Compensation Framework
As part of our Strategy 2020, we implemented a new global compensation framework, effective since 2016, which remained largely unchanged in 2017, despite restructuring. Initially applicable to officers and key subsidiaries, the new system was extended to cover smaller entities and the substantial group of non-officers in Germany during 2017. The new framework—including the target ratios of fixed to variable compensation by corporate title and by division or function—represents a more transparent approach. It ties employee compensation more closely to the bank’s performance and creates a stronger link between individual performance and pay. Variable compensation comprises a ‘‘Group VC Component’’ for all employees and—depending on division and corporate title—an Individual VC Component or a so-called Recognition Award. This means that part of the bank’s workforce is no longer subject to discretionary decisions on variable compensation. Instead, variable compensation is based on corporate results and determined in line with global guidelines.
While variable compensation payments had been limited significantly in 2016 due to the operating environment (employees received the ‘Group VC Component’ only, with only those at lower levels of the organization being awarded individual variable compensation), a larger total amount of year-end, performance-based variable compensation was determined for 2017, covering all compensation components and recognizing employees’ sustainable performance and contributions.
The structure of the ‘Group VC Component’ remained unchanged in 2017 and is based on four key performance indicators: Common Equity Tier 1 (CET1) capital ratio (fully loaded); Leverage ratio; Adjusted costs; and Post-tax return on tangible equity (RoTE). Throughout 2017, we made good progress towards our 2020 financial targets, and our Management Board defined a target achievement rate of 55% as a basis to calculate the Group VC Component awarded to each eligible employee.
For the Individual VC Component, which is based on results both of the Group and the individual division, divisional budgets in the amount of the respective reference target were awarded based on individual performance.
Together, these decisions led to a total amount of year-end, performance-based VC for 2017 of € 2.2 billion (incl. the individual VC Component, the Group VC Component, and Recognition Awards). The variable compensation for the Management Board of Deutsche Bank AG is not included, as it is determined by our Supervisory Board in a separate process. Fixed pay for 2017 decreased slightly by 4% from € 8.3 billion to € 8.0 billion.
Pensions
With a 98% funding ratio as of December 31, 2017, we met our annual target of funding of 90% to 100% of pension obligations. This is presumably the highest level of any DAX 30 company. In the current low-interest environment, we also decided to start making additional contributions to the BVV finance sector pension fund in Germany to support employees’ rights to future pension benefits.