BaFin

Remuneration Ordinance for Institutions

Date: 16.12.2013

Ordinance on the Supervisory Requirements for Institutions’ Remuneration Systems (Instituts-Vergütungsverordnung - InstitutsVergV)

This Regulation implements Directive 2013/36/EU of the European Parliament and the Council of 26 June 2013 on Access to the Activity of Credit Institutions and the Prudential Supervision of Credit Institutions and Investment Firms amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176 of 27 June 2013, p. 338) and adjusts the regulatory laws to Regulation (EU) No. 575/2013 of the European Parliament and the Council of 26 June 2013 on Prudential Requirements for Credit Institutions and Investment Firms and amending Regulation (EU) No. 648/2012 (OJ L 176 of 27 June 2013, p. 1).

Preamble

On the basis of section 25a paragraph 6 of the German Banking Act (Kreditwesengesetz, herein after referred to as “KWG”), as inserted by Article 1 number 48 of the Act of 28 August 2013 (Federal Law Gazette I, p. 3395) in the KWG, the Federal Ministry of Finance, on consultation with the Deutsche Bundesbank and having heard the central associations representing the institutions, orders as follows:

Part 1
General

Section 1 Scope of application

(1) Subject to paragraph 2, this Ordinance shall apply to all institutions within the meaning of section 1 paragraph 1b and section 53 paragraph 1 KWG, and to the remuneration systems of all members of the management body [Geschäftsleiter] and staff of these institutions. It shall not apply to branches of enterprises domiciled in another European Economic Area state under section 53b KWG.

(2) Part 3 shall apply to major institutions within the meaning of section 17 only.

(3) This Ordinance shall not apply to remuneration agreed

  1. by collective agreement,
  2. within the scope of application of a collective agreement by agreement between the parties to an employment contract about the application of the collective agreement’s rules or
  3. on the basis of a collective agreement in a private or public sector works agreement.

Section 2 Definitions

(1) Remuneration within the meaning of this Ordinance comprises

  1. all financial benefits, irrespective of their nature, including pension benefits,
  2. all benefits in kind, irrespective of their nature, including pension benefits, or
  3. benefits from third parties, received by a member of the management body [Geschäftsleiter] or employee in respect of his or her professional activities at the institution.

Financial benefits or benefits in kind, including pension benefits, which are awarded by the institution on the basis of general, non-discretionary and institution-wide rules, and which do not provide an incentive to assume risks, in particular discounts, company insurance and social welfare benefits, and, for staff, contributions to statutory pension insurance within the meaning of the sixth book of the Social Security Code (Sozialgesetzbuch) and to occupational pension provision within the meaning of the Occupational Pensions Act (Betriebsrentengesetz) shall not constitute remuneration.

(2) Remuneration systems within the meaning of this Ordinance are an institution’s internal remuneration rules and the actual implementation and application thereof by the institution.

(3) Variable remuneration within the meaning of this Ordinance is that portion of remuneration, the awarding or amount of which is at the discretion of the institution or is dependent upon the occurrence of agreed conditions; variable remuneration includes discretionary payments towards old-age pension provision.

(4) Discretionary payments towards old-age pension provision within the meaning of this Ordinance are that portion of variable remuneration which is agreed for the purposes of old-age pension provision in view of a definite future termination of the employment relationship at the institution.

(5) Fixed remuneration within the meaning of this Ordinance is that portion of the remuneration which is not variable within the meaning of paragraph 3.

(6) Staff within the meaning of this Ordinance are all natural persons

  1. the institution uses in conducting banking business or supplying financial services, particularly on the basis of an employment contract, agency contract or service contract, or
  2. who, within the framework of an outsourcing agreement with an outsourcing enterprise which belongs to the group and to which section 64b of the Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG) in conjunction with the Remuneration Ordinance for the Insurance Industry (Versicherungs-Vergütungsverordnung) does not apply, are directly involved in providing services to the institution for the purpose of conducting banking business or supplying financial services.

Members of the management body [Geschäftsleiter] and commercial agents within the meaning of section 84 paragraph 1 of the German Commercial Code (Handelsgesetzbuch – HGB) are not deemed to be staff.

(7) Remuneration parameters within the meaning of this Ordinance are the quantitative and qualitative factors used to measure the achievement and performance of a member of the management body [Geschäftsleiter], employee or one of the institution’s internal organisational units.

(8) Performance contributions within the meaning of this Ordinance are the actual achievements and performance, as determined on the basis of the remuneration parameters, of members of the management body [Geschäftsleiter], staff or organisational units, which are used in determining the amount of the variable remuneration components. Performance contributions may also be negative.

(9) Control units within the meaning of this Ordinance are those of the institution’s internal organisational units that monitor the organisational units, in particular the market and trading areas, which initiate business activities. These shall include, in particular, back-office and riskcontrolling areas as well as units carrying out compliance functions. The internal audit and the HR division shall be considered control units within the meaning of this Ordinance.

Part 2
General Requirements for Remuneration Systems

Section 3 Responsibility for the design

(1) The management body [Geschäftsleitung] shall be responsible for ensuring that the staff’s remuneration systems are appropriately designed in compliance with the requirements under section 25a paragraph 1 number 6 in connection with section 25a paragraph 5 KWG and under this Ordinance. The management body [Geschäftsleitung] shall inform the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] of the design of the remuneration systems at least once a year. The chair of the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] shall be granted a corresponding right to obtain information from the management body [Geschäftsleitung].

(2) The administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] shall be responsible for the design of the remuneration systems for the members of the management body [Geschäftsleiter] in compliance with section 25a paragraph 5 in conjunction with section 25d paragraph 12 KWG and this Ordinance.

(3) The control units shall be involved in an appropriate manner in the design and monitoring of the remuneration systems.

Section 4 Alignment with the institution’s strategy

The remuneration systems, including the remuneration strategy, shall be designed to achieve the aims laid down in the institution's business and risk strategies. The remuneration parameters shall be aligned with the strategies and support the achievement of the strategic aims.

Section 5 Appropriateness of the remuneration and the remuneration systems

(1) Remuneration systems are appropriately designed if

  1. incentives for the members of the management body [Geschäftsleiter] and staff to take disproportionately high risks are avoided and
  2. the remuneration systems do not conflict with the monitoring function of the control units.

(2) As a rule, remuneration systems are not appropriately designed if entitlements to variable remuneration are unaffected by negative performance contributions.

(3) Incentives to take disproportionately high risks exist especially if

  1. there is a significant dependency of the members of the management body [Geschäftsleiter] and staff on variable remuneration, or
  2. entitlements, established in individual contracts, to benefits in the event of termination of activities are created in an amount which remains unchanged despite any negative individual performance contributions.

(4) Remuneration systems shall be considered to conflict particularly with the monitoring function of the control units if the amounts of variable remuneration for the staff of the control units and for the staff of the organisational units monitored by them are largely determined by analogous remuneration parameters and there is the threat of a conflict of interest.

(5) The remuneration systems applying to tied agents shall comply with the requirements under section 25e sentence 4 KWG.

(6) Variable remuneration may exclusively be guaranteed

  1. for the first twelve months after the commencement of an employment contract, agency contract or service contract with an institution, and
  2. provided the institution, at the time of the payment, has available appropriate equity and liquid resources as well as sufficient capital in order to guarantee its risk-bearing capacity.

(7) Payments in the context of the premature termination of an employment contract, agency contract or service contract shall take account of the performance over time and may not reward negative performance contributions or misconduct by members of the management body [Geschäftsleiter] or staff. Sentence 1 shall not apply to payments made on the basis of a social compensation plan within the meaning of section 112 paragraph 1 of the Works Council Constitution Act (Betriebsverfassungsgesetz) or a social collective agreement, or made to satisfy a statutory entitlement to severance pay.

Section 6 Ratio between variable and fixed remuneration

(1) Provided that the remuneration consists of a variable and a fixed component, the two components shall bear an appropriate ratio to each other. The ratio shall be considered to be appropriate if, on the one hand, the requirements under section 25a paragraph 5 KWG are met and, on the other hand, the variable remuneration component can provide an effective behavioural incentive.

(2) In accordance with section 25a paragraph 5 sentence 2 KWG, the institution shall set an appropriate cap on the ratio between the variable and the fixed component. An appropriate discount rate may be applied to a maximum of 25 percent of the total value of the variable remuneration provided this share is paid in instruments that will be deferred for a minimum of five years.

(3) Related to the deferral, a claim or an expectancy to the remuneration component under paragraph 2 sentence 2 may not arise before the expiry of the deferral period; during the deferral period, only a claim to the error-free determination of the proportion of the variable remuneration which has not yet arisen as an expectancy or a claim may exist, but not any claim to this proportion of the variable remuneration itself.

(4) Provided that an increase in the ratio under section 25a paragraph 5 sentence 2 KWG is sought, the institution shall be able to demonstrate to the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) proving that, according to section 25a paragraph 5 sentence 5 KWG, the proposed higher ratio does not conflict with the institution’s obligations under Regulation (EU) No. 575/2013 of the European Parliament and the Council of 26 June 2013 on Prudential Requirements for Credit Institutions and Investment Firms and amending Regulation (EU) No. 648/2012 (OJ L 176 of 27 June 2013, p. 1). In this context, particular emphasis should be placed on the institution’s own fund obligations.

Section 7 Determination of the total amount of the variable remunerations

The total amount of the variable remunerations within the meaning of section 45 paragraph 2 sentence 1 number 5a KWG shall be determined in a formalised, transparent and comprehensible process. The determination of the total amount shall

  1. take into account the institution’s risk-bearing capacity, multi-year capital planning and profit position,
  2. ensure that the institution is capable of permanently maintaining or restoring adequate equity and liquidity resources and
  3. ensure that the institution’s ability to permanently maintain or restore the combined capital buffer requirements pursuant to section 10i KWG is not restricted.

Section 8 Risk-aligned remuneration

(1) In the case of risk alignment of remuneration, the risk alignment may not be undermined or nullified by hedging activities or other countermeasures.

(2) The institutions shall establish appropriate compliance structures to prevent hedging activities or other countermeasures that may undermine or nullify the risk alignment. Appropriate compliance structures may consist in particular of an obligation for the members of the management body [Geschäftsleiter] and staff not to undertake any personal hedging activities, or other countermeasures, aimed at undermining or nullifying the risk alignment of their remuneration. In this regard at least random checks of the compliance with this obligation shall be carried out in a risk-oriented manner by the compliance function; in the case of major institutions within the meaning of section 17, these checks shall be carried out by the remuneration officer pursuant to sections 23 to 25.

Section 9 Additional requirements regarding the remuneration of the control units’ staff

(1) The remuneration of the control units’ staff must be designed in a way that appropriate staffing is guaranteed in terms of both quality and quantity.

(2) The emphasis of the remuneration design regarding the control units’ staff shall be on fixed remuneration.

Section 10 Additional requirements regarding the remuneration of members of the management body [Geschäftsleiter]

(1) In the course of determining the remuneration of an individual member of the management body [Geschäftsleiter], the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] shall ensure that such remuneration is proportionate to the duties and achievements of the member of the management body [Geschäftsleiter] as well as to the situation of the institution, and that it does not exceed customary remuneration without specific reasons.

(2) Variable remuneration shall be determined on the basis of a multi-year performance assessment framework; the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] shall agree on possibilities of limiting remuneration in the event of exceptional developments.

(3) Other relevant rules regarding the remuneration of members of the management body [Geschäftsleiter] under the national or federal state laws shall remain unaffected by paragraphs 1 and 2.

(4) The remuneration members of the management body [Geschäftsleiter] receive for their professional activities at the institution must be stipulated conclusively in the contract of employment. The contract of employment and any subsequent amendments must be in written form.

Section 11 Principles for remuneration systems in the organisational guidelines

The institution shall set out principles for the remuneration systems in its organisational guidelines. The principles shall include, in particular, details about the design and adaptation of the remuneration systems and about the composition of the remuneration.

Section 12 Adaptation of remuneration systems

In the event of business or risk strategies are amended, both the remuneration strategy and the design of the remuneration systems shall be reviewed and adapted if necessary; apart from that, institutions shall review the appropriateness of their remuneration systems and the underlying remuneration parameters especially with regard to their alignment with the strategies, and adapt them if necessary, at least once a year.

Section 13 Information on remuneration systems

Members of the management body [Geschäftsleiter] and staff must be informed in writing of the design of the remuneration systems relevant to them and in particular of the remuneration parameters relevant to them. Electronic transmission shall also meet the requirement of the written form.

Section 14 Adaptation of existing agreements

(1) The institution shall work towards that

  1. the contracts concluded with members of the management body [Geschäftsleiter] and staff
  2. private or public sector works agreements (Betriebs- und Dienstvereinbarung) and
  3. company practices (betriebliche Übung)

being not compatible with this Ordinance are amended as far as is legally permissible.

(2) Such an amendment shall be carried out on the basis of a well-founded legal evaluation of the legal situation that is comprehensible to third parties, and taking account of the concrete prospects of success.

Section 15 Remuneration control committee

(1) Where an institution has established a remuneration control committee pursuant to section 25d paragraph 12 KWG in conjunction with section 25d paragraph 7 KWG, this committee shall specifically perform the duties under paragraphs 2 to 4. (2) The remuneration control committee shall assist the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] in establishing an appropriate design regarding the institution’s remuneration systems for members of the management body [Geschäftsleiter]. This also includes, in particular

  1. the preparation of the resolutions of the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] regarding the determination of the total variable remuneration within the meaning of section 45 paragraph 2 sentence 1 number 5a KWG and in consideration of section 7, as well as the determination of appropriate remuneration parameters, performance contributions, assessment and deferral periods and the conditions for a complete forfeiture or partial reduction of the variable remuneration, and
  2. a regular review, which should be carried out at least once a year, as to whether the determinations resolved by the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] in respect of the aspects mentioned in number 1 are still appropriate.

(3) The remuneration control committee shall also assist the institution’s administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] in monitoring the appropriate design regarding the remuneration systems for staff. The respective duties of the remuneration control committee include especially a regular review, which should be carried out at least once a year, as to whether the total amount of the variable remuneration within the meaning of section 45 paragraph 2 sentence 1 number 5a KWG has been determined in consideration of section 7 and the determined principles relating to the measurement of remuneration parameters, performance contributions as well as assessment and deferral periods, including the conditions for a complete forfeiture or partial reduction of the variable remuneration, are appropriate.

(4) In the course of performing its duties, the remuneration control committee shall assess the impact of the remuneration systems on the institution's or group's risk, capital and liquidity situation and shall ensure that the remuneration systems are aligned with the institution’s sustainable development-based business strategy and with the risk strategies derived there from as well as with the remuneration strategy at institution and group level.

Section 16 Disclosure

(1) The disclosure requirements for institutions pursuant to section 1 paragraph 1b KWG, which are subject to the provisions of Regulation (EU) No. 575/2013, comply exclusively with Article 450 of Regulation (EU) No. 575/2013.

(2) Institutions that are not CRR institutions shall publish the following information subdivided according to the respective business divisions of the institution:

  1. explanations on how the requirements of this Ordination are met, especially the requirements relating to the design of the remuneration systems pursuant to section 3 paragraph 1 sentence 1 as well as paragraph 2 and paragraph 3, sections 4, 5 paragraphs 1 to 6, sections 6, 8 to 10 and 11 sentence 1 as well as sections 19 to 22 where applicable; if appropriate, explanations regarding compliance with the requirements relating to the identification of staff pursuant to section 18 and co-operation with the remuneration control committee pursuant to section 15,
  2. the decision-making processes pertaining to the remuneration systems and their design, especially the key remuneration parameters and composition of the remuneration and the way it is awarded, and
  3. the total amount of all remuneration subdivided into fixed and variable remuneration as well as the number of beneficiaries of variable remuneration.

With due regard for the principles stated in paragraph 2,the institutions shall, in presentation of the information stated in sentence 1, provide the level of detail which makes it possible to determine the conformity of the remuneration systems, in terms of content, with the requirements of this Ordinance. Any involvement of external consultants and interest groups shall be addressed.

(3) The information pursuant to paragraph 2 shall be published in German in a comprehensible and transparent manner at least on the institution’s own website. The level of detail of the information shall depend on the size and remuneration structure of the institution as well as the nature, scale, risk content and international scope of its business activities. In publishing the information the principles of materiality, legal protection and confidentiality according to Article 423 (1) to (3) of Regulation (EU) No. 575/2013 shall be satisfied. The information published shall be updated no less than once a year.

(4) Housing cooperatives with savings facilities (Wohnungsunternehmen mit Spareinrichtung) pursuant to section 1 paragraph 29 KWG are exempted from the disclosure requirement under paragraph 2.

Part 3
Special Requirements for Major Institutions

Section 17 Classification as a major institution

(1) An institution shall be considered major if its balance sheet total on the balance sheet dates for the last three completed financial years reached or exceeded an average of EUR 15 billion, unless the institution provides BaFin with risk analysis pursuant to paragraph 5 proving that it is not a major institution.

(2) As major institutions should be considered

  1. institutions that are supervised by the European Central Bank according to Article 6 paragraph 4 of Council Regulation (EU) No. 1024/2013 of 15 October 2013 Conferring Specific Tasks on the European Central Bank Relating to the Prudential Supervision of Credit Institutions (OJ L 287 of 29 October 2013, p. 63),
  2. institutions classified as potentially system threatening within the meaning of section 47 paragraph 1 KWG, and
  3. financial trading institutions within the meaning of section 25f paragraph 1 KWG.

(3) BaFin may classify an institution whose balance sheet total on the balance sheet dates for the last three completed financial years did not reach an average of EUR 15 billion as a major institution if this is necessary due to the institution's remuneration structure and the nature, scale, complexity, risk content and international scope of its business activities. Such classification is necessary particularly when

  1. the institution has high off-balance sheet positions, especially in derivative instruments,
  2. the institution acts to a large extent as an originator, sponsor or investor of securitisation transactions or uses a securitisation special purpose vehicle pursuant to Article 4 number 66 of Regulation (EU) No. 575/2013 for this purpose,
  3. the institution has large positions in its trading book pursuant to Article 4 number 86 of Regulation (EU) No. 575/2013, or
  4. the remuneration structures within an institution are dominated by a large proportion of variable remuneration components in the overall remuneration.

(4) Where a group company is classified as a major institution, all other group companies that are part of the same group of institutions, financial holding group or mixed financial holding group or financial conglomerate, and whose respective balance sheet total on the balance sheet dates for the last three completed financial years reached or exceeded an average of EUR 15 billion, are also considered to be major institutions.

(5) The risk analysis shall take account especially of the institution’s size, its remuneration structure and the nature, scale, complexity, risk content and international scope of the business activities conducted as well as paragraph 3 sentence 2 numbers 1 to 4. The risk analysis must be plausible, extensive and comprehensible to third parties. It shall be carried out and documented once a year.

Section 18 Requirements for remuneration systems of major institutions

(1) Remuneration systems for members of the management body [Geschäftsleiter] of major institutions within the meaning of section 17 and these institutions’ remuneration systems for those categories of staff whose activities have a material impact on the overall risk profile must additionally meet the requirements set out in sections 19 to 22, whereby section 20 paragraphs 1 to 4 and section 22 are exclusively applicable to variable remuneration above a certain amount, which BaFin deems appropriate in consideration of the general wage level in the banking sector.

(2) The institution shall determine on the basis of a risk analysis and on its own responsibility whether it has categories of staff whose activities have a material impact on the overall risk profile. The criteria to be taken as a basis for such risk analysis shall comply with the regulatory technical standard pursuant to Article 94 paragraph 2 of Directive 2013/36/EU with respect to qualitative and appropriate quantitative criteria to identify categories of staff whose professional activities have a material impact on the institution’s risk profile. The analysis must be plausible, extensive and comprehensible to third parties and must be documented in writing.

(3) In cases whereby such risk analysis is not plausible, extensive and comprehensible to third parties, BaFin may order the institution to classify employees or groups of employees as categories of staff whose activities have a material impact on the overall risk profile.

Section 19 Consideration of overall performance and performance contributions

(1) Aside from the institution's or group’s overall performance and the organisational unit’s performance contribution, the determination of the variable remuneration should also consider individual performance contributions to an appropriate extent.

(2) The determination of individual performance contributions shall be based on the achievement of the objectives agreed and take into account both quantitative and qualitative remuneration parameters. The remuneration parameters shall be established in a way that the degree of the achievement of the objectives can be identified. Especially unethical conduct or conduct contrary to duty may not be offset with positive performance contributions and shall reduce the amount of the variable remuneration.

(3) The identification of the institution’s overall performance, the performance contribution of the respective organisational unit and, provided this does not cause disproportionate effort, the individual performance contribution shall be based particularly on remuneration parameters that are consistent with the aim of sustainable business success. In this context, the risks that have been taken, as well as their risk periods, and all capital and liquidity costs shall be taken into account; the replication of the risk periods is, however, not mandatory.

Section 20 Deferral, entitlement and payment conditions

(1) A minimum of 40 percent of an employee’s variable remuneration shall be spread over a deferral period of at least three years. Depending on the position, responsibilities and activities of the employee as well as the amount of variable remuneration and the risk positions that the employee may establish, the minimum length of the deferral period increases to up to five years and the minimum level of the deferred proportion of the variable remuneration rises. The determination of the deferral period pursuant to sentences 1 and 2 shall take into consideration the business cycle, the nature and the risk content of the business activities performed by the institution.

(2) In the case of members of the management body [Geschäftsleiter] and staff at the management level below them, at least 60 percent of the variable remuneration shall be spread. In all other respects, paragraph 1 applies mutatis mutandis.

(3) During the deferral period,

  1. the claim or the expectancy to this proportion of the remuneration may not vest faster than on a pro rata basis, and
  2. only a claim exists to error-free determination of that proportion of the variable remuneration which has not yet vested in an expectancy or a claim, but not any entitlement to this proportion of the variable remuneration itself.

(4) Depending on the responsibilities, activities and position of a member of the management body [Geschäftsleiter] or employee at the institution,

  1. at least 50 percent of the variable remuneration deferred pursuant to paragraphs 1 and 2 and
  2. at least 50 percent of the variable remuneration not deferred pursuant to paragraphs 1 and 2

must depend on the development of the institution’s value over the long term and be subject to an appropriate time limit in each case, which must elapse before the respective proportion of the variable remuneration according to the numbers 1 and 2 may be accessed.

(5) Negative performance contributions made by the member of the management body [Geschäftsleiter], employee, his or her organisational unit, and any negative overall performance of the institution or group, shall reduce the amount of variable remuneration including the amounts deferred under paragraphs 1 and 2, also in conjunction with paragraph 4 number 1, or lead to complete forfeiture of such variable remuneration. This applies both to the respective determination of the variable remuneration and to the ex post performance assessment which may result in a reduction or complete forfeiture of the deferred variable remuneration accrued in previous assessment periods. Complete forfeiture of variable remuneration occurs especially if the member of the management body [Geschäftsleiter] or employee

  1. was involved in or responsible for conduct that has resulted in significant losses for the institution;
  2. failed to comply with external or internal regulations pertaining to appropriateness and conduct.

Section 21 Remuneration in the context of compensatory payments or severance pay

Remuneration in conjunction with compensatory payments or severance pay relating to lost entitlements from previous employment contracts shall be aligned with the long-term interests of the institution including the special requirements under section 19 paragraph 2 and section 20.

Section 22 Discretionary pension benefits

(1) Discretionary pension benefits which are granted in the event of termination, for reasons other than retirement, of a member’s of the management body [Geschäftsleiter] or employee’s relationship on the basis of an employment contract, agency contract or service contract must

  1. depend on a sustainable development of the institution’s performance,
  2. be spread over a deferral period of at least five years, whereby during the deferral period there is only an entitlement to error-free determination of these discretionary pension benefits, but not any entitlement to the discretionary pension benefits themselves, and
  3. be reduced in the event that the member’s of the management body [Geschäftsleiter] or employee’s performance contributions, the performance contributions of his or her operational unit or the overall performance of the institution or group, which are relevant for the discretionary pension benefits, prove not to be of a long-term nature.

(2) Discretionary pension benefits which are granted in the event of termination, for reasons of retirement, of a member’s of the management body [Geschäftsleiter] or employee’s relationship on the basis of an employment contract, agency contract or service contract must

  1. depend on the institution’s development of the value over the long term, and
  2. be subject to a period of at least five years, during which the discretionary pension benefits may not be accessed.

Section 23 Remuneration officers in major institutions

(1) Major institutions shall ensure appropriate, long-term and effective control of their staff’s remuneration. For this purpose, the management body [Geschäftsleitung], in consultation with the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan], shall appoint a remuneration officer. The remuneration officer shall have the knowledge and experience required to fulfil his or her responsibilities, especially in the fields of remuneration systems and risk controlling. To ensure that the remuneration officer maintains the expertise necessary to fulfil his or her responsibilities, he or she shall be permitted to participate in training and continuing education courses whose costs shall be borne by the institution.

(2) The remuneration officer shall be appointed for a minimum period of 24 months. He or she may not be put at a disadvantage due to the fulfilment of his or her responsibilities. If a remuneration officer shall be appointed pursuant to paragraph 1, his or her employment contract may not be terminated unless circumstances arise that entitle the responsible department to terminate for good cause without observing a notice period. Once a remuneration officer has been relieved from his or her duties, his or her employment contract may not be terminated for one year unless the responsible department is entitled to terminate the contract for good cause without observing a notice period.

(3) Should the remuneration officer be replaced, the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] shall be informed and consulted in due time prior to the replacement.

(4) Members of the management body [Geschäftsleiter] may not simultaneously fill the position of remuneration officer. The remuneration officer may not simultaneously fill the position of compliance officer.

(5) In terms of organisational level and disciplinary responsibility, the remuneration officer shall be positioned at a sufficiently high management level below the management body [Geschäftsleitung].

(6) A sufficiently qualified deputy shall be assigned to the remuneration officer who is equally subject to paragraphs 1 to 5 as well as sections 24 and 25.

Section 24 Responsibilities of the remuneration officer

(1) The remuneration officer shall monitor the appropriateness of the employee’s remuneration systems on an on-going basis. For this purpose, he or she shall be integrated into all current processes regarding the remuneration systems. This applies both to the conceptual redevelopment and further development and to the on-going application of the remuneration systems. The remuneration officer is obliged to act in close coordination with the chair of the remuneration control committee or, if such a committee has not been established, with the chair of the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan].

(2) The remuneration officer shall furthermore support the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] and its remuneration control committee in performing the monitoring and structuring duties relating to all remuneration systems. The remuneration officer is obliged to provide information to the chair of the remuneration control committee or, if such committee has not been established, to the chair of the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan].

(3) The remuneration officer shall produce a report, at least once a year, on the appropriateness of the design of the remuneration systems for staff (remuneration control report) and submit this report simultaneously to the management body [Geschäftsleitung], the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] and the remuneration control committee if such a committee has been established. Notwithstanding sentence 1, the administrative or supervisory body [Verwaltungs- oder Aufsichtsorgan] or the remuneration control committee shall decide on the frequency of the remuneration control report production. If necessary, the remuneration officer shall also report on an ad-hoc basis.

Section 25 Staff and material resources of the remuneration officer

(1) The institution shall provide the remuneration officer with human and material resources that are adequate both in qualitative and quantitative terms. The staff working under the remuneration officer shall have the knowledge and experience required to fulfil their responsibilities, especially in the fields of remuneration systems and risk controlling. Suitable measures shall be put in place to ensure that the qualification level of the respective staff enables them to fulfil their responsibilities.

(2) The staff working for the remuneration officer pursuant to paragraph 1 shall be provided with the authorisations necessary to effectively perform their duties.

Section 26 Remuneration officer in the organisational guidelines

The functions and organisational integration of the remuneration officer shall be set out in the institution’s organisational guidelines.

Part 4
Special Provisions for Groups

Section 27 Group-wide remuneration rules

(1) The members of the management body [Geschäftsleiter] of the superordinated company or the superordinated financial company of a group of institutions, a financial holding group, a mixed financial holding group or a financial conglomerate (superordinated company) are responsible for establishing a group-wide remuneration strategy that implements the requirements under this Ordinance also at the group level. Where a subordinated company domiciled abroad is subject to stricter requirements under local state law than those contained in this Ordinance, the superordinated company shall take this into account when determining the group-wide remuneration strategy and shall seek to ensure that the subordinated company complies with the stricter requirements.

(2) The members of the management body [Geschäftsleiter] are responsible for ensuring that the subordinated companies, which are neither subject to section 64b of the Versicherungsaufsichtsgesetz (Insurance Supervision Act) in conjunction with the Remuneration Ordinance for the Insurance Industry (Versicherungs-Vergütungsverordnung) nor section 37 of the Kapitalanlagegesetzbuch (German Capital Investment Code) in conjunction with Appendix II of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and Amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No. 1060/2009 and (EU) No. 1095/2010 (OJ L 174 of 1 July 2011, p. 1), comply with the requirements under this Ordinance. Section 25 paragraph 1 sentence 4 of the Finanzkonglomerate-Aufsichtsgesetz (German Supervision of Financial Conglomerates Act) and section 64b paragraph 3 of the Insurance Supervision Act shall not be affected thereby.

(3) In individual cases, a subordinated company may not be considered when establishing the group-wide remuneration strategy provided that

  1. the subordinated company is not an institution and does not maintain business relations with the superordinated company in a way that it has to render significant services for the latter,
  2. this Ordinance cannot be applied in a reasonable manner to the subordinated company due to its business activities, and
  3. the business activities of the subordinated company have a minor or no impact on the overall risk profile of the group.

The superordinated company shall document in writing its assessment and the reasons due to which a subordinate company is not taken into account pursuant to sentence 1.

(4) Where one of the group institutions is a major institution within the meaning of section 17, the persons mentioned in paragraph 1 sentence 1 shall assess on the basis of a group-wide risk analysis within the meaning of section 18 paragraph 2 whether a group company has categories of staff whose activities have a material impact on the overall risk profile of another major group company within the meaning of section 17 or on the overall risk profile of the group.

(5) Insofar as it appears commensurate with risk, taking account of the size and complexity of the group’s, financial holding group’s, mixed financial holding group’s or financial conglomerate’s business activities, individual requirements of this Ordinance may be fulfilled centrally within the group or financial conglomerate. The superordinated company should document in writing the requirements to be met centrally within the group or financial conglomerate, as well as the reasons on which the assessment of the appropriateness of this procedure pursuant to sentence 1 are based.

Part 5
Final Provisions

Section 28 Transitional regulations

(1) Section 6 paragraph 2 sentence 2 shall apply from date of publication of the Guidelines on the Applicable Notional Discount Rate pursuant to Article 94 paragraph 1 letter g of Directive 2013/36/EU has been published.

(2) Section 17 paragraph 2 number 3 shall apply from 31 January 2014.

(3) Until the regulatory technical standard pursuant to Article 94 paragraph 2 alternative 2 of Directive 2013/36/EU has entered into force, criteria that may be taken into account for the risk analysis within the meaning of section 18 include among others

  1. size,
  2. nature of the business activity,
  3. business volume,
  4. level of risks and
  5. earnings

of an organisational unit. The criteria may also include an employee’s activities, position and level of remuneration to date as well as a highly competitive labour market situation.

Section 29 Entry into force, expiry

This Ordinance shall enter into force on 1 January 2014. The Remuneration Ordinance for Institutions of 6 October 2010 (Federal Law Gazette I p. 1374) shall cease to be in force simultaneously.

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