5. Compensation, shareholdings and loans

The Compensation Policy Rules as well as the Risk Policy Framework Rules of VP Bank Group 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. The Nomination & Compensation Committee makes proposals to the Board of Directors on the principles underlying compensation as well as the level of compensation paid to the members of the Board of Directors, Group Executive Management and the Executive Board. The Board of Directors approves these principles and determines the amount of total compensation payable to itself, the members of Group Executive Management and the Executive Board in keeping with the applicable rules.

The 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 full Board of Directors at the proposal of the Nomination & Compensation Committee. Compen­sation to the members of the Board of Directors is paid on a graduated basis according to their functions in the Board of Directors and its committees or in other 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 Group bearer shares, the number of which is determined by the current market price at the time of receipt. At VP Bank Group, there are no agreements pertaining to severance compensation for members of the Board of Directors. 

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

1. A fixed base salary that is contractually agreed between the Nomination & Compensation Committee and the individual members. In addition to the base salary, VP Bank Group 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 Group 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 Group shares. The number of shares which vest after a period of three years is directly depend­ent on the development 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 Group bearer shares. The bearer shares required to cover the LTI stock ownership plan will come either from the treasury shareholdings of VP Bank Group or are purchased on the stock market.

Each year, the Board of Directors sets the annual LTI planning parameters for the following three years as well as the amount of the STI. In the programme for 2013 to 2015, the fulfilment of annual and three-year targets will result in a target bonus (LTI and STI) of between 65 and 100 per cent of the fixed annual base salary. The variable performance-based amount actually paid in 2013 to Group Executive Management and Executive Board members in office as of 31 December 2013 (LTI 2008–2012 and LTI 2010–2012 as well as STI) amounted to 51 per cent of the fixed base salary. The shares from the 2008–2012 LTI programmes were vested in the first half of 2013.

VP Bank Group has not concluded any agreements on severance compensation for members of Group Executive Management or the Executive Board. 

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

As a SIX Swiss Exchange listed issuer domiciled outside Switzerland, VP Bank Group discloses information on compensation, shareholdings and loans within the context of Article 5.2 of the Appendix to the Corporate Governance Directive dated 29 October 2008, i.e. by analogy to Art. 663bbis of the Swiss Code of Obligations. The details in this regard can be found in the financial report and stand-alone accounts of Verwaltungs- und Privat-Bank AG, Vaduz.