5 Compensation, participations and loans
5.1 Contents and stipulation procedure
5.1.1 Responsibility and stipulation procedure
The Group Nomination & Compensation Committee (see Point 3.4.2 «»), which is composed solely of independent members of the Board of Directors, prepares the principles and regulations governing the compensation for the members of the Board of Directors and the Group Executive Board as well as the proposed amount of the compensation for the members of the Board of Directors and the Group Executive Board. The Board of Directors in corpore approves the principles and regulations governing compensation and specifies the amount of the compensation for the members of the Board of Directors and the Group Executive Board.
In 2012, no advisor was called in for the formulation of the compensation structure. Once a year, the Board of Directors prepares a summary of the compensation of board members, board chairmen and members of the Group Executive Board derived from publicly available sources and taking into consideration comparable banks (exchange-listed private banks and cantonal banks with significant private banking business) in Liechtenstein and Switzerland. This summary serves as a guide to the market situation for the Board of Directors. The decision regarding the amount of the compensation of the members of the Board of Directors and the Group Executive Board is made at the discretion of the Board of Directors. The members of the Group Executive Board are not present at the discussion and the decision concerning the amount of their compensation. In accordance with Art. 12, para. 2 of the Law on the Liechtensteinische Landesbank, the Board of Directors must inform the government about the compensation ruling specified for the Board.
The General Meeting of Shareholders of 4 May 2012 waived conducting an advisory vote on remuneration. Switzerland’s approach to the issue of compensation and remuneration is of decisive importance for LLB as a SIX Swiss Exchange listed company. On 3 March 2013, the initiative «gegen die Abzockerei» (against rip-off salaries) will be put to the vote. One of the main demands is that shareholders of listed companies vote annually on the total remuneration of the Board of Directors, an Advisory Board and the Group Executive Board. The Swiss Parliament has decided to draft an indirect counter-proposal in the form of an amendment to the law on stock companies. If the initiative is rejected, this counter proposal will automatically become law after the referendum deadline has expired. At the same time, developments in the European Union are relevant for Liechtenstein as an EEA member state.
The European Union set down remuneration standards in the EU directive 2010/76/EU. As an EEA country, Liechtenstein is committed to incorporating the directive into national law. As at 1 January 2012, Liechtenstein fulfilled the necessary requirements through the implementation of Appendix 4.4 to the ordinance on banks and securities firms (Banking Ordinance). As stated in the transitional provisions of the Banking Ordinance, the regulation of compensation and remuneration standards applies to work performance in 2012.
On 18 August 2012, the Board of Directors of LLB approved Group «Compensation and Remuneration Standards» for Liechtensteinische Landesbank AG and its Group companies; it came into force on 1 January 2012. Based on Appendix 4.4 of the Banking Ordinance, it regulates the framework for the Group-wide compensation and remuneration policy, in particular, in regard to its alignment to risk management. It stipulates the basis, values and objectives and sets out the minimum requirements for the design of the compensation and remuneration systems. In addition, it regulates Group-internal and Group-external reporting as well as related responsibilities.
The Group regulation applies to the Board of Directors, the Group Executive Board, senior managers exercising control functions, risk takers as well as to employees who receive an overall remuneration comparable to that of the Group Executive Board and whose decisions have a significant influence on the risk profile.
Compensation and remuneration for employee work performance comply with the business strategy as well as with the goals and values of the LLB Group and are based on the following principles:
- Sustainability and risk adjustment:
Remuneration practices have to contribute to long-term corporate development. They must support risk management and the pursuit of both continuous increases in the company’s value and long-term client and employee retention. Remuneration policy has to offer incentives in a manner that allows for adequate risk behaviour by individual persons in order to counteract any conflicts of interest.
- Performance and success orientation:
Compensation and remuneration practices have to also reward both individual performance and company related performance. Focus on a Group company’s or the Group’s success promotes and is in line with the LLB Group’s long-term business interests. The amount of profit sharing depends, among other things, on the financial success of the Group, of any Group company or the parent company. Acknowledging individual performance serves performance motivation, the management of individual performance contributions towards achieving company goals as well as the retention of top performers.
- Foundation of trust:
The design of the compensation and remuneration regulations and processes is based on a mutual foundation of trust between employees and employers.
- Simplicity, clarity and comprehensibility:
The compensation and remuneration regulations and models are to be kept simple, clear and comprehensible. Employees as well as third parties should be able to easily understand the basic concepts.
- Fair remuneration in accordance with responsibilities and management levels:
Remuneration assessment has to consider the workload as well as the degree of responsibility and reflect the different management level requirements in a clear and fair manner.
- Group orientation:
Remuneration also has to promote Group orientation. It aims to further commitment towards Group success and increased identification with the Group through employee participation in the long-term development of values and in shared ownership by means of an appropriate share option scheme.
The principles and regulations governing the compensation of the members of the Board of Directors and the Group Executive Board are reviewed periodically. The amount of the compensation for the members of the Board of Directors and the Group Executive Board is determined each year.
The Board of Directors stipulates the amount of remuneration of its members in accordance with their duties and responsibilities. The members of the Group Executive Board receive a fixed compensation, which is paid in cash. In 2012, the Board of Directors decided to waive a variable compensation for the members of the Board of Directors in future. On account of legal provisions, no severance payment may be made in the event of the termination of a mandate (Art. 21, para. 2 of the law concerning the control and supervision of public companies).
Members of the Group Executive Board receive a fixed and a variable compensation. The variable compensation is in the form of profit sharing. There is no right to profit participation. The fixed compensation is paid in cash. Quantitative targets form the basis for the variable compensation. The variable compensation (not including employer contributions) amounts to a maximum of 0.8 percent of the Group net profit for the respective calendar year. Individual performance is taken into consideration when allocating it to the members of the Group Executive Board. The variable compensation is limited to the amount of the fixed compensation. Payment is made in cash, through the allocation of blocked LLB bearer shares as well as in the form of an entitlement to acquire LLB shares. The distribution between cash (maximum of 25 %), shares (maximum of 40 %) and the size of the share entitlement (maximum of 45 %) is internally regulated. The members of the Group Executive Board do not have the right to specify the ratio between cash payment, shares and the size of the share entitlement. The number of LLB bearer shares (the share entitlement and blocked LLB bearer shares) is calculated on the basis of the average share price in the last quarter of the financial year. The issued LLB shares are subject to a blocked period of three years. The blocked period also remains in force in case of withdrawal. After three years the entitlement to acquire shares is transformed into a right to the transfer of the corresponding LLB shares. The three-year period remains in force even after termination of employment. The share entitlement can be withdrawn or reduced if – during the three-year period – there are significant changes in the assessment of performances and / or risk behaviour. At the end of the three years the Compensation Committee examines whether the prerequisites for the right to the transfer of the shares have been met. The Committee submits its decision to the Board of Directors, which makes the final decision.
The employment relationship of members of the Group Executive Board is stipulated in individual employment contracts. The period of notice is four months. The contracts of employment do not contain any special clauses, such as, for example, severance compensation following the termination of employment, not even in the case of a change in control.
The Liechtensteinische Landesbank extends the preferential conditions customary in the banking industry to all its employees (including the Group Executive Board) on bank products. This generally takes the form of limited preferential interest rates on mortgage loans and credit balances. Standard market conditions apply to all transactions made by the Board of Directors with the Bank.
For the 2012 business year, the members of the Board of Directors received a fixed compensation of CHF thousands 763. Contributions to welfare and pension schemes amounted to CHF thousands 45. The fixed compensation was paid in cash.
For the 2012 business year, the members of the Group Executive Board received a fixed compensation of CHF thousands 2'970 and a variable compensation of CHF thousands 767. Contributions to welfare and pension schemes amounted to CHF thousands 454. The fixed compensation was paid in cash. The variable compensation was paid in cash (24.3 %), through the allocation of blocked LLB shares (34.5 %) as well as in the form of an entitlement to acquire LLB bearer shares (41.2 %). The price per share for the share-based remuneration corresponds to the average share price of the last quarter of 2012 (CHF 29.75). The variable remuneration for the members of the Group Executive Board was, on average, approximately 30 percent of the fixed compensation, that is, 21 percent of the entire compensation.
In comparison with the previous year, the entire compensation of the members of the Board of Directors decreased by CHF thousands 63, that is, by 7.2 percent, which is mainly due to the stepping down of two members. In 2012, the compensation for the members of the Group Executive Board increased by CHF thousands 1'323, that is, by 46.1 percent. This increase is particularly due to the fact that – as a result of better Group net profits (+535.5 %) in comparison with the previous year – the Group Executive Board received a variable compensation and the Group Executive Board now consists of six members.
The entire compensation of the members of the Board of Directors and the members of the Group Executive Board in the 2012 business year is reported on an accrual basis. The variable compensation was booked to the 2012 income statement. However, payment will not be made until the following year.
5.2 Transparency of compensation, participation and loans of issuers domiciled abroad
The Liechtensteinische Landesbank has its registered office in Vaduz, Liechtenstein. In principle, therefore, it is not subject to Art. 663bbis of the Swiss Code of Obligations (OR). However, to enable investors nevertheless to obtain the corresponding information, the SIX Swiss Exchange obliges issuers whose registered office is not in Switzerland to apply the provisions of Art. 663bbis OR in the same manner within the scope of corporate governance reporting.
Details of the compensation and participations of members of the Board of Directors and the Group Executive Board as well as loans to them can be found in the Notes to the consolidated financial statement of the LLB Group in «».