Achieving a sustainable balance between employee and shareholder interests is a key aspect of Deutsche Bank’s strategy. Transparent, responsible and competitive compensation of its workforce represents an important element. Accordingly, a new compensation framework has been put in place across the organization to better align pay with performance and ensure compliance with regulatory requirements, while enabling the bank to remain a leading employer.
In the interest of a transparent approach, the framework provides guidelines on the target proportion of fixed to variable compensation by corporate title and by division or function. Starting from 2016, employees’ fixed pay has been assessed in line with these target ratios.
In addition, variable compensation from 2016 onwards includes two components. The first, a group component, reflects the performance of Deutsche Bank, tying individual total compensation more closely to the bank’s performance and recognizing the contribution of every single employee to results. The group component is based on a small number of key financial performance indicators (KPIs) and the progress achieved for these KPIs against the bank’s strategy targets. Combined, they provide a good indication of the bank’s sustainable performance, which is why they are also watched closely by regulators, investors and other external stakeholders – they show how much progress Deutsche Bank is actually making in implementing its strategy. KPIs include the bank’s Common Equity Tier 1 (CET1) capital ratio (fully loaded); leverage ratio; adjusted costs; and post-tax return on tangible equity (RoTE).
The second component of variable compensation is more discretionary and linked to individual and divisional performance. Employees are either eligible to receive a so-called Recognition Award or individual variable compensation depending on their division and corporate title.
Employees at Vice President level and above are generally eligible to receive the discretionary individual component. This is still based on the achievement of individual objectives and expectations, taking into consideration a number of financial and non-financial factors, the achievements and the results of the division in which they work, and is subject to overall group affordability.
In general, employees at Assistant Vice President level or below are eligible to be considered for a Recognition Award, which acknowledges an outstanding contribution. For the 2016 performance year, there were two nomination and payout cycles for eligible employees for a Recognition Award – they had to be nominated by their manager and demonstrate that their contribution was beyond what is normally required in their role in order to receive an award.
The rebalancing of fixed and variable pay and a closer link between variable compensation and bankwide performance further aligns incentives for sustainable performance at all levels of the organization.
In January 2017, Deutsche Bank announced that it had decided to substantially limit bonus payments for the 2016 performance year – due, among other factors, to the 2016 group results and the fact that shareholders are only receiving a minimal annual dividend. Specifically, employees with the corporate titles of Vice President, Director and Managing Director received the group variable compensation component, but not any individual variable compensation component for the 2016 financial year.