Order on Remuneration Policy and Pay in Credit Institutions, Mortgage Credit Institutions, Collective Investment Undertakings, AIFMs, and Certain Holding Companies

Order on Remuneration Policy and Pay in Credit Institutions, Mortgage Credit Institutions, Collective Investment Undertakings, AIFMs, and Certain Holding Companies 1)

Pursuant to Section 77 h, paragraphs 1-4, and Section 373, paragraph 4, of the Act on Financial Business, cf. Act Consolidation No. 1447 of 11 September 2020, as amended by Act No. 2110 of 22 December 2020 and Act No. 1155 of 8 June 2021, Section 113, paragraphs 1-4, and Section 270, paragraphs 1 and 2, of Act No. 1155 of 8 June 2021 on Collective Investment Undertakings and Investment Services and Activities, and Section 48 d and Section 190, paragraph 5, of the Act on Investment Undertakings, cf. Act Consolidation No. 1718 of 27 November 2020, it is hereby ordered:

Scope of Application

Section 1. This Order applies to the following businesses:

1. Credit institutions.
2. Mortgage credit institutions.
3. Collective investment undertaking management companies (AIFMs).
4. Alternative Investment Fund Managers (AIFMs).
5. Collective investment undertaking holding companies.
6. Financial holding companies.
7. Investment undertakings that have not delegated daily management to an AIFM or an administration company, cf. Section 1, paragraph 5, of the Act on Investment Undertakings, etc.

Paragraph 2. The Order does not apply to employment relationships covered by a collective agreement.

Identification of Material Risk Takers

Section 2. In credit institutions and mortgage credit institutions, the board of directors shall identify employees whose activities have a material impact on the risk profile of the business (material risk takers), in accordance with the criteria in paragraph 2 and relevant delegated regulations issued pursuant to Article 94, paragraphs 2, 3, and 4, of Directive 2019/878/EU of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU.

Paragraph 2. In credit institutions and mortgage credit institutions, material risk takers include at minimum:

1. All members of the board of directors and the executive management.

2. Employees with management responsibility for the business's control functions, including the head of the risk management function, the compliance function, and internal audit, or significant business units.

3. Employees who are entitled to significant remuneration in the previous financial year, provided the following conditions are met: a) The employee's remuneration is equal to or higher than 500,000 euros and equal to or higher than the average remuneration of the members of the business's board of directors and executive management. b) The employee performs work in a significant business unit, and the work is of a nature that has a material impact on the risk profile of the relevant business unit.

4. The Order contains provisions that implement parts of Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, OJ EU 2017, L 176, p. 338, parts of Directive 2019/878/EU of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU, as far as it concerns exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers, and capital conservation measures, OJ EU 2019, L 150, p. 253, and parts of Directive 2019/2034/EU of the European Parliament and of the Council of 27 November 2019 on the prudential supervision of investment firms, OJ EU 2019, L 314, p. 64. Certain provisions from Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions, OJ EU 2013, L 176, p. 1, certain provisions from Regulation (EU) No 876/2019 of the European Parliament and of the Council of 20 May 2019, OJ EU 2019, L 150, p. 1, and certain provisions from Regulation (EU) No 2033/2019 of the European Parliament and of the Council of 27 November 2019, OJ EU 2019, L 314, p. 1, have been included in the Order. According to Article 288 of the TFEU, a regulation is directly applicable in each Member State. The reproduction of these provisions in the Order is thus solely justified by practical considerations and does not affect the direct validity of the regulation in Denmark.

Act Gazette A 2021 Published on 12 June 2021 10 June 2021. No. 1242. Ministry of Industry, Business and Financial Affairs, Danish Financial Supervisory Authority, ref. no. 21-000124 CQ001782

Section 3. In AIFMs, investment undertakings, collective investment undertaking holding companies, and financial holding companies, the board of directors shall, taking into account the size and organization of the business as well as the scope and complexity of the business's activities, identify employees whose activities have a material impact on the risk profile of the business (material risk takers), in accordance with the criteria in paragraph 2.

Paragraph 2. In AIFMs, investment undertakings, collective investment undertaking holding companies, and financial holding companies, material risk takers include at minimum:

1. The management of the part of the organization that trades in or approves financial instruments.
2. The management of the part of the organization that invests the business's own funds.
3. Portfolio managers and other employees in the parts of the organization mentioned in items 1 and 2, who can take significant risks on behalf of the business for the business's funds via financial instruments.
4. The head of the risk management function, the compliance function, and internal audit.
5. Employees who meet at least one of the following criteria, unless the employee does not have a material impact on the business's risk profile after a specific assessment: a) The employee was awarded total remuneration corresponding to 500,000 euros or more in the previous financial year. b) The employee is among the top 0.3 percent of the business's employees, rounded up to the nearest whole number, who were awarded the highest total remuneration in the business in the previous financial year.

Section 4. In collective investment undertaking management companies, the board of directors shall identify employees whose activities have a material impact on the risk profile of the business or on the assets managed by the business (material risk takers), in accordance with the criteria in paragraph 2 and relevant delegated regulations issued pursuant to Article 30, paragraph 4, of Directive 2019/2034/EU of the European Parliament and of the Council of 27 November 2019 on the prudential supervision of investment firms.

Paragraph 2. In collective investment undertaking management companies, material risk takers include at minimum:

1. All members of the board of directors and the executive management.
2. Employees responsible for the business's compliance, risk management, internal audit, and other control functions.
3. Employees with total remuneration at least equal to the lowest remuneration awarded to a member of the executive management or another material risk taker in the financial year, and whose work has a material impact on the business's risk profile or on the assets managed by the business.

Remuneration Policy

Section 5. The board of directors shall, taking into account the size and organization of the business as well as the scope and complexity of the business's activities, establish the business's remuneration policy for members of the board of directors and employees, cf. Section 77 d, paragraph 1, of the Act on Financial Business, Section 107, paragraph 1, of the Act on Collective Investment Undertakings and Investment Services and Activities, and Section 48 c, paragraph 1, of the Act on Investment Undertakings, etc.

Paragraph 2. The board of directors is responsible for the implementation of the remuneration policy.

Section 6. The board of directors shall review the business's remun policy at regular intervals and at least once a year with a view to adapting the remuneration policy to the business's development.

Section 7. The board of directors shall ensure that at least once a year a check is made as to whether the business's remuneration policy is complied with. The board of directors shall establish guidelines for the check, and the result of the check shall be reported to the board of directors.

Paragraph 2. The board of directors shall monitor the remuneration of the executive management and employees with management responsibility for the business's control functions, including the head of the risk management function, the compliance function, and internal audit, or significant business units. If the business has established a remuneration committee, the committee shall perform this monitoring.

Section 8. The business shall ensure that employees who contribute to the preparation of the business's remuneration policy and the monitoring of its compliance possess the necessary expertise. Furthermore, the business shall, taking into account the size, internal organization, and scope and complexity of the business's activities, ensure that employees who monitor compliance with the remuneration policy are independent of the business units they monitor.

Section 9. The business's remuneration policy shall be consistent with and promote sound and effective risk management and must not encourage excessive risk-taking.

Paragraph 2. The business's remuneration policy shall establish the business's pension policy and guidelines for the allocation of variable pay components, severance pay, and the identification of other employees whose activities have a material impact on the business's risk profile.

Paragraph 3. The business's remuneration policy shall further comply with the following:

1. It shall be consistent with the business's business strategy, values, and long-term objectives, including a sustainable business model.
2. It shall be gender-neutral.
3. It shall harmonize with the principles of customer and investor protection in the performance of the business and contain measures to prevent conflicts of interest.
4. It shall ensure that the total variable pay the business commits to paying does not erode the business's ability to strengthen its capital base.
5. It shall set criteria for the allocation of fixed pay components, which should primarily reflect relevant professional experience and organizational responsibility, and criteria for the allocation of variable pay components, which should reflect sustainable and risk-adjusted results, as well as results beyond what can be expected relative to the employee's relevant professional experience and organizational responsibility.
6. It shall ensure an appropriate balance between fixed and variable pay components, and ensure compliance with the limitations on the use of variable pay resulting from Sections 77 a and 77 b of the Act on Financial Business, Sections 109 and 110 of the Act on Collective Investment Undertakings and Investment Services and Activities, and Section 48 a of the Act on Investment Undertakings, etc.

Variable Pay

Section 10. If the business awards variable pay to the board of directors, executive management, or other material risk takers, the business shall ensure an appropriate balance between fixed and variable pay components, including:

1. That a cap is set for the variable pay component within the framework of Section 77 a, paragraph 1, items 1-3, and Section 77 b, paragraph 1 and 3, of the Act on Financial Business, Section 109, paragraph 1, items 1-3, and Section 110, paragraph 1 and 3, of the Act on Collective Investment Undertakings and Investment Services and Activities, and Section 48 a, paragraph 1, items 1-3, of the Act on Investment Undertakings, etc., and
2. That the fixed pay component constitutes a sufficiently high share of the total remuneration so that the business can conduct a flexible bonus policy.

Paragraph 2. An appropriate balance between fixed and variable pay components may vary depending on the recipient's function and the business's other circumstances.

Section 11. A variable pay component that is performance-dependent shall be set based on an assessment of the recipient's results, the results of their business unit, and the business's results.

Paragraph 2. The performance measurement underlying the variable pay component shall reflect the current and future risks associated with the results in question, as well as any capital costs and liquidity required to achieve the results.

Paragraph 3. In the assessment of the individual recipient's results, both economic and non-economic criteria shall be taken into account. Non-economic criteria include, among other things, compliance with internal rules and procedures as well as compliance with the business's guidelines and business practices applicable to relations with customers and investors.

Section 12. The board of directors or executive management may decide that the requirements in Section 77 a, paragraph 1, items 4 and 5, and paragraph 3, of the Act on Financial Business, Section 109, paragraph 1, items 4 and 5, and paragraph 3, of the Act on Collective Investment Undertakings and Investment Services and Activities, and Section 48 a, paragraph 1, items 4 and 5, and paragraph 3, of the Act on Investment Undertakings, etc., may be derogated from in cases where the accrued variable pay amounts to a maximum of 100,000 DKK per year, if the board of directors or executive management assesses that the derogation is justified. Upon request from the Danish Financial Supervisory Authority, the business must demonstrate which considerations were taken into account to exempt the variable pay component from one or more of the requirements mentioned in the first sentence.

Remuneration of Employees in Control Functions

Section 13. If a business's remuneration of an employee performing work in connection with the business's control functions includes a variable pay component, the variable pay component must not be dependent on the results of the business unit that the employee monitors.

Pensions and Special Remuneration

Section 14. If the business awards pension benefits that can be equated with variable pay to the board of directors, executive management, or other material risk takers, the business's pension policy must be consistent with the requirements resulting from Section 77 a, paragraph 6, of the Act on Financial Business, Section 109, paragraph 6, of the Act on Collective Investment Undertakings and Investment Services and Activities, or Section 48 a, paragraph 6, of the Act on Investment Undertakings, etc.

Section 15. Section 77 a, paragraphs 1-6, of the Act on Financial Business, Section 109, paragraphs 1-6, of the Act on Collective Investment Undertakings and Investment Services and Activities, and Section 48 a, paragraphs 1-6, of the Act on Investment Undertakings, etc., do not apply to agreements on severance pay that meet all of the following conditions:

1. The agreement on severance pay was entered into in connection with the appointment to the position.
2. The agreed severance pay is not dependent on results achieved in the performance of the position.
3. The agreed severance pay may at the time of departure at most amount to a value corresponding to the last two years' total remuneration including pension.

Paragraph 2. Section 77 a, paragraphs 1-6, of the Act on Financial Business, Section 109, paragraphs 1-6, of the Act on Collective Investment Undertakings and Investment Services and Activities, and Section 48 a, paragraphs 1-6, of the Act on Investment Undertakings, etc., do not apply to agreements on severance pay entered into in connection with departure, for the part of the severance pay that does not exceed a value corresponding to one year's total remuneration including pension.

Paragraph 3. Severance pay not covered by paragraphs 1 and 2 shall reflect the results achieved in the performance of the position over a period.

Paragraph 4. Severance pay must not reward misconduct or lack of results.

Paragraph 5. Severance pay that can be derived from law is not included in the calculation in paragraph 1, item 3, or paragraph 2.

Paragraph 6. Severance pay that can be derived from law is not covered by Section 77 a, paragraphs 1-6, of the Act on Financial Business, Section 109, paragraphs 1-6, of the Act on Collective Investment Undertakings and Investment Services and Activities, and Section 48 a, paragraphs 1-6, of the Act on Investment Undertakings, etc.

Section 16. Section 77 a, paragraphs 1-6, of the Act on Financial Business, Section 109, paragraphs 1-6, of the Act on Collective Investment Undertakings and Investment Services and Activities, and Section 48 a, paragraphs 1-6, of the Act on Investment Undertakings, etc., do not apply to agreements on new hire remuneration that meet all of the following conditions:

1. The agreement on new hire remuneration was entered into in connection with the appointment to the position.
2. The agreed new hire remuneration is limited to the first year of employment.
3. The business has a sound and solid capital base at the time of the award of the new hire remuneration.

Section 17. Remuneration packages linked to compensation or buyouts from other contracts in connection with previous employment shall be adapted to the business's long-term interests, including the requirements for the payment of variable pay, cf. Section 77 a, paragraphs 1-6, of the Act on Financial Business, Section 109, paragraphs 1-6, of the Act on Collective Investment Undertakings and Investment Services and Activities, and Section 48 a, paragraphs 1-6, of the Act on Investment Undertakings, etc.

Information to the Business's Employees

Section 18. The board of directors, executive management, and other material risk takers shall at all times have the opportunity to familiarize themselves with the most recently updated remuneration policy as well as other documents describing the determination of their remuneration and the evaluation of their performance.

Disclosure and Reporting Obligations

Section 19. AIFMs, investment undertakings, collective investment undertaking holding companies, and financial holding companies shall publish the following information about their remuneration policy and practice for the remuneration of the board of directors, executive management, and other material risk takers at least once a year:

1. The decision-making process in connection with the establishment of the remuneration policy, including information about: a) The composition and mandate of any remuneration committee. b) Any external experts consulted with a view to establishing the remuneration policy. c) The role of the relevant stakeholders and the number of board meetings during the financial year where the board of directors monitored the business's remuneration.
2. The link between pay and performance.
3. The main characteristics of the remuneration system's structure, including information on which criteria are used for performance measurement and risk adjustments, deferral policy, and vesting criteria.
4. The ratio between fixed and variable pay set in accordance with Section 77 a, paragraph 1, items 1-3, of the Act on Financial Business, Section 109, paragraph 1, items 1-3, of the Act on Collective Investment Undertakings and Investment Services and Activities, and Section 48 a, paragraph 1, items 1-3, of the Act on Investment Undertakings, etc.
5. Which performance criteria are used for the allocation of rights to shares, options, or variable pay components.
6. The main parameters and justifications for any scheme for variable components and other non-pecuniary benefits.
7. Total quantitative information on remuneration divided by business area.
8. Total quantitative information on remuneration divided by management and employees whose work has a material impact on the business's risk profile, with indication of the following: a) The payroll for the financial year distributed between fixed and variable pay and the number of recipients. b) The size and form of the variable pay distributed between cash payment, shares, and share-like instruments or other. c) The size of the outstanding deferred remuneration distributed between accrued and unaccrued shares. d) The size of the deferred remuneration awarded during the financial year, paid out, and reduced through performance adjustments. e) New hire and severance pay awarded and paid out during the financial year, and the number of recipients of such awards and payments. f) The size of the largest severance pay awarded to a single person in the financial year.
9. The number of persons remunerated with 1 million euros or more per financial year, distributed in salary intervals of 500,000 euros for salaries corresponding to between 1 million and 5 million euros, and distributed in salary intervals of 1 million euros for salaries of 5 million euros and above.

Paragraph 2. Paragraph 1, items 7 and 8, apply only to employees whose activities have a material impact on the business's risk profile, provided that publication does not result in the disclosure of the individual's specific remuneration.

Paragraph 3. Paragraph 1, item 8, letters e and f, apply only to remuneration that cannot be derived from law or collective agreement.

Paragraph 4. The business may, taking into account its size, internal organization, and scope and complexity of its activities, completely or partially omit the publication of one or more of the information mentioned in paragraph 1. A business that does not have securities admitted to trading on a regulated market in Denmark and that has a balance sheet total of less than 500 million DKK in two consecutive financial years may omit the publication of the information mentioned in paragraph 1.

Paragraph 5. The business shall, immediately after the end of the financial year and no later than 1 May each year, submit the information mentioned in paragraph 1, items 7 and 8, to the Danish Financial Supervisory Authority in electronic form in accordance with forms and guidelines prepared by the Danish Financial Supervisory Authority.

Paragraph 6. The business shall, simultaneously with the submission to the Danish Financial Supervisory Authority after paragraph 5, publish the information mentioned in paragraph 1 on its website in a place where it naturally belongs. If the business does not have a website, interested parties must be able to obtain or have the information sent upon request to the business. If the information mentioned in paragraph 1 is published to fulfill accounting, listing, or other requirements, the disclosure obligation is considered fulfilled by this. If the information after paragraph 1 is not contained in the annual report, the business shall indicate in the annual report where the information can be found.

Paragraph 7. The removal of the information from the business's website shall take place according to the same principles that the business uses for other communications.

Paragraph 8. Businesses that, after paragraph 4, may omit the publication of one or more of the information mentioned in paragraph 1 may also omit the submission of the information mentioned in paragraph 1, items 7 and 8, to the Danish Financial Supervisory Authority.

Section 20. Credit institutions and mortgage credit institutions shall, immediately after the end of the financial year and no later than 1 May each year, submit the information covered by Article 450, paragraph 1, letters g-i and k, of Regulation (EU) No 876/2019 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 to the Danish Financial Supervisory Authority in electronic form in accordance with forms and guidelines prepared by the Danish Financial Supervisory Authority.

Paragraph 2. The business shall, simultaneously with the submission to the Danish Financial Supervisory Authority after paragraph 1, publish the information on its website in a place where it naturally belongs. If the business does not have a website, interested parties must be able to obtain or have the information sent upon request to the business. If the information after Article 450 of Regulation (EU) No 876/2019 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013 is not contained in the annual report, the business shall indicate in the annual report where the information can be found.

Paragraph 3. The removal of the information from the business's website shall take place according to the same principles that the business uses for other communications.

Paragraph 4. Credit institutions and mortgage credit institutions that, after Article 450, paragraph 2, second paragraph, of Regulation (EU) No 876/2019 of the European Parliament and of the Council of 20 May 2019 amending Regulation (EU) No 575/2013, may...