5. Compensation, shareholdings and loans

The Risk Policy Framework Rules of VP Bank stipulate that the Bank’s compensation systems and human resources management are to be designed in a manner that minimises the potential for personal conflicts of interest and behavioural risks.

In its function as the Nomination & Compensation Committee (see Point 3.5.2), the Committee of the Board of Directors proposes to the Board the principles for the compensation of the Board members and members of the GEM and Executive Board, as well as the remuneration paid to members of those corporate bodies. The Board of Directors approves the aforementioned principles and determines the amount of total compensation payable to Board, GEM and Executive Board members in keeping with the applicable rules.

Members of the Board of Directors receive compensation for the duties and responsibilities conferred on them by law and pursuant to Art. 20 of the Articles of Incorporation. This is determined annually by the Board of Directors at the proposal of the Committee of the Board of Directors in its capacity as Compensation Committee. It is distributed to the members of the Board of Directors on a graduated basis according to their functions in the Board of Directors and its committees or in other corporate bodies (e.g. the pension fund). Three-quarters of this compensation is paid in cash, and one-quarter in the form of freely disposable VP Bank bearer shares, the number of which is determined by the current market price at the time of grant. 

At VP Bank, there are no agreements pertaining to severance compensation for members of the Board of Directors. 

A long-term, value-oriented compensation model applies to GEM, Executive Board and second-level management members of VP Bank. Under this model, the compensation paid to GEM and Executive Board members consists of the following three components:

1. A fixed base salary that is contractually agreed between the Committee of the Board of Directors (Nomination & Compensation Committee) and the individual members. In addition to the base salary, VP Bank pays proportionate contributions to the management insurance scheme and the pension fund.
2. A variable performance-based component (short-term incentive, STI), which is dependent on the annual value creation of VP Bank Group. The allocation is based on qualitative individual criteria and Group financial goals. The latter carry an approximate two-thirds weighting. The STI is paid out annually in cash.
3. A variable long-term management share ownership scheme (long-term incentive, LTI) with grants in the form of VP Bank bearer shares. The fundamental principles of the scheme focus on added value (economic profit), “pay for performance” as well as the long-term commitment of management to receiving a variable compensation component in the form of VP Bank shares. The number of shares granted upon termination of the three-year plan is directly dependent on the trend in economic profit of VP Bank Group, which takes into account capital as well as risk costs. The goals are determined on the basis of an unbiased, outside view. The point of departure in this regard is the targeted return on market value. Thus depending on the financial developments, more or fewer shares will be granted, with the related factor ranging from a minimum of 0.5 to a maximum of 2.0. The monetary value of the compensation paid in the form of shares at the end of the plan is also dependent on the current market price of VP Bank bearer shares. The bearer shares required to cover the LTI stock ownership plan will come either from the treasury holdings of VP Bank Group or are obtained by means of open-market purchases.

Each year, the Board of Directors sets the annual LTI planning parameters for the following three years as well as the amount of the short-term incentive (STI). In the programme for 2012 to 2014, the fulfilment of annual and three-year targets will result in a goal-achievement bonus (LTI and STI) of between 70 and 85 per cent of the fixed base salary. The variable performance-based amount actually paid to acting GEM and Executive Board members as of 31 December 2012 (based on the 2009–2011 LTI) equalled approximately 15 per cent of the fixed base salary. The grant of shares from the 2009 to 2011 LTI programme was made in the first quarter of 2012.

VP Bank has concluded no agreements on severance compensation for members of Group Executive Management or the Executive Board. 

An external advisor who has no other mandates from VP Bank Group was commissioned to structure the compensation model.

As a SIX Swiss Exchange listed issuer domiciled abroad, VP Bank discloses information on compensation, shareholdings and loans within the context of Article 5.2 of the Notes on the Corporate Governance Directive dated 29 October 2008, i.e. analogous to Art. 663bbis of the Swiss Code of Obligations. The details in this regard can be found in the Financial Report and individual company accounts of Verwaltungs- und Privat-Bank AG, Vaduz.