Cultural and Regulatory Influences
2013 was a defining year with regards to the compensation regulations applicable to banks in the EU following the finalization of the Capital Requirements Directive (CRD) 4. The new remuneration requirements (including the headline measure limiting fixed to Variable Compensation ratios) came into effect on January 1, 2014, however, are not applicable to compensation in respect of the performance year 2013. While there remain a few interpretive uncertainties at this point in time, the Bank has endeavored to be at the forefront of compensation regulatory changes and will ensure full compliance with all of the new requirements. Specifically, the bank will continue to adhere to the InstitutsVergV and the German Banking Act which were amended effective from January 1, 2014 to reflect the requirements of the CRD 4.
In conjunction with the external developments, culture and cultural change within the Bank remains an essential part of our Strategy 2015+. A milestone in this regard was reached in mid-2013 with the launch of our new Deutsche Bank values and beliefs which lie at the core of what we do. Compensation is an integral component of a successful and sustainable organization and therefore we have sought to ensure that the goals and objectives of our newly developed compensation strategy are aligned with the values and beliefs.
Our compensation strategy is predicated on supporting a diversified universal banking model with safe compensation practices aligned to the Bank’s values. Specifically, the compensation strategy has five objectives:
- To support the delivery of Deutsche Bank’s client-focused, universal bank strategy by attracting and retaining talent across the range of diverse business models and across 65 country locations;
- To support the long term performance of the Bank, the sustainable development of the institution and the risk strategies that derive from this;
- To support long-term performance that is predicated on cost discipline and efficiency;
- To ensure that the Bank’s compensation practices are safe in terms of risk-adjusting performance outcomes, preventing inappropriate risk taking, ensuring compatibility with capital and liquidity planning and complying with regulation;
- To underpin the Bank’s stated values of integrity, sustainable performance, client centricity, innovation, discipline and partnership.
Furthermore, the compensation strategy is vital to delivering all five levers of Deutsche Bank's Strategy 2015+:
- Clients: Placing a strategic emphasis on the Bank's client franchises by ensuring franchise competitiveness and client centricity;
- Competencies: Ensuring the Bank can attract and retain the right talent across the breadth of products and control function/infrastructure areas;
- Capital: Promoting organic capital growth, the reduction of risk-weighted assets and a compensation system that supports the Group’s capital plan;
- Costs: Incentivizing actions that deliver long term cost targets and ongoing cost discipline;
- Culture: Linking incentives to behaviors that underpin sustainable performance, financial discipline and an appropriate risk culture. In particular, compensation outcomes have been more closely linked to disciplinary action through improved forfeiture provisions.
A robust and effective governance framework ensures we operate within the clear parameters of our compensation strategy and policy. All compensation matters, and overall compliance with regulatory requirements, are overseen by the key committees that form the Global Reward Governance Structure.
Revised compensation governance structure
In accordance with the German two tier board structure, the Supervisory Board governs the compensation of the Management Board members, whilst the Management Board, supported by the Senior Executive Compensation Committee (“SECC”), oversees compensation matters for all other employees in the Group. In accordance with the updated InstitutsVergV, the SECC now works in co-operation with the newly created Compensation Control Committee (“CCC”) in relation to Group matters. The CCC is comprised of Supervisory Board members and ensures a closer link to and focus on Group compensation matters by the Supervisory Board.
The SECC is co-chaired by Stefan Krause (CFO) and Stephan Leithner (CEO Europe ex Germany and UK, Human Resources, Legal & Compliance, Government and Regulatory Affairs), both of whom are members of the Management Board. The remaining membership is comprised of Stuart Lewis (CRO and member of the Management Board) and senior employees from Finance and Human Resources. In order to maintain its independence, no employees aligned to any of our business divisions are members of the SECC. The SECC prepares and recommends to the Management Board key Group level decisions on compensation strategy and structures, as well as overseeing the overall compensation process through its sub-committee structure.
Compensation Governance Enhancements
In addition to the formation of the CCC, a number of additional governance enhancements were introduced during 2013 with particular focus on the remit and work of the Group Compensation Oversight Committee (“GCOC”).
As a delegated body of the SECC, the GCOC is responsible for the oversight of the Divisions’ year-end compensation processes. As such, the GCOC provides a compensation framework and guidance to Divisional Compensation Committees (“DCC”) to establish their divisional compensation frameworks. The GCOC then reviews these frameworks ensuring that both the frameworks and the DCCs’ general practices comply with the Bank’s compensation principles and policies, as well as external regulatory requirements.
The purpose of the GCOC is multi-fold:
Ensure that sound compensation parameters and metrics (financial and non-financial) were considered by divisions when allocating Variable Compensation pools within the division, with particular reference to:
- The financial performance of the respective division and sub-divisional business areas, in the context of wider business strategy;
- The consideration of inherent risk profiles based on the different types of risk (i.e., operational, market, liquidity, reputational, regulatory and credit risk);
- Other strategic qualitative factors.
To review the Divisional governance structure (and the communication thereof) and processes supporting Variable Compensation decisions at an individual employee level, to:
- Broadly assess adherence to established compensation governance requirements;
- Determine if further enhancements to the division’s compensation governance processes are needed.
The GCOC monitors the DCCs’ progress in relation to the established compensation governance requirements throughout the Group’s annual year-end compensation process and provides a summary of its findings and recommendations to the SECC prior to the conclusion of the process.
The GCOC made a number of enhancements to the compensation governance process for 2013. These enhancements included, but were not limited to:
- a review of all existing compensation governance requirements;
- increased engagement with the DCCs on the appropriateness of the compensation parameters employed by the DCCs;
- the introduction of significantly enhanced requirements for the documentation of Variable Compensation decisions.
As a result of these enhancements, governance was clearly improved via the GCOC for 2013.
Furthermore, the GCOC mandated that the enhancements made to the Variable Compensation decision documentation were applied to all Regulated Employees, thus ensuring that managers who make Variable Compensation allocation decisions for Regulated Employees appropriately documented the metrics considered when making their decisions.