DEUTSCHE BANK AG Deutsche Bank
Annual General Meeting 2024
Compensation system
Table of Contents
The Supervisory Board implemented two changes to significantly reduce the overall complexity of thecompensation system and thus increase transparency in the Compensation Report: ......................................... 6
3.4.1 Short-Term Incentive (STI) ..................................................................................................................... 11
3.4.2 Long-Term Incentive (LTI) ...................................................................................................................... 12
3.4.3 Granting of variable compensation and ensuring sustainability ........................................................... 16
3.4.4 No discretionary special payments ....................................................................................................... 17
4. Compensation-related transactions ........................................................................................................... 17
5. Procedures for the determination, implementation, and review of the compensation of the Management
Board 19
5.1 Review of appropriateness ........................................................................................................................... 19
5.2 Workforce compensation and employment conditions taken into account ................................................. 19
5.3 Measures to avoid and manage conflicts of interest .................................................................................... 20
5.4 Temporary deviation from the compensation system .................................................................................. 20
Compensation system for the Management Board as of 2024
The compensation system for the Management Board of Deutsche Bank Aktiengesellschaft (hereinafter also referred to as "Deutsche Bank", the "Bank" or the "Company") was last approved by the Annual General Meeting in 2021 in accordance with § 120a (1) of the Stock Corporation Act (AktG). Since then, the general structure of the compensation system has proven that it works well in practice and sets appropriate incentives. At the same time, the compensation system is competitive.
Nevertheless, the Supervisory Board and, in preparation, the Compensation Control Committee of Deutsche Bank regularly review the compensation system for the Management Board members in light of market trends and investor feedback. Furthermore, the regulatory requirements of the Stock Corporation Act (AktG), the Remuneration Ordinance for Institutions (InstitutsVergV) as well as the principles and recommendations of the German Corporate Governance Code (GCGC) are taken into account.
Amendments to the compensation system were made already in 2023. As part of the review process in 2023, points were identified for further improvement, which are described in the following. These improvements are now reflected in the revised compensation system, which will be submitted to the General Meeting in May 2024 for approval with retroactive effect as of January 1, 2024.
1. Compensation principles
The compensation system and thus the assessment of individual compensation are based on the compensation principles outlined below. The Supervisory Board takes them into consideration when adopting its resolutions on the compensation system and assessing individual compensation.
Corporate strategy
Deutsche Bank aims to make a positive contribution to its clients, employees, investors and society in general by fostering economic growth and social progress. Deutsche Bank would like to offer clients solutions and provide an active contribution to foster their creation of value. This approach is also intended to ensure that the Bank is competitive and profitable and can operate on the basis of a strong capital and liquidity position. Deutsche Bank is committed to a corporate culture that appropriately aligns risks and revenues.
Through the structure of the compensation system, the members of the Management Board have incentives to achieve the targets and objectives linked to the Bank's strategy, to work continually towards the long-term positive development of the Company and thereby to avoid disproportionately high risks.
The compensation system for the Management Board members makes an important contribution to promoting and implementing the corporate strategy, in particular as pay is linked to relevant and demanding performance criteria for short-term and long-term variable compensation. Performance-based compensation therefore comprises the predominant portion of total compensation.
The Supervisory Board thus ensures there is always a strong link between compensation and performance ("pay-for-performance").
When designing the specific structure of the compensation system, determining individual compensation amounts and structuring the means of compensation allocation and delivery, the focus is on a close alignment of the interests of the Management Board members and shareholders.
This link is established within the framework of the assessment of the Long-Term Incentive, as Deutsche Bank's shareholder return is assessed in comparison to those of a selected group of peers.
In addition, all Management Board members have an obligation to hold a significant amount of Deutsche Bank shares (Shareholding Guidelines).
Individual and collective objectives
Furthermore, the Long-Term Incentive (in general 60% of the target variable compensation) is granted exclusively in the form of equity-based compensation components. In addition, half of the Short-Term Incentive (in general 40% of target variable compensation) is granted in the form of equity-based compensation components.
The compensation structures foster both the sustainable and long-term development of each of the business divisions, infrastructure areas or regions the Management Board members are responsible for, as well as the performance of the Management Board as a collective management body.
Variable, performance-based compensation is determined on the basis of pre-defined objectives, while ensuring an appropriate balance between financial and non-financial targets. Exceptional performance is appropriately rewarded, and missed targets lead to a tangible reduction including to a full forfeiture of variable compensation for the relevant assessment period.
Individual and divisional performance is assessed on the basis of one-year objectives (Short-Term Incentive). They are disclosed retrospectively.
The collective performance of the entire Management Board is evaluated over a three-year forward-looking assessment period on the basis of long-term objectives that are the same for all Management Board members (Long-Term Incentive). They are disclosed at the beginning of the three-year assessment period.
Long-term perspective
Variable compensation is predominantly granted on a deferred basis as equity-based instruments.
The Short-Term Incentive, which accounts in general for 40% of the target variable compensation, is granted at equal amounts in cash and equity-based instruments up to an amount of 40% of the total variable compensation. While the cash component is paid out in the year following the assessment period, the equity-based instrument becomes available after an additional holding period of one year.
The Long-Term Incentive, which accounts in general for 60% of the target variable compensation and has a three-year forward-looking assessment period, is granted only in the form of equity-based compensation components that are distributed over five equal, consecutive installments, each with an additional holding period of one year. Accordingly, the full Long-Term Incentive payout amount is available for disposal after nine years.
During deferral and holding periods, deferred compensation is subject to certain performance and forfeiture conditions that - upon the occurrence of certain events - can lead to a partial or full forfeiture of the awarded variable compensation.
The total variable compensation may be reclaimed even after disbursal in response to specific individual negative contributions to results made by the Management Board member for up to two years after the expiry of the last deferral period (clawback).
Sustainability
Economic, ecological and social issues are closely integrated into Deutsche Bank's aim to advance sustainability in the financial sector and thus contribute to fostering a more environmentally, socially and financially well-governed economy.
The compensation system is therefore closely aligned to Deutsche Bank's Sustainability Strategy to provide incentives for acting accordingly, and thus it provides an important contribution to Deutsche Bank's performance. The corresponding Sustainability targets comprise environmental and social aspects as well as governance objectives.
Compensation caps
The regulations of the Capital Requirements Directive 4 (CRD 4), applicable to all European banks, limit the ratio of fixed to variable compensation generally to 1:1 (cap regulation). In other words, the amount of variable compensation must not exceed that of fixed compensation. However, lawmakers have also stipulated that shareholders may resolve to set the ratio of fixed to variable compensation to 1:2. In May 2014, the General Meeting voted to approve setting a 1:2 ratio by a majority of 91%.
In addition, the Supervisory Board sets a maximum compensation in accordance with the requirements of § 87a (1) No. 1 of the Stock Corporation Act (AktG). This comprises all compensation components (base salary, Short-Term Incentive, Long-Term Incentive, company pension plan and fringe benefits) and amounts to €12 million uniformly for all Management Board members. The level of maximum compensation makes it possible to recruit and reward the bestnational and international personnel for management, while also taking into account the Bank's diverse global business model.
Transparency
The specific application of the compensation system is clearly and understandably described each year in the Compensation Report. This enables shareholders and other stakeholders to gain an understanding of how the compensation system for the Management Board members contributes to fostering the implementation of the strategy and the long-term sustainable development of the Company as well as how the actual compensation for the financial year corresponds to the underlying performance criteria.
The compensation system facilitates providing a high degree of transparency for shareholders. Against this backdrop, the Supervisory Board made a commitment to disclose the long-term objectives and target values of the variable compensation before the start of each respective assessment period.
Appropriateness
The amounts of base salary and variable compensation are appropriate in light of both a horizontal and a vertical comparison. The horizontal comparison is conducted on the basis of the relevant peer groups; their composition is disclosed in the Compensation Report. The vertical comparison entails an examination of the relationship between Management Board compensation and the compensation of the workforce in general and over time in particular.
Furthermore, within the framework of the InstitutsVergV, the affordability of the total amount of annual variable compensation is determined based on key profitability, solvency and liquidity figures.
The structuring of the compensation system and the resulting assessment to determine the individual compensation takes place within the framework of the statutory and regulatory requirements.
In particular, the Supervisory Board's objective is to offer, within the boundaries of applicable regulatory requirements, the Management Board members a compensation package that is commensurate with the scope of the Management Board member's responsibilities and is competitive and in line with best practices in the market. This is to ensure that the best managers can be recruited and retained.
These compensation principles were decisive for the Supervisory Board in reviewing the previous compensation system, identifying the need for adjustments and carrying out the adjustments. The Supervisory Board also took into account how the individual elements of compensation have proven themselves in practice.
2. Changes compared to the previous compensation system
The Supervisory Board continuously reviews and strives to evolve the compensation system and, in this context, decided to make selective adjustments. The guiding principle of the Supervisory Board was to simplify the compensation system, to further increase transparency and to better align financial targets and Management Board incentives, while also taking shareholders' feedback into account for a stronger orientation on current best practices in the market. The main changes compared to the previous compensation system and the rationale behind these amendments are described in the following.
2.1 Forward-looking assessment period for the Long-Term
Incentive (LTI)
A forward-looking assessment period will now be used for the performance measurement of the Long-Term Incentive (LTI). Furthermore, in contrast to the previous compensation system, which stipulated different weightings for each financial year, the target achievement will be determined after three financial years. As a result, the Supervisory Board will set objectives and their target values for three years. This fosters a long-term focus and thus the sustainable development of the Company. In the previous compensation system, the collective objectives of the Long-Term Award (LTA) were assessed over a period of three years. Thereby, the current financial year was weighted at 60%. The two previous years were weighted at 30% and 10%, respectively.
2.2 Reduction of complexity
The Supervisory Board implemented two changes to significantly reduce the overall complexity of the compensation system and thus increase transparency in the Compensation Report:
- The complexity of variable compensation has been simplified by reducing the number of Key Performance Indicators (KPIs) from approximately 70 to around only 8, thus enhancing transparency in the related disclosures. In the Short-Term Incentive (STI), a minimum of three and a maximum of five objectives for measuring individual and divisional performance will be set and disclosed retrospectively. These STI objectives can be categorized into "Financial", "Sustainability" and "Individual", always ensuring a balance of financial and non-financial, quantitative and qualitative objectives. Previously, three to four individual objectives were applied, plus an additional behavior objective as well as a complex balanced scorecard system with a large number of KPIs.
- The new LTI also provides for a lower number of objectives compared to the previous system and these are disclosed in advance. The objectives of the LTI are reflected by the Group financials (e.g., Return on Tangible Equity (RoTE) and Total Book Value Per Share (TBVPS)), Relative Total Shareholder Return (RTSR) and Sustainability / Environmental, Social and Governance (ESG) objectives of Deutsche Bank and its subsidiaries (hereinafter also referred to as "the Group" or "Deutsche Bank Group").
- In the previous compensation system, the underlying scheme for deferral and holding periods was perceived as complex.
Going forward, half of the STI will be paid out directly after the one-year assessment period in cash and the other half is granted as equity-based instruments with an additional holding period of one year. As a result, the system is less complex. The new disbursal structure is in line with U.S. and European bank practices and will support the bank in competing for and recruiting the best talents. The LTI is fully comprised of equity-based instruments and is distributed, starting one year after the three-year assessment period, through five equal, consecutive installments, each with an additional holding period of one year. In total, the full LTI payout amount will be available for disposal after nine years. The Supervisory Board is confident that the new scheme for deferral and holding periods is significantly simpler and more comprehensible, while also fulfilling the regulatory requirements of the InstitutsVergV. Total variable compensation will continue to be granted predominantly in deferred form, to ensure the sustainability of earnings within the framework of the business and risk strategies. Furthermore, total variable compensation will continue to be granted predominantly as equity-based instruments, to achieve an even stronger alignment of the Management Board members' compensation to the Bank's performance and its share price.
2.3 Increase of pay-for-performance alignment
The new compensation system addresses shareholders' concerns regarding the design of the previous target achievement curve for the Relative Total Shareholder Return (RTSR) in the long-term component, which measures the Total Shareholder Return (TSR) of the Deutsche Bank share in relation to the average TSR of a selected peer group.
In line with the market practices of international banks and to further strengthen the pay-for-performance alignment of Deutsche Bank's compensation, the target achievement for the RTSR will be assessed going forward based on Deutsche Bank's percentile rank compared to the individual companies in the peer group. According to the new method, the award starts at a target achievement of 50% once the percentile rank of Deutsche Bank is at the median, i.e., Deutsche Bank must outperform 50% of the companies in the peer group. A target achievement of 100% is defined as reaching the 70th percentile, which, in the current peer group of ten international banks, corresponds to achieving rank 4 in terms of TSR performance. Only ranks 1 and 2 allow for a payout at the upper limit of 150% target achievement. The more ambitious achievement curve reflects shareholders' interests more consistently and to a higher degree.
2.4 Increase in market alignment
To increase market alignment and harmonize further contractual agreements of the Management Board members' compensation, changes have been made in the pension plan, Shareholding Guidelines and severance benefits.
- Pension plan: With regard to the former pension plan, a simple cash allowance model will be introduced for newly appointed members of the Management Board. The cash allowance will paid out directly in a lump sum once a year. This avoids interest rate and biometric risks in financing a pension entitlement as well as the administrative expenses associated with this for Deutsche Bank. In addition, the annual pension allowance for a newly appointed ordinary Management Board member will be 30% lower than the pension contribution currently granted.
- Shareholding Guidelines: Furthermore, in line with current market practice, a build-up phase of four years will be introduced for the obligation under the Shareholding Guidelines.
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Severance payments: In line with German market practice as well as recommendation G.13 of the German Corporate Governance Code (GCGC), severance payments are currently limited to two times the annual total compensation and are not paid beyond the remaining term of the service contract (severance cap). The severance cap will be reduced to a maximum of two years' base salary for newly appointed members of the Management Board. In addition, the waiting allowance (Karenzentschädigung) for the duration of the subsequent non-competition period will be lowered from 65% of the annual base salary to 50% of the annual base salary.
2.5 Overview of the changes
The following table provides an overview of the changes to the compensation system applicable with effect from financial year 2024 compared to the previous compensation system.
Long-Termcomponent
Retrospective performance assessment
−
− 60% weighting of the current financial year
− 30% weighting of the previous financial year
− 10% weighting of the year prior to the previous financial year
−
Forward-looking performance assessment − Equal weightings of the current financial year and the two following financial years − Target achievement determined after three financial years
−
Full disposal over LTA after 9 years − Delivered in shares − Distributed over four equal, consecutive installments, starting two years after the retrospective three-year assessment period. Each with an additional holding period of one year
−
Full disposal over LTI after 9 years − Delivered as equity-based instruments − Distributed over five equal, consecutive installments, starting one year after the forward-looking three-year assessment period, each with an additional holding period of one year
−
RTSR measures the TSR of Deutsche Bank compared to the average TSRs of a selected peer group ("outperformance method")
− 0% target achievement if the TSR of Deutsche Bank is 40% below the peer group
− 60% target achievement if the TSR of Deutsche Bank is 20% below the peer group
− 100% target achievement if the TSR of Deutsche Bank is equal to the peer group
− 150% target achievement if the TSR of Deutsche Bank is 50% above the peer group
−
RTSR measures the TSR of Deutsche Bank compared to the companies of a selected peer group ("ranking method")
− 0% target achievement if the TSR of Deutsche Bank ranks below the median
− 50% target achievement if the TSR of Deutsche Bank ranks at the median
− 100% target achievement if the TSR of Deutsche Bank ranks is in the 70th percentile
− 150% target achievement if the TSR of Deutsche Bank ranks is in the 90th percentile
− Defined contribution system − Annual contribution of EUR 650,000 p.a. − Interest accrues at an average rate of 2% p.a., 4% p.a. for legacy entitlements | − Pension allowance in cash for new Management Board members − Management Board Chairperson (CEO): €650,000 p.a. − Other Management Board members: €450,000 p.a. |
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Terminationbenefits
PensionShareholdingGuidelines
3. Total compensation and compensation components
3.1 Compensation components and structure
The compensation system consists of non-performance-related (fixed) and performance-related (variable) components. The fixed compensation and variable compensation together form the total compensation for a Management Board member. The fixed compensation consists of the base salary, contributions to the company pension plan or pension allowances and fringe benefits. The variable compensation consists of a short-term component, called the Short-Term Incentive (STI) and a long-term component, called Long-Term Incentive (LTI). In addition, further contractual agreements are defined in the compensation system.
The Supervisory Board sets a target compensation for each Management Board member. In accordance with the recommendation of the German Corporate Governance Code (GCGC), the Supervisory Board also determines the ratio of fixed compensation to variable compensation as well as the ratio of short to long-term variable compensation.
In this way, the Supervisory Board ensures that performance-based compensation, which is linked to achieving long-term targets, exceeds the portion of short-term targets. The possible ranges of the relative share of each component are as follows (assumed target achievement level of 100% for variable compensation):
3.2 Compensation caps
The compensation levels of the Management Board members are limited in several ways - through a limit on the total compensation as well as on each variable compensation component and by setting a maximum ratio of fixed compensation to variable compensation.
3.2.1 Cap on total compensation (maximum compensation)
In accordance with § 87a (1) sentence 2 No. 1 of the Stock Corporation Act (AktG), the Supervisory Board set a maximum limit (maximum compensation) amounting to €12 million for all Management Board members. This cap comprises not only the base salary, Short-Term Incentive (STI) and Long-Term Incentive (LTI), but also the pension service costs for the company pension plan or pension allowances and fringe benefits. The pension service costs and expenses for fringe benefits vary in their annual amounts. The level of maximum compensation allows the Bank to recruit the best national and international personnel for management and to pay them adequately, while also taking into account the Bank's broad and international business model.
3.2.2 Cap on variable compensation
The Supervisory Board set a uniform limit of 150% for the maximum possible level of target achievement for long-term and short-term objectives. Thus, the total variable compensation is capped at a maximum of 150% of the target variable compensation.
Pursuant to Capital Requirements Directive 4 (CRD 4), the ratio of fixed to variable compensation is generally limited to 1:1 (cap regulation), i.e., the amount of variable compensation must not exceed that of fixed compensation. However, the law also provides the possibility to increase the ratio to 1:2. In May 2014, the General Meeting made use of this possibility and increased the ratio accordingly.
3.3 Non-performance related components (fixed compensation)
Fixed compensation is not linked to performance and comprises the base salary, contributions to the pension plan or pension allowance as well as fringe benefits.
3.3.1 Base salary
Various factors are considered when determining an appropriate level for the base salary. First, the base salary compensates the general acceptance of the mandate as a Management Board member and the related overall responsibility of the individual Management Board members. In addition, the compensation customary in the market is taken into account when determining the compensation amounts. Regulatory requirements that limit the ratio of fixed to variable compensation must also be considered when setting the base salary.
Accordingly, the fixed compensation is determined in a way that takes these requirements into consideration while also ensuring competitive total compensation in line with market standards.
3.3.2 Pension Allowance / Company pension plan (legacy)
Instead of a company pension, the Supervisory Board grants a pension allowance in cash to newly appointed Management Board members. The pension allowance is paid out directly in a lump sum once a year. This avoids interest-rate and biometric risks in financing a pension entitlement as well as the administrative procedures associated with this for Deutsche Bank. The annual amount of the pension allowance for a newly appointed ordinary Management Board member is 30% lower than the legacy pension contribution.
Members of the Management Board appointed before the financial year 2024 continue to receive the company pension in the form of a defined contribution pension plan (legacy plan). They receive a uniform, contractually defined, fixed annual contribution amount. The contribution accrues interest, credited in advance and determined by means of an age-related factor, at an average rate of 2% per year up to the end of 60 years of age. From the age of 61 onwards, an additional contribution in the amount of 2% per year of the amount accrued as of December 31 of the previous year will be credited to the pension account. The annual contributions, taken together, form the pension capital amount available to pay the future pension benefits upon a pension event (retirement age, disability, or death). The pension account balance is vested from the start.
3.3.3 Fringe benefits
All Management Board members are granted annually recurring fringe benefits. They comprise the monetary value of non-cash benefits such as company car and driver services, insurance premiums and expenses for company-related social functions, including payments, if applicable, of taxes on these benefits as well as taxable reimbursements of expenses. If the Management Board member does not have his or her principal place of work at the Head Office in Frankfurt, additional benefits may be approved by the Supervisory Board, e.g., a housing allowance to cover customary rental expenses. Finally, ad hoc benefits, in particular upon the initial appointment of a Management Board member, may be granted, such as security measures for a private residence or benefits in connection with relocating the place of residence to Frankfurt.
In connection with the appointment of external executives as members of the Management Board, benefits may be granted to compensate for the forfeiture of benefits from the previous employer - in particular, outstanding variable compensation that is forfeited upon joining Deutsche Bank. The Supervisory Board decides in what form the compensation is granted. Such one-time compensation benefits are disclosed and explained separately in the Compensation Report.
3.4 Performance-related components (variable compensation)
Deutsche Bank aims to enable economic growth and social progress and thus generate a positive impact for its clients, employees, investors, and society in general. Clients are to be offered solutions, while making an active contribution to their creation of added value. At the same time, this is intended to ensure that the Bank is competitive and profitable and can operate on the basis of a strong capital and liquidity position. Deutsche Bank is committed to a corporate culture that appropriately aligns risks and revenues.
The compensation system makes an important contribution to promoting and implementing the corporate strategy, in particular by linking pay to relevant and demanding performance criteria for short-term and long-term variable compensation.
Profitability-based and performance-based compensation therefore comprises the predominant portion of total compensation.
The compensation system ensures that variable compensation is linked to pre-defined, transparent performance criteria. The close connection of compensation to the Company's business and risk strategy is established, as a first step, through the agreement of objectives that are derived from the strategy and support its implementation. In a second step, the achievement level is set for each of the individual objectives based on previously defined, clear key figures and evaluation parameters that are closely aligned to the performance of Deutsche Bank and that contribute together to this performance in an appropriate manner.
The compensation system also provides for the agreement of a balanced set of not only individual and divisional objectives, but also collective objectives that are to be achieved, in each case, of a financial and non-financial nature.
Performance-based variable compensation consists of a short-term component, the Short-Term Incentive (STI), and a long-term component, the Long-Term Incentive (LTI). The long-term component accounts in general for a uniform 60% of the total target variable compensation and the short-term component accounts in general for 40%. The maximum level of target achievement for both the STI and LTI is set at 150%.
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Deutsche Bank AG published this content on 26 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 March 2024 14:04:14 UTC.
