Compensation of the Board of Managing Directors

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. As the Commerzbank Group is responsible for its subordinate companies complying with regulatory requirements pursuant to Section 27 of Germany’s Remuneration Regulation for Institutions (InstitutsVergV), 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 were modified accordingly and variable compensation is determined 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 2012 annual general meeting.

Further compensation rules for banks and financial institutions in the EU were stipulated by the Capital Requirements Directive IV (CRD IV) and the Capital Requirements Regulation (CRR) in 2013, which came into effect on 1 January 2014. The Directive was transposed into national law effective as of 1 January 2014, resulting in amendments to, among other things, the German Banking Act (KWG) and the Remuneration Regulation for Institutions (InstitutsVergV).

Together with compensation experts from the Commerzbank Group, comdirect bank AG examined the need to amend the compensation system for the members of the Board of Managing Directors and revised it. An additional bonus cap was already specified for financial year 2014 based on the amount of the individual variable compensation for overall target attainment at the time of its definition. This may no longer exceed the annual fixed salary. As of financial year 2015, a multi-year assessment basis will additionally gradually apply when determining the overall volume of variable compensation for the Board of Managing Directors.

comdirect bank AG endeavours to achieve appropriate and sustainable compensation of the Board of Managing Directors that avoids incentives to take disproportionately high risks and at the same time offers effective conduct incentives to achieve the targets specified in the bank’s strategy. The compensation policy therefore permanently contributes 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 Supervisory Board considered the matter of compensation of the Board of Managing Directors on three occasions in financial year 2014, both during its ordinary meetings and by circular resolution.

Overall compensation of the Board of Managing Directors comprises 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 active members of the Board of Managing Directors, the target amount for the variable compensation component is currently limited to a maximum of approximately 40% 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 a 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 bank.

Performance-related variable compensation

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

The volume of performance-related variable compensation depends on the achievement of corporate targets of comdirect bank and the Commerzbank Group and also of individual goals in the financial year to be assessed, combined with the target value for the variable compensation component for members of the Board of Managing Directors. The goals are agreed annually between the Board of Managing Directors and the Supervisory Board, are in line with the bank’s strategic objectives, and particularly take into account risks entered into 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 limits the volume of the variable compensation of the Board of Managing Directors accordingly (cap). The amount of the individual variable compensation can likewise be a minimum of 0% and a maximum of 200% of the individual target amount at the time of its definition. At the same time, this individual variable compensation may not exceed the fixed salary for the financial year in question (bonus cap).

The individual variable compensation for the members of the Board of Managing Directors is split into two parts – a long-term incentive (LTI), which comprises 60% of total variable compensation for the CEO and 40% for members of the Board of Managing Directors and is paid out at the earliest three and a half years after the end of the financial year, and a short-term incentive (STI), paid out within ten months of the end of the financial year. Entitlement to the LTI is only conferred upon expiry of the three-year waiting period. Entitlement to the STI is conferred immediately. Half of both the LTI and STI component is settled as a cash payout and the remaining half in the form of shares in Commerzbank AG after a six-month blocking period. Entitlements and due dates for the LTI and STI components are shown in the chart below.

Fälligkeit

With regard to variable compensation for financial year 2014, the STI will therefore fall due in financial year 2015 (year 1) and the LTI will fall due in 2018 (year 4) subject to a reduction or cancellation of the entitlement.

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. 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 the collective level, this review includes the liquidity and profitability of the Commerzbank Group. At the 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 and failure to meet the liquidity and profitability criteria of the Commerzbank Group reduce the respective compensation from the LTI component (malus).

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-Bewertung

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).

Pensions

The members of the Board of Managing Directors receive a pension entitlement for their work at comdirect bank, 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 are non-forfeitable 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 using the actuarial opinions of an independent actuary based on the projected unit credit method (see note (70)).

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 2014 amounted to €1,229 thousand (previous year: €1,221 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 2014.

In addition to the compensation granted for the year under review and the compensation 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 up to the 2014 reporting date as well as the payouts made in 2014 on an individual basis for each of the active members of the Board of Managing Directors.

Dr Thorsten Reitmeyer resigned from the Board of Managing Directors with effect from 31 December 2014. The contract of employment with Dr Reitmeyer was likewise terminated on 31 December 2014 by mutual agreement. All the entitlements acquired up to the end of financial year 2014 remain in place and are presented in the following table. Payouts may be effected on the basis of the ongoing STI and LTI components up to financial year 2018.

Enlarge table
Dr Thorsten Reitmeyer (Chief Executive Officer until 31 December 2014)
€ 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 2014 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2014 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
2014 410 26 47 47   71   71   436 436 672 601
2013 390 12 55 55 55 83   834)   110 512 678 595
2012 360 18 61 61 49 91   915)   488 682 591
2011 360 141 77 77 68 115   1156)     646 885 770
Dr Thorsten Reitmeyer (Chief Executive Officer until 31 December 2014)
€ 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 2014 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2014 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
2014 410 26 47 47   71   71   436 436 672 601
2013 390 12 55 55 55 83   834)   110 512 678 595
2012 360 18 61 61 49 91   915)   488 682 591
2011 360 141 77 77 68 115   1156)     646 885 770
Enlarge table
Holger Hohrein (Member of the Board of Managing Directors from 1 October 2013)
€ thousand Non-performancerelated 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 2014 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2014 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
2014 230 7 43 43   29   29   237 237 381 352
From 1.10. 2013 58 1 8 8 8 5   54)   16 75 85 80
Holger Hohrein (Member of the Board of Managing Directors from 1 October 2013)
€ thousand Non-performancerelated 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 2014 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2014 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
2014 230 7 43 43   29   29   237 237 381 352
From 1.10. 2013 58 1 8 8 8 5   54)   16 75 85 80
Enlarge table
Martina Palte (Member of the Board of Managing Directors from 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 2014 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2014 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
2014 180 11 32 32   21   21   191 191 297 276
2013 180 9 28 28 28 19   194)   56 245 283 264
From 1.7.
2012
90 3 16 16 12 10   105)   121 145 135
Martina Palte (Member of the Board of Managing Directors from 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 2014 for respective reporting year3) Cumulative compensation paid for respective reporting year as of 31.12.2014 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
2014 180 11 32 32   21   21   191 191 297 276
2013 180 9 28 28 28 19   194)   56 245 283 264
From 1.7.
2012
90 3 16 16 12 10   105)   121 145 135

Details regarding the pensions of the members of the Board of Managing Directors active in 2014 are shown individually in the following table.

€ thousand Pension obligation (DBO)
under IFRS as of 31.12.2014
Vested rights
as of 31.12.2014
Dr. Thorsten Reitmeyer 317 399
Holger Hohrein 22 27
Martina Palte 36 42
Total 375 468

In the past financial year, no member of the Board of Managing Directors received payments, considerations or corresponding commitments from a third party in relation to their activities as a board member. 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 €85 thousand in this regard in the year under review. No loans or advance payments were granted in the reporting year.

The model tables for the presentation of management board compensation as recommended by the German Corporate Governance Code (DCGK) can be found below. In accordance with the DCGK, the compensation granted for a financial year is to be presented in the table “Benefits granted”. Variable compensation is stated as the sum to be granted in the event of 100% target attainment for the year under review.

Benefits granted

€ thousand
Dr Thorsten Reitmeyer
CEO
(until 31 December 2014)
Holger Hohrein
CFO and HR Director
(from 1 October 2013)
Martina Palte
COO
(from 1 July 2012)
2013 2014 2014 (Min) 2014 (Min) 2013 2014 2014 (Min) 2014 (Min) 2013 2014 2014 (Min) 2014 (Min)
Fixed salary1) 390 41041041058230230230180180180180
Fringe benefits1) 12 26262617779111111
Total 402 43643643659237237237189191191191
One-year variable compensation2) 56 540828390693333054
Multi-year variable compensation 224 21603282091016177770126
Share-based STI for 2013 and 2014 resp.3) 56 540828390693333054
LTI cash payout for 2013 and 2014 resp.4) 84 8101236260462222036
Share-based LTI for 2013 and 2014 resp.5) 84 8101236260462222036
Total 682 70643684687367237467299301191371
Pension expenses6) 42 404040020202015151515
Total benefits granted in accordance with the DCGK 724 74647688687387257487314316206386

In accordance with the DCGK, the compensation allocated for or in a financial year is to be presented in the table “Allocation”. Compensation is deemed to have been allocated insofar as all the benefit conditions were met by the end of the year under review and there can be no more changes in its value.

Allocation

€ thousand
Dr Thorsten Reitmeyer
CEO
(until 31 December 2014)
Holger Hohrein
CFO and HR Director
(from 1 October 2013)
Martina Palte
COO
(from 1 July 2012)
2014 2013 2014 2013 2014 2013
Fixed salary1) 410 39023058180180
Fringe benefits1) 26 1271119
Total 436 40223759191189
One-year variable compensation2) 47 554383228
Multi-year variable compensation 55 498n/a2812
Share-based STI for 2013 and 2012 resp.3) 55 498n/a2812
Other 0 00000
Total 538 50628867251229
Pension expenses4) 40 422001515
Allocated remuneration in accordance with the DCGK 578 54830867266245

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 €231 thousand in the financial year (previous year: €226 thousand). As of the reporting date, pension obligations to former members of the Board of Managing Directors pursuant to IFRS totalled €4,740 thousand (previous year: €3,809 thousand).