

Net asset (liability) recognized

(1,228)

(380)

(164)

(164)

thereof: other assets

926

1,336

thereof: other liabilities

(2,154)

(1,716)

(164)

(164)

Actuarial Methodology and Assumptions

December 31 is the measurement date for all plans. All plans are valued by independent qualified actuaries using the projected unit credit method. The following rates are presented in the form of weighted averages.

 

2012

2011

2010

1

The discount rate applied to determine the defined benefit pension obligations in Germany/eurozone as of December 31, 2012 is 3.7 %.

Assumptions used for retirement benefit plans

 

 

 

to determine defined benefit obligations, end of year

 

 

 

Discount rate

3.9 %1

4.8 %

5.1 %

Rate of price inflation

2.4 %

2.5 %

2.5 %

Rate of nominal increase in future compensation levels

3.2 %

3.4 %

3.3 %

Rate of nominal increase for pensions in payment

2.3 %

2.5 %

2.4 %

to determine expense, year ended

 

 

 

Discount rate

4.8 %

5.1 %

5.4 %

Rate of price inflation

2.5 %

2.5 %

2.7 %

Rate of nominal increase in future compensation levels

3.4 %

3.3 %

3.4 %

Rate of nominal increase for pensions in payment

2.5 %

2.4 %

2.4 %

Expected rate of return on plan assets

4.5 %

4.9 %

5.0 %

Assumptions used for post-employment medical plans

 

 

 

to determine defined benefit obligations, end of year

 

 

 

Discount rate

3.9 %

4.5 %

5.3 %

to determine expense, year ended

 

 

 

Discount rate

4.5 %

5.3 %

5.9 %

Assumed life expectancy at age 65

 

 

 

for a male aged 65 at measurement date

19.9

19.4

19.4

for a male aged 45 at measurement date

22.2

21.6

21.6

for a female aged 65 at measurement date

23.2

22.9

22.8

for a female aged 45 at measurement date

25.4

25.0

24.9

For the Group’s most significant plans, the discount rate assumption at each measurement date is set based on a high quality corporate bond yield curve approach reflecting the actual timing and amount of the future benefit payments for the respective plan. A consistent discount rate assumption is used across the eurozone based on the assumption applicable for the Group’s largest plan in Germany. For other plans, the discount rate is based on high quality corporate or government bond yields, as appropriate, at each measurement date with a duration consistent with the respective plan’s obligations.

The price inflation assumptions in the eurozone and the United Kingdom are set with reference to market implied measures of inflation based on inflation swap rates in those markets at each measurement date. For other countries, the price inflation assumptions are typically based on long term forecasts by Consensus Economics Inc.

The assumptions for the nominal increases in future compensation levels and for increases to pensions in payment are developed separately for each plan, where relevant. Each plan is set reflecting a building block approach based on the price inflation assumption and reflecting the Group’s reward structure or policies in each market as well as relevant local statutory and plan-specific requirements.

The expected rate of return on assets is developed separately for each funded plan, using a building block approach recognizing each plan’s target asset allocation at the measurement date and the assumed return on assets for each asset category. The general principle is to use a risk-free rate as a benchmark, with adjustments for the effect of duration and specific relevant factors for each major category of plan assets where appropriate. For example, the expected rate of return for equities and property is derived by adding relevant risk premia to the risk-free rate.

Among other assumptions, mortality assumptions can be significant in measuring the Group’s obligations under its defined benefit plans. These assumptions have been set in accordance with current best practice in the respective countries. Future potential improvements in longevity have been considered and included where appropriate.

In determining the obligations and expenses for post-employment medical plans, an annual weighted-average rate of increase of 8.3 % in the per capita cost of covered health care benefits was assumed for 2013. The rate is assumed to decrease gradually to 5.1 % by the end of 2019 and to remain at that level thereafter.

Pension Fund Investments

The Group’s primary investment objective is to immunize broadly the Group to large swings in the funded status of its retirement benefit plans, with some limited amount of risk-taking through duration mismatches and asset class diversification to reduce the Group’s costs of providing the benefits to employees in the long term. The aim is to maximize returns within the Group’s overall risk tolerance. The following rates are presented in the form of weighted averages.

 

 

Percentage of plan assets

 

Target allocation

Dec 31, 2012

Dec 31, 2011

Asset categories:

 

 

 

Equity instruments

10 %

9 %

7 %

Debt instruments (including Cash and Derivatives)

85 %

88 %

87 %

Alternative Investments (including Property)

5 %

3 %

6 %

Total asset categories

100 %

100 %

100 %

The actual return on plan assets for the year 2012 was € 1,227 million (2011: € 1,696 million).

Plan assets as of December 31, 2012, include derivative transactions with Group entities with a negative market value of € 242 million. In addition, there are € 7 million of securities issued by the Group included in the plan assets.

Impact on Cashflows

The Group expects to pay approximately € 190 million in regular contributions to its retirement benefit plans in 2013. Furthermore the Group is considering making a contribution to fund the majority of Postbank’s defined benefit obligations in 2013. It is not expected that any plan assets will be returned to the Group during the year ending December 31, 2013.

The table below reflects the benefits expected to be paid by the defined benefit plans in each of the respective periods. The amounts include benefits attributable to employees’ past and estimated future service, and include both amounts paid from the Group’s pension funds in respect of funded plans and by the Group in respect of unfunded plans.

in € m.

Retirement benefit plans

Post-employment medical plans

2013

582

10

2014

560

10

2015

574

10

2016

595

10

2017

630

11

2018 – 2022

3,607

55

Impact on Equity

The Group applies the policy of recognizing actuarial gains and losses in the period in which they occur. Actuarial gains and losses are taken directly to shareholders’ equity and are presented in the Consolidated Statement of Comprehensive Income and in the Consolidated Statement of Changes in Equity. The following amounts are presented without any tax effects.

 

Amount recognized in comprehensive income (gain(loss))

in € m.

Dec 31, 20121

2012

2011

1

Accumulated since the Group adopted IFRS and inclusive of the impact of exchange rate changes.

Retirement benefit plans:

 

 

 

Actuarial gain (loss)

8

(853)

707

Asset ceiling

(0)

0

2

Total retirement benefit plans

8

(853)

709

Post-employment medical plans:

 

 

 

Actuarial gain (loss)

14

7

(18)

Total post-employment medical plans

14

7

(18)

Total amount recognized

22

(846)

691

Experience Impacts on Liabilities and Assets

in € m.

Dec 31, 2012

Dec 31, 2011

Dec 31, 2010

Dec 31, 2009

Dec 31, 2008

1

Amounts arisen in the applicable year.

Retirement benefit plans:

 

 

 

 

 

Defined benefit obligation

14,830

12,974

12,071

9,416

8,189

thereof: experience adjustments (loss (gain))1

(117)

25

(83)

(72)

24

Fair Value of plan assets

13,602

12,594

11,076

9,352

8,755

thereof: experience adjustments (gain (loss))1

650

1,165

224

92

(221)

Funded status

(1,228)

(380)

(995)

(64)

566

Post-employment medical plans:

 

 

 

 

 

Defined benefit obligation

164

164

154

136

119

thereof: experience adjustments (loss (gain))1

(12)

8

1

(5)

Funded status

(164)

(164)

(154)

(136)

(119)

Sensitivity to Key Assumptions

The figures presented below reflect the effect of adjusting each assumption in isolation.

Increase/(decrease)

Defined benefit obligation as of

Expenses for

in € m.

Dec 31, 2012

Dec 31, 2011

2013

2012

1

Includes application of the discount rate to the funded status, rather than only the defined benefit obligation, under the new IAS 19 rules which apply from 2013.

2

Improvement by ten percent on longevity means that the probability of death at each age is reduced by ten percent. The sensitivity has, broadly, the effect of increasing the expected longevity at age 65 by about one year.

3

Not applicable under the new IAS 19 rules which apply from 2013.

Retirement benefit plans sensitivity:

 

 

 

 

Discount rate (50 basis points decrease)

1,090

960

601

5

Rate of price inflation (50 basis points increase)

670

555

40

40

Rate of real increase in future compensation levels (50 basis points increase)

120

105

10

10

Longevity (improvement by ten percent)2

305

255

15

15

Expected rate of return (50 basis points decrease)

3

65

Post-employment medical plans sensitivity:

 

 

 

 

Health care cost rate (100 basis points increase)

5

17

0

2

Health care cost rate (100 basis points decrease)

(4)

(15)

(0)

(1)

Expense of post-employment benefits and selected other employee benefits

in € m.

2012

2011

2010

1

Including expenses for new hire awards and the acceleration of expenses not yet amortized due to the discontinuation of employment. Thereof, € 83 million were recognized as part of restructuring expenses in the year 2012.

2

Excluding the acceleration of expenses for deferred compensation awards not yet amortized.

Expenses for retirement benefit plans:

 

 

 

Current service cost

257

248

243

Interest cost

619

600

527

Expected return on plan assets

(577)

(531)

(490)

Past service cost (credit) recognized

30

21

(77)

Settlements/curtailments

(0)

(9)

(14)

Total retirement benefit plans

329

329

189

Expenses for post-employment medical plans:

 

 

 

Current service cost

4

3

3

Interest cost

7

7

9

Past service cost (credit) recognized

(15)

Total post-employment medical plans

11

(5)

12

Total expenses defined benefit plans

340

324

201

Total expenses for defined contribution plans

375

351

239

Total expenses for post-employment benefits

715

675

440

 

 

 

 

Expenses for selected other employee benefits

 

 

 

Employer contributions to mandatory German social security pension plan

231

226

171

Expenses for cash retention plans1

1,133

1,014

818

Expenses for share-based payments, equity settled1

1,097

1,261

1,153

Expenses for share-based payments, cash settled1

17

28

24

Expenses for severance payments2

472

461

499

Expected expenses for 2013 are € 315 million for retirement benefit plans and € 10 million for post-employment medical plans.

The increase in expenses for post-employment benefits in 2011 compared to 2010 is mainly caused by the full-year impact of the consolidation of Postbank in the 2011 expense and the change in indexation of UK occupational pensions in deferment from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI) due to a UK Government announcement which led to a past service credit of € 104 million recognized in the 2010 expense.