Interpretation Guide to the Remuneration Ordinance for Institutions

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Remuneration Ordinance for Institutions, Institutsvergütungsverordnung – InstitutsVergV )

01.01.2014

A. General Section

A remuneration policy based on short-term parameters, and which rewards success unilaterally without sanctioning failure sufficiently, can cause companies to lose sight of their long-term and sustainable performance. Such a remuneration policy contradicts appropriate risk management. As the financial market crisis has shown, the misdirected incentives of a failed remuneration policy can create risks not only for the stability of individual companies, but also for financial stability in general.

To counteract these negative developments the Financial Stability Board ( FSB ) developed the “Principles for Sound Compensation Practices” dated 2 April 2009 and, building on this, the “Principles for Sound Compensation Practices – Implementation Standards” dated 25 September 2009 for the financial sector, which were approved by the twenty most important industrialised and developing countries ( G-20 ). The requirements set out in the principles and standards focus in particular on a stronger orientation of remuneration structures to a company's longer-term success and the adequate consideration of risks incurred.

For the banking sector, the
FSB principles and standards are followed almost exactly at the European level in the Directive 2010/76/EU of the European Parliament and of the Council amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies ( CRD III). On the basis of article 22 (4) of the Capital Requirements Directive (2006/48/EC), which was newly introduced as part of CRD III, the Committee of European Banking Supervisors ( CEBS ) has been tasked with producing guidelines on the remuneration requirements contained in CRD III (Guidelines on Remuneration Policies and Practices – CEBS guidelines). The CEBS guidelines published on 10 December 2010 are covered by the Remuneration Ordinance for Institutions.

Together with the Remuneration Ordinance for the Insurance Industry, the issuance of the Remuneration Ordinance for Institutions in the year 2010 is the last step of a three-stage package of measures by the Federal Government to implement the FSB principles and standards, and the remuneration-related regulations contained in CRD III, as quickly as possible. The previous stages were the voluntary obligation in December 2009 of eight major institutions and the three largest insurance companies, and the circulars by the Federal Financial Supervisory Authority ( BaFin ) regarding the requirements for remuneration systems dated 21 December 2009. As part of the Act on the Supervisory Requirements for the Remuneration Systems of Institutions and Insurance Companies (Gesetz über die aufsichtsrechtlichen Anforderungen an die Vergütungssysteme von Instituten und Versicherungsunternehmen) dated 21 July 2010, the details concerning remuneration systems were determined by regulations. The Law Implementing Directive 2013/36/EU on Access to the Activity of Credit Institutions and the Prudential Supervision of Credit Institutions and Investment Firms which aligns the regulatory laws with Regulation ( EU ) No. 575/2013 on Prudential Requirements for Credit Institutions and Investment Firms ( CRD IV Implementing Act) and the amended version of the Ordinance on the Supervisory Requirements for Institutions’ Remuneration Systems expand and develop existing regulations.

The rules on sound compensation practices under CRD III are largely transformed into Directive 2013/36/EU ( CRD IV) 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. In Germany, the new remuneration requirements under CRD IV are essentially implemented through the amendments of section 25a (5) of the German Banking Act (Kreditwesengesetz, hereinafter referred to as “KWG”) and the Remuneration Ordinance for Institutions which both entered into force on 1 January 2014.

Section 25a (1) sentence 3
no.
6
KWG complements the regulated by law (minimum) requirements for risk management at institutions by requiring that remuneration systems be appropriate, transparent and geared to the sustainable development of the institution. Pursuant to section 25a (6) KWG , the Federal Ministry of Finance is authorised to issue more detailed provisions through ordinance. The participatory rights of employee representatives will not be affected by the Ordinance.

Aside from section 25a
KWG
, especially the following standards are relevant in terms of rules pertaining to the remuneration of members of the management body (Geschäftsleiter) and other staff:

Section 25d (6), (7) and (12)
KWG
;
Section 25e sentence 4
KWG
;
Section 10i (3) sentence 3
no.
2
KWG and
Section 45 (2) sentence 1
no.
5a and 6
KWG

In particular the recommendations, principles and guidelines issued by the following international organisations are relevant to the design of the Remuneration Ordinance for Institutions in its current version:

Committee of European Banking Supervisors (
CEBS
): High-level Principles for Remuneration Policies, 20 April 2009 European Union ( EU ): Commission Recommendation on Remuneration Policies in the Financial Services Sector, 30 April 2009 Financial Stability Board ( FSB ):
FSB
Principles for Sound Compensation Practices – Implementation Standards, 25 September 2009 Basel Committee on Banking Supervision ( BCBS ): Compensation Principles and Standards – Assessment Methodology, January 2010

CEBS
: Guidelines on Remuneration – Policies and Practices ( CEBS -GLs), 10 December 2010 BCBS : Range of Methodologies for Risk and Performance Alignment of Remuner¬ation, May 2011 BCBS : Pillar 3 Disclosure Requirements for Remuneration, July 2011 EU : Directive 2013/36/EU of the European Parliament and of the Council on Ac¬cess to the Activity of Credit Institutions and the Prudential Supervision of Credit In¬stitutions and Investment Firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC ( CRD IV), 26 June 2013

The establishment of the principle of proportionality in the Remuneration Ordinance for Institutions takes account of the heterogeneous institutional structure in Germany.

B. Special Section

Part 1 – "General"

The Remuneration Ordinance for Institutions distinguishes between staff and members of the management body. Owing to the two-tier system of the administrative bodies prevalent in Germany, this is a special feature within the European legal area. Since the determination of remuneration systems for members of the management body is the responsibility of the administrative or supervisory body and the determination of remuneration systems for staff is the responsibility of the management body, a respective distinction must be made in the structure of the Remuneration Ordinance for Institutions. It is expected that as of 1 July 2014, the criteria for the identification of risk takers will be governed by the binding Regulatory Technical Standard on Criteria to Identify Categories of Staff Whose Professional Activities Have a Material Impact on an Institution's Risk Profile under Article 94 (2) of Directive 2013/36/EU. This Standard is essentially based on a single-tier model and does not distinguish between staff and board members. As a consequence, ,members of the management body and members of the administrative or supervisory body will also be identified as risk takers once the Standard enters into force. The Remuneration Ordinance for Institutions does not follow this approach. Instead, it continues to provide for separate rules applicable to members of the management body. Ultimately, however, members of the management body are not treated other than staff identified as risk takers.

Re. Section 1 – "Scope of application"

According to section 1 (1), the scope of the Ordinance covers institutions within the meaning of sections 1 (1b) and 53 (1) KWG .

Pursuant to section 1 (2), the Ordinance distinguishes between requirements which apply to all institutions and to the remuneration systems of all members of the management body and staff of these institutions (part 2) and significantly more exacting special requirements (part 3) that apply only to major institutions and the remuneration systems of their members of the management body and of certain employees.

In accordance with section 25a (1) sentence 3 no.
6
KWG and section 1 (3), the requirements for remuneration systems shall not be applied to remuneration agreed by a collective agreement or, within such a collective agreement’s scope of application, by agreement between the parties to an employment contract about the application of the collective agreement’s rules, or, on the basis of a collective agreement, in a private or public sector works agreement. However, if staff members employed under a collective agreement receive additional remuneration that is not part of the collective agreement, the latter is subject to the Remuneration Ordinance for Institutions.

Re. Section 2 – "Definitions"

Section 2 of the Ordinance contains a number of definitions that are relevant in its application.

Remuneration within the meaning of section 2 (1) includes all financial benefits and benefits in any kind, irrespective of their nature, as well as benefits from third parties, received by a member of the management body or employee in respect of the professional activities performed on behalf of the institution.

This expressly includes payments towards pension benefits, consisting for instance of accruals for pensions due to pension commitments made to members of the management body or senior managers unless these are subject to company-wide pension provision regulations. The value of the payments towards pension benefits shall generally be determined according to actuarial principles.

Remuneration therefore also includes, for example, profit sharing in carried interest models. However, remuneration within the meaning of this Ordinance does not include financial benefits or benefits in kind which are granted on the basis of a general – i.e. non-person-specific, non-discretionary and institution wide provision and do not present an incentive to incur risks. This includes in particular discounts, company insurance and social benefits, and, for staff, contributions to statutory pension insurance within the meaning of the sixth book of the Social Security Code (Sozialgesetzbuch – SGB VI) and to occupational pension provision within the meaning of the Occupational Pensions Act (Betriebsrentengesetz – BetrAVG ). In the case of any conversion of part of the variable remuneration, the requirements of this Ordinance remain applicable, even if variable remuneration is converted into remuneration instruments that do not present an incentive to take risks.

BaFin may refrain from treating a bonus that depends on the performance of the entire group (group bonus) and is also paid out to the staff and members of the management body of the group institution as variable remuneration within the meaning of this Ordinance. This requires that the institution is a subsidiary of a mixed group whose parent company is not an institution within the meaning of section 1 (1b) KWG and performs commercial transactions. The group bonus may not be paid in connection with the performance or obligations of the institution. Instead, it must be paid as a bonus for the group’s overall performance. The group bonus must be paid at all group companies and across the group to all staff, members of the management body, directors and managing directors in the entire group. The group bonus must depend on assessment criteria and performance indicators that are applicable to the entire group as opposed to individual group companies. Where these conditions are met, it may be assumed that no incentive to enter into risks is provided to the group institution.

Where an institution has the legal form of a commercial partnership (Personenhandelsgesellschaft) or a limited joint-stock partnership (Kommanditgesellschaft auf Aktien), BaFin may not classify the profit share paid to personally liable partner who act as member of the management body (Geschäftsleiter) of the institution after the completion of the financial year as variable remuneration within the meaning of the Remuneration Ordinance for Institutions if the profit share is paid exclusively in accordance with the uniform profit distribution formula specified in the partnership agreement or in accordance with the personally liable partners’ pro rata participation in the institution’s equity capital. This allows BaFin to take account of the unlimited liability of the member of the management body, including his or her entire private assets, and to assess whether the disbursed profit represents appropriate compensation in respect of the ownership position and the capital employed.

Depending on its specific form, the provision of company cars on the basis of a general company car guideline may have to be classified as remuneration and in that case generally as a fixed remuneration component; the respective assessment is subject to section 6 (1) no.
4 sentence 2 German Income Tax Act. This is relevant, in particular, when the following aspects apply cumulatively:

The guideline applies to a restricted group of persons only.
Private use of company cars is admissible.

Discretionary payments towards pension benefits pursuant to section 2 (4) include all financial benefits as well as payments from third parties towards pension benefits received by a members of the management body or employee in respect of the professional activities performed on behalf of the institution and which are agreed in view of a definite future termination of the employment relationship at the institution. Discretionary payments towards pension benefits are a purely mathematical component of variable remuneration. As a result, discretionary payments towards pension benefits are to be taken into account mathematically, particularly in calculating the appropriate ratio between fixed and variable remuneration (section 6), the portion of variable remuneration to be deferred (section 20 (1) and (2)) and the portion of remuneration dependent on the institution’s long-term performance (section 20 (4)), without the discretionary payments towards pension benefits themselves being affected by these requirements. Requirements which affect the discretionary payments towards pension benefits are covered by their own provisions, namely in section 22.

Staff pursuant to section 2 (6) are all natural persons the institution uses in conducting banking business or supplying financial services, particularly on the basis of an employment contract, agency contract or service contract, and all natural persons who, within the framework of an outsourcing agreement with an outsourcing enterprise which belongs to the group and to which section 64b of the Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG ) in conjunction with the Remuneration Ordinance for the Insurance Industry does not apply, are directly involved in providing services to the institution for the purpose of conducting banking business or supplying financial services. This definition also includes temporary staff. With respect to other companies that are not part of the group, staff are included in the definition if they are involved in services provided to a group company for the purpose of conducting banking business or supplying financial services. The definition does not include commercial agents within the meaning of section 84 (1) of the German Commercial Code (Handelsgesetzbuch – HGB ), who are frequently used by institutions to market their products. This exception does not exempt institutions from dealing with the special features of this marketing channel (normally fully variable remuneration), particularly also from the perspective of reputational and liability risk. Suitable control structures are to be set up by the institutions for this purpose.

Performance contributions pursuant to section 2 (8) are the actual achievements and performance, as determined on the basis of the remuneration parameters, which are used in determining the amount of variable remuneration components. Performance contributions are negative if requirements are not met.

The HR department also acts as control unit within the meaning of section 2 (9) with regard to the application of the remuneration system within the company, for instance monitoring whether goal agreement and goal attainment meetings have taken place and suitable goals have been set.

Part 2 – "General Requirements for Remuneration Systems"

The general requirements apply to all institutions and to the remuneration systems of all members of the management body and staff.

Re. Section 3 – "Responsibility for the remuneration design"

In accordance with section 3 (1), the management body has to provide the administrative or supervisory body with extensive and comprehensible information regarding the design of the institution's remuneration systems at least once a year, so that this body can form its own opinion of the design‘s appropriateness. Pragmatic solutions are conceivable as regards the reporting method as long as this does not limit the information needs to which the administrative or supervisory body is entitled. If no changes are made to the remuneration systems over time, current reporting can refer to previous information.

Re. Section 4 – "Alignment with the institution’s strategy"

Remuneration systems also represent a corporate management tool and must thus be aimed at attaining the objectives set out in the institution's corporate and risk strategies in accordance with section 4. In order to ensure an attractive remuneration level, remuneration-relevant objectives that were easy to attain and did not match the objectives set out in a company's strategies were often set in the past. If even these often quite unambitious remuneration-relevant objectives were not met, variable remuneration payments were nevertheless subsequently decided and granted in some cases, for example, citing exogenous effects. The alignment of remuneration systems to the institution's strategies is aimed at helping to ensure that sufficiently ambitious remuneration-relevant objectives are set and that remuneration systems can make an effective contribution to attaining corporate strategy objectives. To ensure effective control of the remuneration system’s compliance with the strategies, especially by the remuneration control committee, both the determination of the remuneration parameters and the determination of the goal attainment level must be transparent and comprehensible.

Re. Section 5 –" Appropriateness of the remunerations and the remuneration systems"

The remuneration systems are considered to be structured appropriately pursuant to section 5 (1) if incentives for the members of the management body and staff to assume disproportionately high risks are avoided (section 5 (1) no.

1. and the remuneration systems do not conflict with the monitoring function of the control units (section 5 (1)
   no.
   2). In contrast, a remuneration system is not appropriately designed if it is conducive to the occurrence of operational risks. This applies in particular to remuneration systems for sales staff which focus exclusively on sales targets and neglect qualitative criteria, such as customers’ interest and customers’ satisfaction. This fundamental concept, which is included in Article 5 (2b) of the proposal for a Directive on Credit Agreements for Consumers Relating to Residential Immovable Property, can be generalized to the entire sales and distribution area.

Control units within the meaning of section 5 (1) no.
2 also include the internal audit. The internal audit is a tool of the management body that is directly subordinate to the management body and reports directly to it. It is the responsibility of the internal audit to carry out risk-aligned and process-independent audits and assessments of the effectiveness and appropriateness of the risk management system in general and of the internal control system in specific as well as the correctness of all activities and processes (cp. MaRisk

AT
4.4.3). In the context of its audit of the proper business organisation, the internal audit must ensure that the remuneration systems for staff are being monitored and the rules under the Ordinance are generally complied with. This also includes the operative processes within the institution regarding the implementation of the remuneration systems of the members of the management body. In contrast, the (operative) responsibility for the actual structuring of the remuneration systems of the members of the management body is borne by the administrative or supervisory body; accordingly, the audit of this design as a tool of the management body is not within the sphere of responsibility of the internal audit. Instead, pursuant to section 22, the remuneration control committee is responsible for the on-going monitoring of the appropriate design.

In accordance with section 5 (3) sentence 1 no.
1, incentives to assume disproportionately high risks may, among others, particularly be created by significant dependency of the members of the management bodyand staff on variable remuneration. A significant dependency on variable remuneration does not exist when the share of the fixed remuneration in the overall remuneration is high enough to allow the institution to pursue a flexible remuneration policy in all respects – including a complete elimination of variable remuneration – without jeopardising the recipients' ability to cover their fundamental living costs from the remaining fixed remuneration. Depending on the total performance of an institution or group, the performance contribution of the organisational unit and the individual performance contribution, there must be a realistic possibility of complete elimination of the variable remuneration.

Discretionary payments towards pension benefits within the meaning of section 2 (4) are also considered entitlements, established in individual contracts, to benefits in the event of termination of activities pursuant to section 5 (3) sentence 1 no.
2, with the exception of payments towards pension benefits to which non-forfeitable accrued rights within the meaning of the Occupational Pensions Act (Betriebsrentengesetz) are held. Furthermore, the contractual granting of an entitlement to the payment of an temporary allowance for the purpose of a temporary maintenance of the living standard after termination of the employment contract is also within the scope of section 5 (3) sentence 1 no. 2 in connection with (1), (2) and (5) since the prospect of the payment of such temporary allowance may constitute an incentive to assume excessive risks.

Remuneration systems are considered to conflict with the monitoring function of the control units in accordance with section 5 (4) in particular if the amounts of variable remuneration for the staff of the control units and for the staff of the organisational units monitored by them are largely determined by analogous remuneration parameters and if there is a risk of conflicting interests. This rule takes account of FSB Standard No. 2 and the requirements under Article 92 of Directive 2013/36/EU. The factual requirements (analogous parameters, threat of a conflict of interest) must be cumulatively met. Analogous parameters are possible as long as there is no risk of conflicting interests. The existence of such analogous remuneration parameters, however, may indicate a conflict of interest, which in individual cases the institution must then refute.

Guaranteed variable remuneration pursuant to section 5 (6) is not in line with an appropriate risk management and the principle of performance-related remuneration. The implementation of FSB Standard No.
11 and Article 94 (1) letters d) and e) of Directive 2013/36/EU thus exclusively permits guaranteed variable remuneration upon commencement of a service or employment contract with the institution and for a maximum period of one year. Furthermore, to grant this remuneration both at the time of granting and at the time of payment, the institution must have appropriate equity and liquid resources as well as sufficient capital to guarantee its risk-bearing capacity (section 7).

The lack of congruence between the duration of the employment contract of the person concerned and the period to which the granting of a remuneration component relates is a feature of variable remuneration. Such remuneration must satisfy all relevant requirements under the Ordinance for the appropriate structuring of the remuneration systems in respect of the variable remuneration design (section 3 (1) sentence 1, (2) and (3), section 4, section 5 (1), (2), (3) and (5), section 10 (1) to (3) and section 12 sentence 1). Where this is not the case, the remuneration is classified as guaranteed variable remuneration. This applies in particular to remuneration components whose payment merely depends on the person’s continued presence until a certain point in time.

Temporary payments made to persons who temporarily fill a higher position in the institute than before and thus receive a temporary allowance in addition to their fixed remuneration component are also generally considered to be guaranteed variable remuneration. In economic terms, this is consistent with a temporary or unilaterally revocable increase of the fixed remuneration component, which is therefore also treated as guaranteed variable remuneration. Vice versa, an increase in the fixed remuneration component that is neither limited in time nor unilaterally revocable is generally unobjectionable in these cases.

According to section 5 (7), in the context of premature termination of an employment or work contract, all associated payments must take into account the concerned person’s work performed until this date. In this context, negative performance contributions or misconduct may not be rewarded.

Re. Section 6 – "Ratio between variable and fixed remuneration"

In accordance with section 6 (1), variable and fixed remuneration must bear an appropriate ratio to each other. This ratio is appropriate if the variable remuneration both complies with the upper limit under section 25a (5) KWG (100% or maximum 200% of the fixed remuneration) and provides an effective behavioural incentive.

According to section 6 (2), in consideration of section 25a (5) KWG , the institution shall set an appropriate upper limit for the ratio between variable and fixed remuneration, where applicable taking account of an appropriate discount rate which will be subject to the “EBA Guidelines on the applicable notional discount rate for variable remuneration” to be published by 31 March 2014. Therefore, there may be given differing maximum ratios for different groups of staff.

Re. Section 7 – "Determination of the total amount of the variable remuneration"

Section 7 addresses
FSB
Standard
No.
3 and the requirement under Article 94 (1) letter c) of Directive 2013/36/EU and is in line with section 45 (1) sentence 1 no.
4 and (2) sentence 1 no.
5a
KWG
. It is the central link to the requirements governing the determination of the total amount of the variable remuneration. Aside from an adequate equity capital base (regulatory viewpoint), the determination of the total amount should also take account of the economic perspective including risk-bearing capacity, capital planning and profit position. Furthermore, the total amount of the remuneration earmarked for distribution may not jeopardise the liquid resources of the institution. Finally, the institutions must ensure that the combined capital buffer requirements pursuant to section 10i KWG are complied with. Chapter 4.3.1 of the CEBS guidelines provides some guidance regarding the appropriate determination of the total bonus pool (top-down, bottom-up or combined approach). 1)

In the case of a negative overall performance of the institution, the determination of the total amount of the variable remuneration within the meaning of section 45 (2) sentence 1 no.
5a
KWG is generally not permissible, particularly if this performance goes hand in hand with a decline of the company's value. This means that no total amount may be determined in these cases and hence no resources may be made available for allocation. Exceptions to this rule may be acceptable for the purpose of providing incentives, for instance in the case of new appointments and in specific crisis situations where a turnaround appears concrete and imminent. In respect of any deviation from the rule, institutions must provide in the individual case plausible and extensive reasons that are comprehensible to third parties and submit them to BaFin for its prior approval.

In the case of major institutions within the meaning of section 17, the overall performance is determined according to section 19 (3). All other institutions must take appropriate account of the risk situation and development in their assessment of the overall performance.

Re. Section 8 –" Risk-aligned remuneration"

In accordance with section 8 (1), the risk alignment of remuneration may not be undermined or nullified by hedging activities or other countermeasures.

According to section 8 (2), the institutions shall implement appropriate compliance structures to stop such measures. Appropriate compliance structures may consist in particular of an obligation for the members of the management bodyi and staff not to undertake any personal hedging activities, or other countermeasures, aimed at undermining or nullifying the risk alignment of their remuneration. This requirement is based on FSB Standard No. 14 and Article 94 (1) letter p) of Directive 2013/36/EU. However, a mere declaration by the relevant person that he or she will refrain from concluding such hedging transactions is in no way sufficient to comply with the hedging prohibition. Instead, at least random checks of the compliance with this declaration must be carried out by the compliance function irrespective of the institution’s legal form. The random checks should, in all cases, include the internal custodial accounts of the members of the management body and of those employees whose activities have a material impact on the overall risk profile of the institution. Furthermore, notification of any custodial accounts outside the institution may also be made mandatory and the respective inspection rights may be granted to the compliance function or another suitable function.

In terms of prohibited hedging and other countermeasures, a distinction must be made between external hedging measures and internal result manipulation options. The former category includes, for instance, contracts with third parties that oblige the third party to make direct or indirect compensation payments to the employee or the members of the management body in the amount of the suffered reduction of the variable remuneration. 2) It may also include derivatives traded on the market that are used to hedge exchange losses associated with financial instruments listed on the market. In contrast, internal result manipulation options include, for instance, courtesy decisons in the bilateral performance evaluation process if no objective standards contrary to the requirements of the Remuneration Ordinance for Institutions exist in respect of the process on which discretionary decisions regarding employees’ goal attainment shall be based.

Re. Section 10 – "Additional requirements regarding the remuneration of members of the management body"

According to section 10 (1), in the course of determining the remuneration of an individual member of the management body, the administrative or supervisory body must ensure that such remuneration commensurate with the duties and achievements of the member of the management body as well as to the situation of the institution, and that the remuneration does not exceed conventional remuneration without distinct reasons. At this point, the legislator has emulated in the Remuneration Ordinance for Institutions the rules inserted through the Act on the Appropriateness of Management Board Remuneration (Gesetz zur Angemessenheit der Vorstandsvergütung, VorstAG) into section 87 (1) sentence 1 of the German Stock Corporation Act (Aktiengesetz, hereinafter referred to as “AktG“) and applies these rules to all members of the management body irrespective of the institution’s legal form. Hence, for the purposes of the interpretation the literature and jurisdiction pertaining to section 87 (1) sentence 1 AktG may also be consulted. Aside from vertical and horizontal conventionality, material criteria assessing the appropriateness of the remuneration of the member of the management body may include: qualification, professional experience, reputation, expected responsibilities and functions of the member of the management body, overall economic situation as well as financial, strategic and reputational situation of the institution, complexity of the corporate structure, place of employment, risks associated with the acceptance of the specific management position (liability risks, term in office, prospects) as well as geographical market penetration. In cases of financial restructuring, the granting of higher remuneration may be appropriate in regard of the gravity of the responsibilities and the risk of failure.

According to section 10 (2), variable remuneration must be based on a multi-year assessment period of at least three years.

Re. Section 11 – "Principles for remuneration systems in the organisational guidelines"

According to section 11, the organisational guidelines underlying the institution’s business activities ( e.g. manuals) must also contain principles for remuneration systems. Since, pursuant to section 3 (2), the administrative or supervisory body is responsible for the structuring of the management body‘s remuneration systems, the administrative or supervisory body must approve the respective organisational guidelines. In contrast, according to section 3 (1) sentence 1, the management body of the institution is responsible for the remuneration systems for staff. Accordingly, the organisational guidelines applying to employee’s remuneration systems must merely be submitted to the administrative or supervisory body for its attention.

Re. Section 13 – "Information on remuneration systems"

In order for members of the management body and staff to align their behaviour to the remuneration system, they must, in accordance with section 13 be informed in writing, e.g. by letter or e-mail, of the design of the remuneration systems and remuneration parameters relevant to them. General statements, such as in notices posted at the institution, or a simple reference to framework agreement terms on variable remuneration thus do not meet this requirement. This also means that the remuneration parameters must be determined at the beginning of an assessment period, after which time they may not be changed. The institution must be able to explain the determination of the variable remuneration to the staff in question and any third party, if applicable, at a later date.

Re. Section 14 – "Adaption of existing agreements"

This Ordinance does not suspend or amend contradictory contractual arrangements. However, in accordance with section 15 (1) and (2), the institution must seek to ensure that existing contracts, works agreements or work practices that are not compatible with this Ordinance, are amended, as far as legally permissible, on the basis of a well-founded legal evaluation of the legal situation that is comprehensible to third parties, and taking account of the specific prospects of success. This evaluation may be produced by qualified staff of the institution. The duty to seek to ensure the respective adaptation covers all existing contractual agreements regardless of whether they were concluded before or after the entry into force of the Remuneration Ordinance for Institutions.

Re. Section 15 – "Remuneration control committee"

Section 15 sets out the specific responsibilities of a remuneration control committee within the meaning of section 25d (12)
KWG that has been established according to section 25d (7) KWG .
The legislator assumes that all institutions and superordinated companies are principally obliged to establish committees within the meaning of section 25d (8) to (12) KWG . Companies may refrain from establishing such committees without BaFin’s approval if the administrative or supervisory body has less than ten members (Bundestag printed paper 17/10974, page 88). However, in regard of the remuneration control committee, the legislator has inserted a restriction, assuming that all major institutions within the meaning of the Remuneration Ordinance for Institutions must establish a remuneration control committee pursuant to section 25d (12) KWG (Bundestag printed paper 17/10974, page 88). BaFin will take this into consideration in the execution of its discretionary power pursuant to section 25d (7) sentence 5 KWG .

Institutions that are not major institutions may nevertheless voluntarily meet the requirement, originally only applying to major institutions, of establishing a remuneration control committee. In this case, the remuneration control committee shall also assume the respective preparatory and supportive responsibilities.

The use of the wording “this also includes” at the beginning of paragraph (2) sentence 2 is evidence of the fact that the list of activities in the following two paragraphs is of an exemplary instead of an exhaustive nature.

Re. Section 16 – Disclosure

Section 16 is based on
FSB
Standard
No.
15 and sets out the disclosure requirements for all institutions that are not subject to Regulation ( EU ) No.
575/2013 (
CRR
). According to section 16 (1),
CRR institutions pursuant to section 1 (3d) sentence 3 KWG , i.e.

CRR credit institutions within the meaning of section 1 (3d) sentence 1 KWG and CRR investment firms within the meaning of section 1 (3d) sentence 2 KWG are exempt from the respective disclosure requirements. This includes all legal entities whose activity consists of receiving deposits or other repayable funds from the public and granting loans for own account as well as providing one or several commercial investment services to third parties and/or performing one or several investment activities.

As regards the wording in the
KWG
, the term “CRR credit institution” replaces the previous “deposit bank” (Einlagenkreditinstitut) and “CRR investment firm” the previous “securities trading company” (Wertpapierhandelsunternehmen). Accordingly, the companies subject to the disclosure requirements pursuant to section 16 consist specifically of those companies that exclusively provide one or several of the following financial services:

non-
EEA deposit broking, foreign currency dealing, factoring, finance leasing, asset management.

According to section 16 (2), the level of detail of the information to be published on the institution’s own website (paragraph 3) in the German language depends on the institution’s size and remuneration structure as well as the nature, scale, risk content and international scope of its business activities. For smaller institutions whose balance sheet totals are less than EUR 15 billion, for example, some basic statements are sufficient to present the remuneration system design.

In the case of very small companies without their own website, the Electronic Federal Gazette or comparable media may be used alternatively as publication platform. In these cases, the companies may also provide the relevant remuneration information on the website of the parent company. Where the relevant information is published centrally for a whole group, all group institutions must refer to the information on their own website and provide a link to the centralised information. It is not mandatory to provide further details regarding remuneration systems based on collective agreements for staff remunerated on such basis.

In the context of the explanations pursuant to section 16 (2), particular detail is to be given on the decision-making processes in determining the remuneration policy and strategy respectively, on the relationship between variable remuneration and remuneration parameters as well as performance contributions, on the relevant remuneration parameters in each case, on the means in which risks and terms as well as capital costs and liquidity costs are taken into account and, where applicable, on the design concerning the requirements in accordance with section 20 and, where applicable, on the design concerning the requirement pursuant to section 22. The aforementioned information is to be provided separately for each of the institution's divisions. In some cases, smaller institutions need not provide the information subdivided by division. Furthermore, smaller institutions may also sum up divisions such that individual persons can no longer be identified. This approach must be explained accordingly in the context of the publication. In this respect, institutions may follow the previous “Leitlinien zur Bewertung der Erfüllung der Offenlegungsanforderungen nach § 26a KWG ( a.F. )" (Guidelines for assessing the disclosure requirements pursuant to section 26a KWG , old version) issued by the Deutsche Bundesbank. In addition, the CEBS Guidelines and the recommendations of the Basel Committee (Pillar 3 disclosure requirements for remuneration) provide further assistance in respect of the qualitative and quantitative disclosure. 3)

The institutions are to provide the level of detail of information which makes it possible for an outsider to determine the conformity of the remuneration system, in terms of content, with the requirements of this Ordinance, while maintaining the business secrets to which they are entitled as well as taking their competitive position into account. The information provided should be comprehensible not only to remuneration experts but also to other interested parties, such as owners or business journalists.

Part 3 – Special Requirements for Major Institutions

Only those institutions that are major within the meaning of section 17 must follow the special requirements.

The special requirements for remuneration systems in major institutions must be applied to all members of the management body without exception as well as to those staff whose activities have a material impact on the overall risk profile.

Re. Section 17 – Classification as a major institution

With respect to the scope of application of the Remuneration Ordinance for Institutions, the classification of institutions as major institutions has changed fundamentally. The assumption in the Remuneration Ordinance for Institutions of 6 October 2010 applying to institutions that are neither definitely major institutions nor definitely not major institutions has been reversed in the new Remuneration Ordinance for Institutions. Basically these institutions are now treated as major institutions unless evidence to the contrary is provided. Furthermore, the thresholds have changed, in specific as follows:

Pursuant to section 17 (1), an institution is a major institution within the meaning of this Ordinance if its balance sheet total on the balance sheet dates for the last three completed financial years reached or exceeded an average of EUR 15 billion, unless the institution provides BaFin with risk analysis proving that it is not a major institution. This risk analysis, which shall be carried out annually, shall take particular account of the institution’s size, its remuneration structure and the nature, scale, complexity, risk content and international scope of the business activities conducted. The risk analysis shall be documented in writing. The analysis must be plausible, extensive and comprehensible to third parties. If BaFin considers this not to be the case, the institution will continue to be treated as a major institution.

The likelier it is on first glance that the criteria for the application of the special requirements are met, the more detailed the risk analysis must be to refute this impression. At smaller institutions where business structures and remuneration structures are less complex, a simpler risk analysis may be carried out. Nevertheless, the risk analysis must still be comprehensible and duly documented in these cases. Pursuant to section 17 (2), all institutions that are supervised by the European Central Bank according to Article 6 (4) of Council Regulation ( EU ) No. 1024/2013 Conferring Specific Tasks on the European Central Bank Concerning Policies Relating to the Prudential Supervision of Credit Institutions ( SSM Regulation), are classified as potentially system threatening within the meaning of section 47 (1) KWG or are financial trading institutions within the meaning of section 25f (1) KWG are principally considered to be major institutions.

As a further material innovation, pursuant to section 17 (3), BaFin may now also classify institutions whose balance sheet total on the balance sheet dates for the last three completed financial years did not reach an average of EUR 15 billion as major institutions if this is necessary given the institution's remuneration structure and the nature, scale, complexity, risk content and international scope of its business activities conducted. The classification of an institution as a major institution is necessary in particular when it has high off-balance sheet positions, especially in derivative instruments, focuses on the function as originator, sponsor or investor of securitisation transactions or avails itself of a securitisation special purpose vehicle pursuant to Article 4 (1) no. 66 of Regulation ( EU ) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on Prudential Requirements for Credit Institutions and Investment Firms and amending Regulation ( EU ) No. 648/2012 ( CRR ) for this purpose, has large positions in the trading book pursuant to Article 4 (1) no. 86 CRR or has remuneration structures which are dominated by a large percentage of variable remuneration components in the overall remuneration.

Where a group company is classified as a major institution pursuant to section 17 (4), all other group institutions whose respective balance sheet total on the balance sheet dates for the last three completed financial years reached or exceeded an average of EUR 15 billion are also classified as major institutions.

BaFin will monitor compliance with special requirements for major institutions as part of adequate and effective risk management pursuant to section 25a KWG in the context of its on-going supervisory responsibilities. The supervisory authority has a range of proportional instruments to deal with infringements of section 25a KWG .

Although, due to the grading of the scope of application according to classification of the institutions as major or not major and the resulting different requirements for the institutions, all institutions are covered as a matter of principle according to the requirements under CRD IV, the level of regulation varies in accordance with proportionality aspects.

Re. Section 18 – Requirements for remuneration systems of major institutions

According to section 18 (2), major institutions must determine in a risk analysis whether they have staff whose activities have a material impact on the overall risk profile. These may also be staff working in the control units. Sections 18 to 22 are to be observed with reference to the staff identified by means of this additional risk analysis. Among other criteria, the risk analysis may draw on an organisational unit‘s size, nature of the business activity ( e.g. investment banking), business volume, level of risks and earnings. The criteria may also include an employee’s activity ( e.g. as trader), position and level of remuneration to date as well as a highly competitive labour market situation. The risk analysis must cover all of the institution’s organisational units. The higher the probability that staff whose activities have a material impact on the overall risk profile may be found in individual units ( e.g. investment banking), activities ( e.g. trader), etc. , the higher the requirements placed on the risk analysis. Staff whose activities have a material impact on the overall risk profile are more likely to be found in the institution's governing bodies. The same applies to people who chair important committees, such as the chairperson of a risk or remuneration control committee. The probability of material impact also exists in the case of staff who report directly to managment body or who manage segments and business or control units. It may further apply to staff ( e.g. traders) in a certain staff group, if these employees as a group have a substantial impact on the overall risk profile. If an employee receives remuneration comparable to or in excess of that of another employee who has already been identified by the institution and whose activity has a material impact on the overall risk profile, it is likely that the former employee also has a material impact on the overall risk profile. This probability is often indicated in the case of deputies of the staff concerned if they are appointed at a similar hierarchical level or are entrusted with similar responsibilities. The institution must be able to justify the classification of the staff in question afterwards using appropriate documentation if, at a later date, it is identified that these staff have incurred risks. Sections 18 to 22 apply in all cases for members of the management body even without risk analysis in institutions which are subject to the special requirements.

The criteria used for such risk analysis, which help a major institution to determine whether or not it employs staff whose activities have a material impact on the overall risk profile, shall comply with the Regulatory Technical Standard pursuant to Article 94 (2) of Directive 2013/36/EU on Qualitative and Appropriate Quantitative Criteria for the Identification of Staff Whose Activities Have a Material Impact on the Overall Risk Profile once the standard enters into force.

In the context of groups, irrespective of the group-wide rules pursuant to section 26, risk analysis pursuant to section 18 (2) carried out by a group institution shall take account of the respective persons’ material impact on the risk profile of the individual institution.
According to section 18 (3), in cases whereby such risk analysis is not plausible, extensive or comprehensible to third parties, BaFin may order the institution to classify staff or groups of employees as staff whose activities have a material impact on the overall risk profile.

In contrast to the staff who are merely subject to the general requirements under Part 2, an appropriately high percentage of the variable remuneration in overall remuneration shall be stipulated always for the members of the management body and staff of major institutions whose activities have a material impact on the overall risk profile.

Re. Section 19 – Consideration of overall performance and performance contributions

Pursuant to section 19 (1), in addition to the overall performance of the institution or group and the performance contribution of the organisational unit ( i.e. the unit to which the respective person is directly assigned, for instance the operational unit or the business area), the individual performance contribution is to be appropriately considered in respect of the variable remuneration of members of the management body and staff whose activities have a material impact on the overall risk profile. This rule takes account of FSB Standard No 6 and the requirement under Article 94 (1) letter a) of Directive 2013/36/EU. In the case of groups of institutions, financial holding groups, mixed financial holding groups and financial conglomerates, the group’s overall performance is to be used as the benchmark.

The determination of the individual performance contribution of staff in a supporting unit resp. of the performance contribution of the supporting unit itself shall be predominantly based on qualitative performance criteria. The latter shall be determined individually for each case. Examples of qualitative criteria are compliance with statutory provisions, rules of good conduct and internal codes of conduct or fair treatment of customers as well as customer satisfaction. The latter can be quantified with the help of customer surveys or cancellation quotas.

According to section 19 (2), negative performance contributions, such as unethical or non-compliant behaviour, must reduce the amount of the variable remuneration without fail. Behaviour is considered unethical if it violates the sense of decency of all fair and righteous minded people. Examples are infringements of the institution’s self-imposed ethical code towards customers and business partners of the institution or other written rules pertaining to conduct between employees. Non-compliant behaviour includes, among other infringements, breaches of contract and violations of the institution’s internal organisational guidelines.

The remuneration parameters used to measure the performance contribution of an employee or organisational unit are intended to ensure that sustainable performance is the most relevant factor and that adequate consideration is given to risks. For this reason, section 19 (3) requires that particular account must be taken of risks incurred and their terms, as well as capital costs and liquidity costs. The CEBS guidelines provide guidance for the proper implementation of these requirements.

All requirements under sections 19, 20 and 21 shall also be met if an employee changes risk classification during the year, e.g. due to a change of job, that takes account of a higher relevance to the institution’s overall risk profile. In this case, the payment regime shall apply to the variable remuneration earned throughout the entire financial year.

Re. Section 20 – "Deferral, entitlement and payment conditions"

In accordance with section 20 (1), at least 40% of the variable remuneration must be spread over a minimum deferral period of three to five years and paid out on a pro rata basis over this deferral period. As a general rule, the higher the variable remuneration, the position of the beneficiary or the justifiable risk, the longer the deferral period and the larger the component of the deferred variable remuneration must be.

According to section 20 (2), in the case of senior managers and staff at the level of management below them, at least 60% of the variable remuneration is to be spread over a minimum deferral period of three to five years and paid out on a pro rata basis over this deferral period.

If an institution generally opts for the lowest possible deferral period of three years for the staff in question according to section 20 (1) and (2), this lack of differentiation requires detailed explanations.
The rules under section 20 (1) and (2) take account of FSB Standard No.
6 and the requirements under Article 94 (1) letter m) of Directive 2013/36/EU. The deferral period must be strictly separate from the assessment period. Even in cases of a longer assesment period, setoffs or replacements in respect of the deferral period are not possible.

At least 50% of the variable remuneration to be deferred and at least 50% of the variable remuneration not designated for deferral must be dependent on the institution’s value over the long-term (section 20 (4) no.
1 and 2). The sustainability requirement must be met by (stock exchange-listed) institutions with the legal form of an Aktiengesellschaft (public limited company) using share-based forms of remuneration. If share-based forms of remuneration are not suitable to achieve the sustainability objective due to the institution’s legal structure, or unsuitable due to other factors, it may be based on business performance figures which reflect the value of the institution. A comprehensive valuation of the institution is not required, however. Where possible, other instruments within the meaning of Article 52 or 63 of Regulation ( EU ) No. 575/2013 ( CRR ) should be used or other instruments which can be fully converted to Common Equity Tier 1 instruments or written down, that in each case adequately reflect the credit quality of the institution as a going concern and are appropriate to be used for the purposes of variable remuneration. 4) In the future, a directly applicable regulatory technical standard will specify suitable instruments. In the case of options, the required four-year retention period pursuant to section 193 (2) No. 4 AktG may principally not commence before the expiry of the deferral period since the entitlement to exercise the option does not arise before this point in time. The remainder of the variable remuneration, including both the component to be deferred and the component not subject to deferral, may be paid in cash. The components of variable remuneration which, within the meaning of section 20 (4) no. 1 and 2, are independent of the institution’s value over the long-term, must be given an appropriate time limit that must elapse before the respective portion of variable remuneration may be accessed. Section 20 (4) implements FSB Standard No. 8 and the requirements under Article 94 (1) letter I) of Directive 2013/36/EU.

The following illustration is an example of a feasible payment system structure:

Darstellung einer möglichen Ausgestaltung der Auszahlungssystematik

Source:
EBA - Survey on the implementation of the CEBS Guidelines on Remuneration Policies and Practices (EBA-Survey), vom 12.04.2012, S. 20

Source:
EBA - Survey on the implementation of the CEBS Guidelines on Remuneration Policies and Practices (EBA-Survey), vom 12.04.2012, S. 20

Possible design of a payment system. Source:
EBA

• Survey on the implementation of the
  CEBS
  Guidelines on Remuneration Policies and Practices ( EBA -Survey), of 12 April 2012, p.

The following system, however, would not meet the requirements:

Darstellung einer Ausgestaltung der Auszahlungssystematik, die den Anforderungen nicht genügt

Source:
EBA - Survey on the implementation of the CEBS Guidelines on Remuneration Policies and Practices (EBA-Survey), vom 12.04.2012, S. 21

Source:
EBA - Survey on the implementation of the CEBS Guidelines on Remuneration Policies and Practices (EBA-Survey), vom 12.04.2012, S. 21

Design of a payment system, which does not meet the requirements. Source:
EBA

• Survey on the implementation of the
  CEBS
  Guidelines on Remuneration Policies and Practices ( EBA -Survey), of 12 April 2012, p.

Amounts subject to the deferral period or the retention period pursuant to section 20 (1) to (3) are principally not treated differently in the case of an early departure, either due to retirement or not due to retirement, of the respective person, i.e. the time limits pursuant to section 20 (1) to (3) continue to apply. This means that the variable remuneration components may not be paid immediately in cash without deferral or conversion into equity-based instruments. Furthermore, the intentions of the Remuneration Ordinance for Institutions are not met if the share price in the case of equity-based remuneration instruments is fixed upon the respective person’s departure. Hence, in the case of the early departure of a respective employee, it must principally be ensured that any reward of failure is excluded and that the sustainable performance can be measured beyond the end of the employment contract.

In the case of an premature termination of the employment contract during the year, the measurement of the respective staff member’s goal attainment until the date of departure cannot fully take account of the overall performance of the institution or group and of the performance contribution of the organisational unit since the assessment period for the variable remuneration is not yet completed. In many cases, at the time of the departure, it is only possible to make simplified assumptions regarding a general positive or negative performance trend at the level of the institution, group and organisational unit until the end of the assessment period. In these cases, the person’s individual performance contribution will have to take a greater weight. The early payments made during the year must be taken into account in the allocation of the bonus pool to the remaining members of the management body and staff. Variable remuneration granted in this way is also subject to the rules under section 20 (1) to (3).

With the aim of avoiding disproportionally high administrative efforts, a procedure whereby non-compliance with the variable remuneration requirements under section 20 (1) to (3) is accepted in the case of staff whose activities have a material impact on the overall risk profile if the respective employee’s total variable remuneration is below EUR 50,000 per annum. This figure represents an exemption limit. Once the limit is exceeded, the entire variable remuneration must meet the requirements under section 20 (1) to (3).

If the performance of a member of the management body, an employee, an organisational unit or the overall performance of the institution or group do not meet the requirements, or if positive performance contributions that have already been made later prove to be unsustainable, variable remuneration, including the deferred components defined in section 20 (1) and (2), must be reduced or even fully eliminated in accordance with section 20 (4). This also includes the deferred component of the variable remuneration, which is based on the institution’s value over the long-term in accordance with section 20 (4) no. 1 and 2. This rule takes account of FSB Standards No. 5 and 6 and the requirements under Article 94 (1) letter n) of Directive 2013/36/EU. Aside from the individual non-attainment of objectives, criteria for the reduction or elimination of variable remuneration include for example: a significant change in the institution’s economic or regulatory capital base; a significant failure of risk management at the level of the institution and/or the organisational unit in which the respective person works; a significant downturn in the financial performance of the institution and/or the organisational unit in which the respective person works; misbehaviour or serious errors committed by the respective person. 5) The reduction or elimination of variable remuneration, particularly deferred variable remuneration within the meaning of section 20 (1) and (2), is problematic under German labour law if the remuneration has already been paid or if the employee has a specific entitlement to a certain payment. For this reason, there must be no entitlement during the deferral period to the deferred component of the variable remuneration (section 20 (1)). The deferred payment may however be stated as a special item in a bank or securities account. During the deferral period, the beneficiary therefore has an entitlement to error-free determination of the variable remuneration as a special item at best. Qualification for or entitlement to this variable remuneration may only arise at the end of the deferral period.

All requirements under sections 19, 20 and 21 shall also be met if an employee changes risk classification during the year, e.g. due to a change of job, that takes account of a higher relevance to the institution’s overall risk profile. In this case, the payment regime shall apply to the variable remuneration earned throughout the entire financial year.

Re. Section 21 – "Remuneration in the context of compensatory payments or severance pay"

According to section 21, in respect of compensatory payments or severance pay, the granting of remuneration relating to lost entitlements from previous employment contracts shall also be subject to the long-term interests of the institution and the payment regime (agreement on objectives, deferral, retention, malus/option of ex post reduction).

All requirements under sections 19, 20 and 21 shall also be met if an employee changes risk classification during the year, e.g. due to a change of job, that takes account of a higher relevance to the institution’s overall risk profile. In this case, the payment regime shall apply to the variable remuneration earned throughout the entire financial year.

Re. Section 22 – "Discretionary pension benefits"

Special requirements for discretionary payments towards pension benefits are provided in section 22 (1) and (2). The regulations apply to a specific pending termination of an employment contract, agency contract or service contract, and a distinction is to be made between termination due to retirement (paragraph 2) and termination for other reasons (paragraph 1). In the event of termination for reasons other than retirement, the institution must ensure that discretionary payments towards pension benefits can be reduced for at least the first five years after termination if the performance contributions of the member of the management body or employee, or their organisational unit, or the overall performance of the institution or group, prove not to be of a long-term nature.

Re. Section 23 –" Remuneration officers in major institutions"

A remuneration officer must be appointed pursuant to section 23. Remuneration officers shall perform the duties specified under section 24.

Part 4 – Special Provisions for Groups

Re. Section 27 – Group-wide remuneration policy

According to section 27 (1), the persons described in section 1 (2) KWG belonging to the superordinate company or the superordinate company of a group of institutions, a financial holding group, a mixed financial holding group or a financial conglomerate must establish a group-wide remuneration strategy that implements the requirements under this Ordinance at the group level and are responsible for adherence to the requirements of this Ordinance in those subordinated companies to which neither section 64b of the Insurance Supervision Act in conjunction with the Remuneration Ordinance for the Insurance Industry nor section 37 of the German Capital Investment Code (Kapitalanlagegesetzbuch) in conjunction with Appendix II of Directive 2011/61/EUR applies.

According to the principle of proportionality, in specific cases, section 27 (2) of the Ordinance permits exemptions from the duty to take subordinated companies into account in the determination of a group-wide remuneration strategy. The relevant definitions of groups are set out in sections 10a (1) to (3) and 10b (3) KWG . In the case of cross-border groups, implementation of the requirements may encounter legal restrictions due to differing jurisdictions. Where individual legal provisions collide, the superordinate company shall at least ensure that the subordinated company which is subject to stricter provisions complies with the provisions under the local jurisdiction. The requirements under the Ordinance represent minimum standards unless the application of individual provisions under the Ordinance explicitly contravenes the rules of the relevant other jurisdictions. Section 27 (3) clarifies that, in the case of groups which include at least one institution that has been identified as a major institution, the management body of the superordinate company is responsible for classifying and treating those staff within the group as risk takers, whose activity have a material impact on the overall risk profile of the group or of another group company.

In implementing the requirements at the group level, section 27 (4) allows for simplification provided this is risk-adequate, taking account of the size and complexity of the business activities of the group of institutions, financial holding group, mixed financial holding group or financial conglomerate. For example, a remuneration control committee may act for the whole group. Similarly, the disclosure requirements for the whole group may also be fulfilled centrally. In such cases, the requirements no longer need to be met at the solo level of the individual institutions. The respective assessment is to be documented in writing by the superordinate company or the superordinate company in a group of institutions, a financial holding group, a mixed financial holding group or a financial conglomerate.

Part 5 – Final Provisions

Re. Section 28 – "Transitional regulations"

The transitional regulation in section 28 (1) arose due to the fact that EBA , pursuant to Article 94 (1) letter g) (iii) of Directive 2013/36/EU and in consideration of all relevant factors including the inflation rate and risk as well as the length of the deferral period, is preparing and publishing guidelines regarding the applicable notional discount rate. According to section 28 (4), until the Regulatory Technical Standard enters into force, risk analysis identifying those staff whose activities have a material impact on the institution’s overall risk profile shall continue to be based on the criteria applicable until now, such as the organisational unit’s size, nature of the business activity, business volume, level of risks and earnings, as well as the employee's activity, position, amount of remuneration he/she has received thus far, and a highly competitive job market situation.

Re. Section 29 – "Entry into force, expiry"

Section 29 governs the entry into force of the Ordinance.

Footnotes

Vgl.

CEBS
-GLs,
Tz.
102 ff.

Vgl.

CEBS
-GLs,
Tz.
73

Vgl.

CEBS
-GLs,
Tz.
146 ff.

Vgl.

Art.
94
Abs.
1 lit. l) (ii)
CRD
IV

Vgl.

CEBS
-GLs,
Tz.
137

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