Compensation at the Bank is split into fixed and variable pay. Fixed pay is used to compensate employees for their skills, experience and competencies, commensurate with the requirements, size and scope of their role. The appropriate level of fixed pay for each role is determined with reference to the prevailing market value of the role and influenced by the regulatory requirements of Total Compensation structures.
Fixed pay can include base salary, supplementary salary or allowance components and, where applicable, specific local allowances (i.e., car allowances). Fixed pay is contractual and, in many legal jurisdictions, non-revocable.
For the majority of Deutsche Bank staff, fixed pay is the primary compensation component, and the share of fixed compensation within Total Compensation is far greater than 50 %. This is appropriate to many businesses and will continue to be a significant feature of Total Compensation going forward.
In order to support attracting and retaining the right people in the various country locations and business models, market competitive fixed pay levels have an important part to play in ensuring the Bank has the critical competence required to meet its strategic objectives.
Variable Compensation is predicated on the industry objective of retaining cost flexibility whilst attracting and retaining the right talent. VC also has the advantage of being able to differentiate performance outcomes and drive behaviors through appropriate incentive systems that can also influence culture. As a result, VC is a key feature of market practice compensation in many business lines in the banking environment globally. Combined with Fixed Pay, this drives Total Compensation outcomes that are both cost effective and flexible.
Determining Group-wide Variable Compensation
The Bank uses a formalized and transparent process to derive recommended VC pools across the Group. For business divisions, VC pool recommendations are calculated by applying divisional payout rates to divisional risk-adjusted, bonus eligible performance. Divisional payout rates are calibrated to both historical midpoints and competitive benchmarks to ensure transparency of initial pool recommendations.
The resulting pool recommendations are then considered and reviewed taking into account other strategic qualitative factors and external benchmarks. In accordance with the InstitutsVergV, the emphasis of remuneration for the majority of infrastructure employees, particularly in key control functions, is on fixed compensation.
When making VC pool decisions, the overriding consideration is balancing Group affordability with competitiveness. In line with InstitutsVergV regulation, the entire Group financial performance is taken into account when affordability is considered, to ensure the VC pool is within the levels which the Group as a whole can afford. Again, in line with InstitutsVergV, the aggregate VC pool must take into account risk-bearing capacity, multi-year capital and liquidity planning and profitability, and support adequate capital and liquidity levels.
Summary of the VC pool determination process and the overarching governance framework:
Variable Compensation Structure and Vehicles
Variable Compensation has been used by the Bank for many years to incentivize, reward and retain strong performing employees and thereby differentiate Total Compensation outcomes. At a senior level, we are committed to ensuring that a large portion of any VC award is linked to the long-term development and performance of the Bank through the structured deferral of awards over a minimum three year period, with appropriate performance conditions and forfeiture provisions.
The overall benefits of deferred awards and the positive aspects from a retention and risk management perspective must also be carefully balanced with the management of compensation costs for future years and the implications of increasing levels of deferral. To strike the right balance, it was determined that 44 % (not including Equity Upfront Awards) of the overall group bonus pool for 2013 would be in the form of deferred compensation.
On an individual basis the deferral threshold was set at € 100,000, above which at least 50 % of any VC was deferred. As in previous years, the most senior employees in the Bank had the majority of their VC tied to the future performance of both the Bank and the division they work in. As a result, 100 % of any VC above € 1 million was fully deferred. Taking this step ensured that the maximum upfront cash payment an employee could receive was € 300,000 (or € 150,000 for a Regulated Employee as a result of the EUA retention period – see EUA below).
Senior Employee Population Groups and Average Deferral Rates of Variable Compensation
Employees with a 2013 deferred VC award received 50 % of the award in the form of deferred equity and 50 % in deferred cash (nb: A limited number of senior employees in our DeAWM division received a portion of their deferred award in the form of an Employee Incentive Plan (EIP) Award. These are cash settled awards based on the value of funds managed by the business. Deferral and forfeiture provisions under the EIP remain the same as all other awards.). The following instruments were utilized to achieve this:
Restricted Equity Awards
The deferred equity portion is delivered as a Restricted Equity Award (“REA”) which vests on a pro rata basis over a minimum of three years (or 4.5 years for the Senior Management Group). The value of the REA is linked to the Bank’s share price over the vesting (and where applicable retention) period and is therefore tied to the long-term sustained performance of the Bank. Specific forfeiture provisions apply during the deferral period and, where applicable, retention periods.
Restricted Incentive Awards
The non equity based portion is granted as deferred cash compensation (Restricted Incentive Award “RIA”) which vests on a pro rata basis over a minimum of three years (a longer deferral period applies to Management Board members). Specific forfeiture provisions apply during the deferral period.
Equity Upfront Awards
In addition to the above deferred awards, all Regulated Employees receive 50 % of their upfront (non-deferred) award in the form of an Equity Upfront Award (“EUA”).
The EUA is vested at grant but subject to a retention period. The value of the EUA is linked to the Bank’s share price during the retention period and is therefore tied to the sustained performance of the Bank. Specific forfeiture provisions apply during the retention period in addition to a service requirement.
The below diagram summarizes the above compensation vehicles utilized for Regulated Employees and all other employees with a deferred award.