Compensation of the Board of Managing Directors

The company law and regulatory requirements pertaining to the compensation systems of joint stock corporations in general, and of banks in particular, have continually developed in recent years. The amendments to the Act on the Appropriateness of Management Board Compensation VorstAG were followed in 2010 by binding regulations, initially at European level, for compensation systems in financial institutions, such as the Capital Requirements Directive III (CRD III) and the guidelines of the Committee of European Banking Supervisors (CEBS Guidelines). The national legislative procedure to implement these new requirements for compensation systems was completed when the executive compensation regulation for banks (InstitutsVergV) came into force on 13 October 2010.

comdirect bank AG revised the compensation system for the members of the Board of Managing Directors in consultation with external compensation and legal advisers, including from the Commerzbank Group. In view of the Commerzbank Group’s responsibility under Article 9 of the executive compensation regulation for banks (InstitutsVergV) dated 13 October 2010 that subordinate companies comply with regulatory requirements, the compensation system for members of the Board of Managing Directors was adjusted in line with the Commerzbank Group’s compensation systems. The contracts of employment for the members of the Board of Managing Directors have been modified accordingly and the variable compensation specified on the basis of the new regulatory requirements. The adjusted compensation system for the Board of Managing Directors was approved by the shareholders at the annual general meeting in 2012.

On 17 April 2013, the European Parliament approved the combined proposed Capital Requirements Directive IV/Capital Requirements Regulation (CRD IV/CRR). The Regulation and Directive come into force on 1 January 2014, the Directive on the basis of the Implementation Act, which will amend the German Banking Act (KWG) in particular. The executive compensation regulation for banks (InstitutsVergV) revised in line with the above is already available. Whether, and the extent to which, this will necessitate changes to the compensation system for the Board of Managing Directors is currently being examined and a final assessment will be carried out in conjunction with compensation experts from the Commerzbank Group.

The compensation policy for the Board of Managing Directors is continually aimed at compensation that is appropriate and sustainable, that avoids incentives to take disproportionately high risks and at the same time offers effective conduct incentives to achieve the objectives laid down in the bank’s strategies and thus permanently contribute to the continued positive development of the comdirect group.

Main features of the compensation system

The compensation system for the Board of Managing Directors of comdirect bank is specified and reviewed annually by the Supervisory Board. It takes account of the legal and regulatory requirements. The Declaration of Compliance in accordance with Section 161 of the German Stock Corporation Act (AktG) as part of the Corporate Governance statement can be viewed on the website at www.comdirect.de/ir under the heading Corporate Governance.

The overall compensation comprises a non-performance-related fixed compensation and a variable compensation component linked to the success of the company and personal performance. Furthermore, the members of the Board of Managing Directors receive a company pension in respect of their activities for comdirect bank. The compensation components are specified in the contracts of employment of the respective members of the Board of Managing Directors.

The compensation for the Board of Managing Directors is based on the duties of the individual member of the Board of Managing Directors and the current economic position and future prospects of the bank, as well as the level of compensation paid in peer companies. The relationship between fixed compensation and the variable compensation component is appropriate, thereby avoiding a significant dependence of the members of the Board of Managing Directors on the variable compensation and providing an effective conduct incentive at the same time. For the CEO, the target amount for the variable compensation component is therefore limited to a maximum of around 67% of the target overall compensation, and for members of the Board of Managing Directors to a maximum of around 54% (cap). For the active members of the Board of Managing Directors, the target amount for the variable compensation component is currently limited to a maximum of approximately 41% of the target overall compensation. The appropriateness of the compensation is reviewed annually, including in consultation with independent, external compensation advisers.

Non-performance-related fixed compensation

The non-performance-related fixed compensation comprises an annual fixed salary plus fringe benefits. Without prejudice to the possibility of a review by the Supervisory Board, the annual fixed salary for members of the Board of Managing Directors is set for the entire term of their respective contract of employment and is paid in twelve monthly instalments. In addition to the fixed salary, the members of the Board of Managing Directors receive fringe benefits in the form of payments in kind which essentially comprise the payment of expense allowances and insurance premiums and the taxes and social security contributions attributable to these. The actual amount varies according to the individual situation of the respective member of the Board of Managing Directors. Moreover, the Commerzbank Group maintains a D&O insurance policy with deductible, which includes the members of the Board of Managing Directors and Supervisory Board of comdirect.

Performance-related variable compensation

The system described below applies for the performance-related variable compensation of the Board of Managing Directors.

The volume of the performance-related variable compensation is based on the attainment of business targets of comdirect and the Commerzbank Group, as well as individual targets in the financial year under assessment in conjunction with the target amount for the variable compensation component of the members of the Board of Managing Directors. The targets are agreed annually between the Board of Managing Directors and the Supervisory Board and are aligned with the strategic objectives of the bank and in particular take account of risks taken and the cost of capital. Target attainment can amount to a minimum of 0% and a maximum of 200% of the target amount for the variable compensation component and accordingly limits the volume for the variable compensation of the Board of Managing Directors (cap).

The individual variable compensation component for the members of the Board of Managing Directors breaks down into two elements: a long term incentive (LTI), which for the CEO accounts for 60% and for members of the Board of Managing Directors for 40% of the variable compensation and is paid three-and-a-half years after the end of the financial year at the earliest, and a short term incentive (STI), which is paid within ten months of the end of the financial year. The entitlement to the LTI is only acquired upon expiry of the three-year waiting period. The entitlement to the STI is acquired immediately. In each case, 50% of the LTI and STI component is settled as a cash payout and 50% in the form of shares in Commerzbank AG after a blocking period. Entitlements and due dates for the LTI and STI components are shown in the chart below.

Fälligkeit

With regard to the variable compensation for financial year 2013, the STI will therefore fall due in financial 2014 (year 1) and the LTI – subject to a reduction or cancellation of the entitlement – in 2017 (year 4).

The level of the individual variable compensation for both the LTI and STI is measured in an individual performance evaluation based on the agreed individual quantitative and qualitative targets for the respective financial year (performance evaluation I). The underlying individual targets are also agreed annually with the Supervisory Board and are aligned with the strategic objectives of the bank. Target attainment can lie between 0% and 200% of the target value for the variable compensation component and limits the level of the STI and LTI accordingly (cap). To measure the level of the LTI component, further collective and individual reviews are carried out in performance evaluation II after the end of the three-year waiting period. At collective level, this review includes the liquidity and profitability of the Commerzbank Group. At individual level, the sustainability of the individual performance ascertained in performance evaluation I is rated along with compliance with regulations and the risk-taking behaviour of the individual members of the Board of Managing Directors. Negative individual performance contributions reduce the respective compensation from the LTI component (malus), as does failure to meet the liquidity and profitability criteria of the Commerzbank Group.

The performance evaluations are carried out in each case by the Supervisory Board. The following overview depicts the measurement of the variable compensation based on performance evaluations I and II.

Performance evaluation

Safeguards which restrict or rescind the risk-orientation of the variable compensation are contractually excluded. The current LTI components do not apply if, based on defined criteria, the respective member of the Board of Managing Directors leaves the bank as a “bad leaver”. In the event of extraordinary developments, the Supervisory Board can, at its discretion, adjust the targets and parameters for the STI and LTI and appropriately limit the level of individual variable compensation. The payout of the variable compensation components is cancelled if the payment is prohibited or restricted by the Federal Financial Supervisory Authority (BaFin).

The previous sustainable component with multi-year assessment basis, which since 2005 has been based on the Long Term Incentive Programme (LTIP), ceased when the adjusted compensation system for the full Board of Managing Directors was introduced. As a result, only the tranche issued in 2010 fell due for payment under the LTIP 2005 in financial year 2013. Details of the LTIP 2005 can be found in note (25).

Pensions

For their work at comdirect bank, the members of the Board of Managing Directors receive a pension entitlement, whereby the active members of the Board of Managing Directors acquire a claim to an annual pension element amounting to a fixed percentage of their respective basic annual salary. The level of the pension thus depends solely on the length of time they have been a member of the Board of Managing Directors. The rights to a pension vest after five years’ service in the Commerzbank Group. The company has recognised pension provisions for these future claims on the basis of the International Financial Reporting Standards (IFRS), the level of which depends on the number of service years, the pensionable salary and the current actuarial interest rate. These are calculated according to the project unit credit method on the basis of actuarial opinions by an independent actuary (see note (71)).

Premature termination benefits

If comdirect bank prematurely terminates the appointment to the Board of a member of the Board of Managing Directors, the respective contract of employment is in principle continued until the end of the original term of office. The members of the Board of Managing Directors would receive a maximum amount of up to two years compensation, with the calculation based on the compensation for the last full financial year prior to termination. There is no entitlement to further remuneration where the termination takes place for good cause.

Overall compensation for active members of the Board of Managing Directors

The overall compensation for active members of the Board of Managing Directors for their activities in financial year 2013 amounted to €1,221 thousand (previous year: €1,311 thousand). In accordance with Section 314 of the German Commercial Code (HGB), in addition to the non-performance-related fixed compensation and the performance-related compensation due in the short term that has been granted, the share-based portion of the performance-related variable compensation with long term incentive effect that has been granted is also to be reported here as remuneration in financial year 2013.

In addition to the remuneration granted for the reporting year and the remuneration to be reported for the year under review in accordance with Section 314 of the German Commercial Code (HGB), the tables below show the cumulative payouts made for the individual reporting years as of 31 December 2013, as well as the payouts made in 2013 for each of the active members of the Board of Managing Directors on an individual basis.

Enlarge table
Dr Thorsten Reitmeyer (Chief Executive Officer since 1 December 2010)
€ thousand Non-performance-related fixed compensation Performance-related variable compensation due in short term (STI component) Performance-related variable compensation with long term incentive effect (LTI component)2) Compensation paid in 2013 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2013 Compensation granted for respective reporting year Amount to be reported for respective reporting year in accordance with Section 314 HGB
Reporting year Fixed salary Value of fringe benefits STI cash payout Share-based STI1) LTI cash payout Share-based LTI
  Value upon payout Value upon payout Value upon granting and payout Value upon payout Value upon payout Value upon payout Value upon payout Value upon payout Value upon payout
2013 390 12 55 55   83   83   402 402 678 595
2012 360 18 61 61 49 91   914)   110 488 682 591
2011 360 141 77 77 68 115   1155)     646 885 770
Dr Thorsten Reitmeyer (Chief Executive Officer since 1 December 2010)
€ thousand Non-performance-related fixed compensation Performance-related variable compensation due in short term (STI component) Performance-related variable compensation with long term incentive effect (LTI component)2) Compensation paid in 2013 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2013 Compensation granted for respective reporting year Amount to be reported for respective reporting year in accordance with Section 314 HGB
Reporting year Fixed salary Value of fringe benefits STI cash payout Share-based STI1) LTI cash payout Share-based LTI
  Value upon payout Value upon payout Value upon granting and payout Value upon payout Value upon payout Value upon payout Value upon payout Value upon payout Value upon payout
2013 390 12 55 55   83   83   402 402 678 595
2012 360 18 61 61 49 91   914)   110 488 682 591
2011 360 141 77 77 68 115   1155)     646 885 770

With effect from 1 October 2013, Holger Hohrein was appointed as a member of the Board of Managing Directors for a period of three years.

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Holger Hohrein (Member of the Board of Managing Directors since 1 October 2013)
€ thousand Non-performance-related fixed compensation Performance-related variable compensation due in short term (STI component) Performance-related variable compensation with long term incentive effect (LTI component)2) Compensation paid in 2013 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2013 Compensation granted for respective reporting year Amount to be reported for respective reporting year in accordance with Section 314 HGB
Reporting year Fixed salary Value of fringe benefits STI cash payout Share-based STI1) LTI cash payout Share-based LTI
  Value upon payout Value upon payout Value upon granting and payout Value upon granting Value upon payout Value upon granting Value upon payout Value upon granting Value upon payout
From 1.10. 2013 58 1 8 8   5   5   59 59 85 80
Holger Hohrein (Member of the Board of Managing Directors since 1 October 2013)
€ thousand Non-performance-related fixed compensation Performance-related variable compensation due in short term (STI component) Performance-related variable compensation with long term incentive effect (LTI component)2) Compensation paid in 2013 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2013 Compensation granted for respective reporting year Amount to be reported for respective reporting year in accordance with Section 314 HGB
Reporting year Fixed salary Value of fringe benefits STI cash payout Share-based STI1) LTI cash payout Share-based LTI
  Value upon payout Value upon payout Value upon granting and payout Value upon granting Value upon payout Value upon granting Value upon payout Value upon granting Value upon payout
From 1.10. 2013 58 1 8 8   5   5   59 59 85 80

Furthermore, Holger Hohrein received a payment from performance shares in the amount of €38 thousand under the 2005 LTI plan, which were granted to him in his capacity as a comdirect divisional manager in financial year 2010.

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Martina Palte (Member of the Board of Managing Directors since 1 July 2012)
€ thousand Non-performance-related fixed compensation Performance-related variable compensation due in short term (STI component) Performance-related variable compensation with long term incentive effect (LTI component)2) Compensation paid in 2013 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2013 Compensation granted for respective reporting year Amount to be reported for respective reporting year in accordance with Section 314 HGB
Reporting year Fixed salary Value of fringe benefits STI cash payout Share-based STI1) LTI cash payout Share-based LTI
  Value upon payout Value upon payout Value upon granting and payout Value upon granting Value upon payout Value upon granting Value upon payout Value upon granting Value upon payout
2013 180 9 28 28   19   19   189 189 283 264
From 1.7. 2012 90 3 16 16 12 10   104)   28 121 145 135
Martina Palte (Member of the Board of Managing Directors since 1 July 2012)
€ thousand Non-performance-related fixed compensation Performance-related variable compensation due in short term (STI component) Performance-related variable compensation with long term incentive effect (LTI component)2) Compensation paid in 2013 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2013 Compensation granted for respective reporting year Amount to be reported for respective reporting year in accordance with Section 314 HGB
Reporting year Fixed salary Value of fringe benefits STI cash payout Share-based STI1) LTI cash payout Share-based LTI
  Value upon payout Value upon payout Value upon granting and payout Value upon granting Value upon payout Value upon granting Value upon payout Value upon granting Value upon payout
2013 180 9 28 28   19   19   189 189 283 264
From 1.7. 2012 90 3 16 16 12 10   104)   28 121 145 135

Moreover, Martina Palte received a payment from performance shares in the amount of €12 thousand under the 2005 LTI plan, which were granted to her in her capacity as a comdirect department head in financial year 2010.

Dr Diekmann resigned as a member of the Board of Managing Directors with effect from the end of 30 September 2013. The contract of employment with Dr Diekmann was also prematurely terminated on 30 September 2013 by mutual agreement. The current payments up to 30 September 2013 are shown in the table below under non-performance-related fixed compensation. As part of the termination of the contract of employment, the following was agreed with Dr Diekmann in accordance with the terms and conditions of the compensation system: The STI component for financial year 2013 was granted ratably and will be paid in financial year 2014 as scheduled. The STI component for financial year 2012 was also paid as scheduled in financial year 2013. The figures are shown in the following table in the STI component column. There is no LTI entitlement for financial year 2013. The LTI components granted for financial years 2011 and 2012 have lapsed with the departure of Dr Diekmann and have no value. The equivalent value of the entitlements arising from tranche 2010 of the LTIP 2005 was determined on the basis of a fair value valuation as of 24 June 2013 and settled in September 2013. The payment is shown in the table below in the LTIP 2005 column.

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Dr Christian Diekmann (Member of the Board of Managing Directors until 30 September 2013)
€ thousand Non-performance-related fixed compensation Performance-related variable compensation due in short term (STI component) Performance-related variable compensation with long term incentive effect (LTI component)2) Compensation paid in 2013 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2013 Compensation granted for respective reporting year Amount to be reported for respective reporting year in accordance with Section 314 HGB
Reporting year Fixed salary Value of fringe benefits STI cash payout Share-based STI1) LTIP 2005 LTI cash payout Share-based LTI
  Value upon payout Value upon payout Value upon granting and payout Value upon granting Value upon payout Value upon granting Value upon payout Value upon granting Value upon payout Value upon granting Value upon payout
Until 30.9. 201320315323200218218282282
20122701843433428028077365430402
201123016474741310310334402371
20101706156434646378375375
Dr Christian Diekmann (Member of the Board of Managing Directors until 30 September 2013)
€ thousand Non-performance-related fixed compensation Performance-related variable compensation due in short term (STI component) Performance-related variable compensation with long term incentive effect (LTI component)2) Compensation paid in 2013 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2013 Compensation granted for respective reporting year Amount to be reported for respective reporting year in accordance with Section 314 HGB
Reporting year Fixed salary Value of fringe benefits STI cash payout Share-based STI1) LTIP 2005 LTI cash payout Share-based LTI
  Value upon payout Value upon payout Value upon granting and payout Value upon granting Value upon payout Value upon granting Value upon payout Value upon granting Value upon payout Value upon granting Value upon payout
Until 30.9. 201320315323200218218282282
20122701843433428028077365430402
201123016474741310310334402371
20101706156434646378375375

Details regarding the pensions for the active members of the Board of Managing Directors in 2013 are shown in the following table individually.

€ thousand Pension obligation (DBO)
under IFRS as of 31.12.2013
Vested rights
as of 31.12.2013
Dr Thorsten Reitmeyer 251 343
Holger Hohrein 3 4
Martina Palte 17 24
Dr Christian Diekmann 82 108
Total 353 479

In the past financial year, no member of the Board of Managing Directors has received payments or corresponding obligations from a third party in relation to their activities as a member of the Board of Managing Directors. Members performing board functions at subsidiaries only received reimbursement for expenses.

The insurance premium for the group-wide D&O insurance for Managing Directors and supervisory bodies of comdirect bank is paid by the company. The company incurred expenses of €115 thousand in this regard in the reporting year. No loans or advance payments were granted in the reporting year.

Overall compensation for former members of the Board of Managing Directors

The overall compensation for former members of the Board of Managing Directors amounted to €226 thousand (previous year: €357 thousand) in the financial year. As of 31 December 2013, the pension obligations to former members of the Board of Managing Directors pursuant to IFRS totalled €3,809 thousand (previous year: 3,886 thousand).