Compensation report

The ba­sis of this com­pen­sa­tion re­port of VP Bank is the im­ple­men­ta­tion of the EU Di­rec­tive 2010/​76/​EU, which, amongst other things, reg­u­lates the risks as­so­ci­ated with com­pen­sa­tion poli­cies and prac­tices.

On the one hand, Liecht­en­stein has im­ple­mented this di­rec­tive in the Law on Banks and Se­cu­ri­ties Firms, in par­tic­u­lar in Art 7a Par. 6 thereof: “Banks and se­cur­ities firms are to in­tro­duce a com­pen­sa­tion pol­icy and com­pen­sa­tion prac­tices and to en­sure con­tin­u­ously that they are con­sis­tent with ro­bust and ef­fec­tive risk man­age­ment within the spirit of this Ar­ti­cle. The gov­ern­ment shall reg­u­late the de­tails of the com­pen­sa­tion pol­icy and prac­tices in a re­lated or­di­nance”.

On the other hand, the con­tent of An­nex 4.4 of the “Or­di­nance on Banks and Se­cu­ri­ties Firms” (FL-BankV) has been sup­ple­mented ac­cord­ingly. This or­di­nance en­tered into force on 1 Jan­u­ary 2012. The re­mu­ner­ation pol­icy of VP Bank Group cor­re­sponds to the size of VP Bank and its busi­ness model. This en­com­passes the of­fer­ing of bank­ing ser­vices for pri­vate clients and in­ter­me­di­aries in the dis­closed tar­get mar­kets, in Liecht­en­stein and in the other lo­ca­tions, as well as ser­vices for in­vest­ment funds. 

Com­pen­sa­tion plays a cen­tral role in the re­cruit­ment and re­ten­tion of em­ploy­ees. It also has an in­flu­ence on the fu­ture suc­cess of the com­pany. VP Bank pro­fesses to pur­sue fair, per­for­mance-ori­ented and bal­anced prac­tices in terms of com­pen­sa­tion, which are in keep­ing with the long-term in­ter­ests of share­hold­ers, em­ploy­ees and clients alike. 

The long-stand­ing re­mu­ner­a­tion prac­tices of VP Bank cor­re­spond to the busi­ness model of VP Bank as as­set man­ager and pri­vate bank. The prin­ci­ples ap­plied are laid down in the Re­mu­ner­a­tion Pol­icy.

• Per­for­mance ori­en­ta­tion and dif­fer­en­ti­a­tion: VP Bank re­mu­ner­ates em­ploy­ees ac­cord­ing to their per­for­mance.
• Gen­der- and age-neu­tral re­mu­ner­a­tion and equal treat­ment: the func­tion de­ter­mines the level of fixed an­nual salary.
• Fair and mar­ket-ori­ented pay: VP Bank is guided by mar­ket con­di­tions and reg­u­larly re­views these.
• Fo­cus of de­ci­sion-mak­ers on a sta­ble, suc­cess- ori­ented and for­ward-look­ing man­age­ment and the avoid­ance of ex­ces­sive risk-tak­ing: VP Bank re­wards sus­tain­able pos­i­tive ac­tions and does not max­imise rev­enues on a short-term ba­sis.

With these prin­ci­ples, VP Bank achieves a re­mu­ner­ation which is in line with the mar­ket, with its per­for­mance and with the rel­e­vant re­quire­ments. They set the right per­for­mance in­cen­tives for in­di­vid­ual em­ploy­ees and man­age­ment, thus fos­ter­ing the achieve­ment of the goals set out in VP Bank’s strat­egy. Re­mu­ner­a­tion-re­lated con­flicts of in­ter­est of the in­volved func­tions and/​or in­di­vid­u­als are avoided. 

Vari­able re­mu­ner­a­tion can, but need not be granted. On the one hand, it is de­pen­dent on the suc­cess of the Bank or in­di­vid­ual com­pa­nies, on the other hand, on in­di­vid­ual per­for­mance. The lat­ter is eval­u­ated by the em­ploy­ee’s su­per­vi­sor at the end of a year on the ba­sis of the agreed-upon tasks and goals. The ex­tent to which the pro­vi­sions of the leg­is­la­tor, the Bank and the in­di­vid­ual client are ob­served is also taken into con­sid­er­a­tion. The level of profit par­tic­i­pa­tion is fixed ac­cord­ing to quan­ti­ta­tive and qual­i­ta­tive cri­te­ria and is in rea­son­able re­la­tion­ship to the fixed por­tion of in­come. The tar­get pro­por­tion to to­tal re­mu­ner­a­tion varies ac­cord­ing to func­tion and mar­ket prac­tices. It shall re­main un­der 50 per cent at all times. Even af­ter re­peated pay­outs, no en­ti­tle­ment to a vari­able salary arises in the sub­se­quent year. 

Pay­ment is made in prin­ci­ple in cash in the first quar­ter of the fol­low­ing year and, as a gen­eral rule, in the full amount. In the case of par­tic­u­larly high vari­able salary por­tions, VP Bank may spread a part of the pay­ment thereof over sev­eral years and/​or set­tle a part in the form of VP Bank shares or vested en­ti­tle­ments thereto.

Each year, shares are of­fered for sale at a pref­er­en­tial price to the em­ploy­ees of VP Bank. The num­ber of shares varies ac­cord­ing to years of ser­vice and func­tion. In­stead of an out­right pur­chase, the shares may also be drawn at no charge whilst de­duct­ing the mon­e­tary ben­e­fit. The shares re­main re­stricted for four years.

A long-term ori­ented man­age­ment eq­uity-share par­tic­i­pa­tion model (Long Term In­cen­tive Plan, LTI) has been es­tab­lished for the mem­bers of se­nior man­age­ment and cer­tain spe­cial­ists. The ba­sic prin­ci­ples un­der­ly­ing this pro­gramme are the cre­ation of value of VP Bank Group (eco­nomic profit = Group net in­come af­ter de­duct­ing costs of cap­i­tal) over a pe­riod of three years, “pay for per­for­mance” and the long-term com­mit­ment of man­age­ment to a vari­able re­mu­ner­ation com­po­nent in the form of eq­uity shares. The par­tic­i­pants must in­vest a part of their “tar­get bonus” in the LTI pro­gramme. Eq­uity shares as a means of pay­ment re­flect an ob­jec­tive as­sess­ment by the mar­ket. The long-term tar­get-set­ting for the par­tic­i­pants has the ob­jec­tive of re­ward­ing suc­cess that is not just based on a sin­gle year’s per­for­mance. 

De­tails on the LTI pro­gramme are to be found in the chapter “Corporate governance” under “Com­pensation, shareholdings and loans”.

Fringe ben­e­fits are an­cil­lary ben­e­fits which VP Bank of­fers its em­ploy­ees on a vol­un­tary ba­sis, of­ten as a re­sult of prac­tices which are cus­tom­ary in the given lo­ca­tion or busi­ness seg­ment. In prin­ci­ple, the bene­­fits are only of a mi­nor na­ture. They are set­tled and re­ported in ac­cor­dance with lo­cal reg­u­la­tions.

They re­late prin­ci­pally to the fol­low­ing ben­e­fits:

• in­sur­ance ben­e­fits in ex­cess of le­gal pre­scrip­tions
• re­tire­ment-ben­e­fit-re­lated amounts, in par­tic­u­lar vol­un­tary em­ployer con­tri­bu­tions
• pref­er­en­tial con­di­tions for em­ploy­ees in the case of bank­ing trans­ac­tions, such as re­duced-rate mort­gages for res­i­den­tial prop­erty
• fur­ther fringe ben­e­fits which are cus­tom­ary for the given lo­ca­tion.

Em­ploy­ees hav­ing a par­tic­u­larly large in­flu­ence on the risk pro­file of the Bank are des­ig­nated as “risk tak­ers”. VP Bank iden­ti­fies the mem­bers of Group Ex­ec­u­tive Man­age­ment and the Ex­ec­u­tive Board as de­ci­sion-mak­ers and sub­stan­tial “risk tak­ers”. De­tails on their re­mu­ner­a­tion are set out in the section on “Corporate governance 2013”. 

In­di­vid­u­als per­form­ing com­pli­ance or other con­trol func­tions are re­mu­ner­ated prin­ci­pally with fixed re­mu­ner­a­tion com­po­nents. The vari­able part of their re­mu­ner­a­tion is un­re­lated to the profit of the en­ti­ties which they au­dit or mon­i­tor. 

The re­mu­ner­a­tion prac­tices of VP Bank are in com­pli­ance with An­nex 4.4 of the Bank­ing Or­di­nance (FL-BankV) as well as the EU Di­rec­tive. They are ori­ented to­wards long-term suc­cess. There are no events which trig­ger the au­to­matic pay­ment of vari­able salary com­po­nents. The de­ci­sion con­cern­- ing the ear­mark­ing of a to­tal amount for re­mu­ner­ation lies ul­ti­mately with the Board of Di­rec­tors. 

VP Bank does not make guar­an­teed pay­ments in ad­di­tion to fixed salaries such as end-of-ser­vice in­dem­ni­ties agreed upon in ad­vance. Spe­cial pay­ments upon com­mence­ment of em­ploy­ment may oc­cur in se­lected in­di­vid­ual cases – as a gen­eral rule, these re­late to the com­pen­sa­tion of fore­gone ben­e­fits from the pre­vi­ous em­ployer. 

The Re­mu­ner­a­tion Pol­icy al­lows for in­di­vid­ual per­for­mance agree­ments in spe­cific cases in or­der to com­pute the amount of a bonus de­pend­ing on an ob­jec­tively mea­sur­able suc­cess. Group Ex­ec­u­tive Man­age­ment must con­sent to the re­lated method of com­pu­ta­tion. The safe­guard­ing of client in­ter­ests and com­pli­ance with all reg­u­la­tory di­rec­tives must con­tinue to ex­ist in an un­equiv­o­cal man­ner. 

In ap­pli­ca­tion of Liecht­en­stein law, vari­able salary com­po­nents may be can­celled if nec­es­sary, those with­held may be for­feited or those al­ready paid out re­claimed. This ap­plies in par­tic­u­lar in the case of the proven guilt of an em­ployee or the ac­cep­tance of ex­ces­sive risks to achieve goals.

The sum of vari­able-salary pro­vi­sions must be toler­able in the ag­gre­gate. VP Bank Group or an in­di­vid­ual sub­sidiary com­pany should never fall into fi­nan­cial dif­fi­culty as a re­sult thereof. In the case of ad­verse trad­ing con­di­tions, the Bank shall re­frain from pay­ing vari­able re­mu­ner­a­tion com­po­nents. 

By con­sent­ing to the bud­get, the Board of Di­rec­tors ap­proves the to­tal of fixed re­mu­ner­a­tion and, at the end of the year, de­cides on the level of pro­vi­sions for the vari­able por­tion of salary with re­gard to the an­nual re­sults. It lays down the fixed and vari­able por­tion of re­mu­ner­a­tion for Group Ex­ec­u­tive Man­age­ment and the Ex­ec­u­tive Board. The Nom­i­na­tion & Com­pen­sa­tion Com­mit­tee (NCC) sup­ports the Board of Di­rec­tors in all is­sues in­volv­ing the set­ting of salaries, de­fines, to­gether with Group Ex­ec­u­tive Man­age­ment, those in­di­vid­u­als des­ig­nated as “risk tak­ers” and mon­i­tors their re­mu­ner­a­tion. To­gether with In­ter­nal Au­dit, the NCC re­views com­pli­ance with the Re­mu­ner­a­tion Pol­icy. 

Group Ex­ec­u­tive Man­age­ment is re­spon­si­ble for all as­pects in­volv­ing the im­ple­men­ta­tion of com­pen­sa­tion processes within the scope of the Re­mu­ner­a­tion Pol­icy and lays down the frame­work thereof for the in­di­vid­ual com­pa­nies. It spec­i­fies the fixed and vari­able re­mu­ner­a­tion of the sec­ond-man­age­ment-level heads, in­clud­ing the man­agers in charge of sub­sidiary com­pa­nies. Fur­ther­more, it is­sues an­nual im­ple­ment­ing reg­u­la­tions to the com­pa­nies and/​or su­per­vi­sors for the fix­ing of in­di­vid­ual vari­able salaries. 

The in­di­vid­ual su­per­vi­sors agree tasks and goals as part of the MbO process and eval­u­ate the achieve­- ment of goals at the end of the pe­riod. In ad­di­tion to per­for­mance, par­tic­u­lar at­ten­tion is paid to the ob­ser­vance of all rel­e­vant reg­u­la­tory pro­vi­sions. 

In­for­ma­tion on the re­mu­ner­a­tion of mem­bers of the Board of Di­rec­tors as well as the mem­bers of Group Ex­ec­u­tive Man­age­ment and the Ex­ec­u­tive Board are to be found in the fi­nan­cial re­port, the stand-alone fi­nan­cial state­ments of Ver­wal­tungs- und Pri­vat-Bank Ak­tienge­sellschaft, Vaduz, un­der “Remuneration paid to members of governing bodies”. 

Dis­clo­sures re­gard­ing per­son­nel ex­pense are set out in the 2013 Fi­nan­cial Re­port of VP Bank Group un­der “Personnel expense”.

Split of fixed and vari­able re­mu­ner­a­tion 2013