44. Share-based incentive programmes

2008 Incentive Programme for the Management Board Members of the Bank

On 14 March 2008 the Ordinary General Meeting of mBank, by adopting a relevant resolution, expressed consent to carry out an incentive programme for Members of the Bank's Management Board at mBank. Under the programme Members of the Bank's Management Board have the right to take up bonds with priority right with respect to acquisition of shares of the ultimate parent entity, Commerzbank AG. In 2010, the programme was changed in the part concerning shares of Commerzbank, so that Members of the Management Board may obtain the right to receive cash equivalent corresponding to the value of the shares of Commerzbank calculated based on the average share price on the date when the right to receive the equivalent originated.

All the rights under payments settled in cash equivalent based on shares of Commerzbank and all the rights under payments settled in mBank S.A. shares within the framework of the programme have already been granted. Payments are settled in three equal deferred tranches: 12, 24 and 36 months form the date of acquiring the rights for a given year of the programme by the Manager. The last settlements under this programme accrue in 2015.

Cash bonus paid under the programme for 2008-2011 was presented as an obligation to employees and referred to profit and loss account in a given year for which it was awarded.

The bonds may be acquired by the Entitled Persons over the years 2010 – 2018, provided that their employment continues. The right to take up shares under the conditional capital increase, resulting from bonds, may be exercised by the Entitled Persons in the period from acquisition of bonds to 31 December 2018.

Share-Based Payments Settled in Cash

All rights under payments settled as a cash equivalent based on Commerzbank shares under the program have already been granted. Since payments are settled in three equal annual deferred tranches on the lapse of, respectively, 12, 24 and 36 months from the date of acquisition by the Manager of the right for a given year of the program, the cost of Commerzbank share-based payments settled in cash were recognised in the income statement in correspondence with liabilities to employees. The Bank's obligations arising from the unsettled part of the programme are measured at fair value through income statement before it is settled. The last settlements under this programme are in 2015.

Share-Based Payments Settled in mBank S.A. Shares

All rights under payments settled as a cash equivalent based on mBank S.A. shares under the program have already been granted. Since payments are settled in three equal annual deferred tranches on the lapse of, respectively, 12, 24 and 36 months from the date of acquisition by the Manager of the right for a given year of the program, the cost of share-based payments settled in cash are still recognised in the income statement in correspondence with other reserve capital. The last settlements under the programme accure in 2015.

This is equity-settled share-based program.

The table below presents the number and weighted average exercise prices of share options related to the 2008 incentive programme for Management Board Members of the Bank.

 

 
  31.12.2014 31.12.2013
Number of options Weighted average exercise price (in PLN) Number of options Weighted average exercise price (in PLN)
Outstanding at the beginning of the period 10 293 4 23 162 4
Granted during the period - - 543 -
Forfeited during the period - - - -
Exercised during the period* 6 643 4 13 412 4
Expired during the period - - - -
Outstanding at the end of the period 3 650 4 10 293 4
Exercisable at the end of the period - - - -
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* In 2014, the weighted average exercise price of the shares at the option exercise date was PLN 500.28 (in 2013 PLN 412.85).

2012 Incentive Programme for the Management Board Members of the Bank

On 7 December 2012, the Supervisory Board on the basis of recommendation of the Remuneration Committee, adopted Rules of the Incentive Programme at mBank S.A. which replaced the Rules of the Incentive Programme at mBank S.A. of 14 March 2008.

Under the programme, Members of the Bank's Management Board have the right to receive a bonus, including "cashless bonus" paid in the Bank's shares, including phantom shares.

Cash bonus under the programme was paid for 2012-2013 and presented as an obligation to employees and referred to profit and loss account in a given year for which it was awarded.

Non-cash bonus, in which members of the Board have right to acquire bonds with priority rights to acquire shares were granted under the programme for 2012-2013. The right to purchase the bonds will be realized in three equal annual deferred tranches, on the lapse of, respectively, 12, 24 and 36 months from the date of acquisition by the member of the Board of the right to non-cash bonus. Conditions of obtaining and the amount of deferred tranche not paid out yet under non-cash bonus depend on the assessment of the financial position of the Bank by the Remuneration Committee and the performance evaluation of member of the Board for a period longer than one financial year.

The Supervisory Board on the basis of recommendations issued by the Remuneration Committee may make a decision on suspending in whole or limiting the right to acquire bonds with priority right to take up the shares of the Bank in whole or in part of the deferred tranche due to the later assessment of the performance of the Member of the Management Board over a period of time longer than one financial year (i.e. for the period of at least 3 years), which takes into account the business cycle of the Bank as well as the risk related to the bank's operation, but only when the acts or omissions of the Member of the Management Board had a direct and adverse impact on the bank's financial result and market position within the assessment period. The Supervisory Board, on the basis of the recommendation of the Remuneration Committee of the Supervisory Board may make a decision on suspending in whole or decreasing the bonus amount for a given financial year, as well as in the scope of deferred tranche not paid out yet, in the situation referred to in Article 142 (1) of the Banking Law Act. Suspending in whole or decreasing any deferred tranche by the Remuneration Committee of the Supervisory Board can also apply the deferred tranche not paid out to the Member of the Management Board upon termination or expiry of the management contract.

Bonds may be acquired by eligible persons in the years 2014-2018.

The table below presents the number of share options related to the 2012 incentive programme for Management Board Members of the Bank.

 

 
  31.12.2014 31.12.2013
Number of options Weighted average exercise price (in PLN) Number of options Weighted average exercise price (in PLN)
Outstanding at the beginning of the period 25 802 - - -
Granted during the period 16 153 4 25 802 -
Forfeited during the period - - - -
Exercised during the period 8 603   - -
Expired during the period     - -
Outstanding at the end of the period 33 352 4 25 802 4
Exercisable at the end of the period     - -
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* In 2014, the weighted average exercise price of the shares at the option exercise date was PLN 500.28 (in 2013 PLN 412.85).

Cash Part of the Bonus

The bonus at 40% of the base amount for the year is recognised as a liability to employees and charged to the income statement in the year for which it was granted.

Share-Based Payments Settled in mBank S.A. Shares

A bonus at 60% of the base amount constitutes a payment settled in mBank S.A. shares.

As payments are settled in three equal annual deferred tranches on the lapse of, respectively, 12, 24 and 36 months from the date of acquisition by the member of the Board of the right for a given year of the program, the cost of payments settled in shares is recognised in the income statement in the correspondence with other reserve capital. The last settlement of this program is in 2017.

This is equity-settled share-based program.

2014 Incentive Programme for the Management Board Members of the Bank

On 31 March 2014 the Supervisory Board in accordance with the recommendation of Remuneration Committee adopted a regulation of incentive scheme in mBank SA, which replaced the regulation of incentive scheme in mBank SA dated at December 2012.

Under the program the members of the Board have the right to bonus, including non-cash bonus paid in Bank’s shares, including phantom shares.

The net ROE of mBank S.A. Group and the month remuneration of the member of the Board as at 31 December form the basis for acquisition by Members of the Management Board of the right to bonus and calculation of the base amount to determine the amount of bonus for a given financial year. Equivalent of 50% calculated based on the base amount of ROE constitutes the so-called the first part of the bonus. As regards the remaining 50% of the base amount, the Remuneration Committee of the Supervisory Board may grant the so-called discretionary bonus if it decides that a given Member of the Management Board achieved the annual/multi-year business and development objective. The decision of granting the second part of the bonus is the sole responsibility of Remuneration Committee of the Supervisory Board, which according to its own judgement and decision confirm MBO achievement taking into account the situations on financial markets in the last/previous financial period.

The sum the first and the second part of bonus is the base bonus of the member of Board for a given financial period. 40% of the base bonus due to a Member of the Management Board for a given financial year, constituting non-deferred bonus and is paid in the year of determination of base bonus as follows: 50% in form of cash payment and 50% in Bank’s shares or bonds with priority rights to acquire shares or phantom shares.

60% of base bonus is deferred bonus and is paid in three equal tranches in the next three following years after the year of determining the base bonus as follows: 50% of each of the deferred tranches in form of cash payment and 50% of each of the deferred tranches in form of non-cash payment in Bank’s shares or bonds with priority rights to acquire shares or phantom shares.

The Supervisory Board on the basis of recommendation of Remuneration Committee may make a decision on suspending in whole or reduction the amount of deferred tranche due to the later assessment of the performance of the Member of the Management Board over a period of time longer than one financial year (i.e. for the period of at least 3 years), which takes into account the business cycle of the Bank as well as the risk related to the bank's operation, but only when the acts or omissions of the Member of the Management Board had a direct and adverse impact on the bank's financial result and market position within the assessment period and when at least one of the element included in the assessment card is not fulfilled.

Remuneration Committee of the Supervisory Board may make a decision on suspending in whole or decreasing the non-deferred and deferred bonus amount for a given financial, as well as in the scope of deferred tranche not paid out yet, in the situation referred to in Article 142 (1) of the Banking Law Act. Suspending in whole or decreasing the non-deferred and deferred bonus, as well as any deferred tranche by the Remuneration Committee of the Supervisory Board can also apply to the non-deferred and deferred bonus, including deferred tranche not paid out yet after expiry or termination the agreement.

Cash Part of the Bonus

The bonus at 50% of the base amount for the year constitutes cash payment. It is recognised as a liability to employees and charged to the income statement in the correspondence to liability to employees.

Share-Based Payments Settled in mBank S.A. Shares

A bonus at 50% of the base amount constitutes a payment settled in mBank S.A. shares. The cost of payments settled in shares is recognised in the income statement in the correspondence with other reserve capital.

This is equity-settled share-based program.

2008 Incentive Programme for Key Managers of mBank Group

On 27 October 2008 the Extraordinary General Meeting of the Bank adopted an incentive programme for the key management staff of mBank S.A. Group.

The programme participants include:

  • Bank Directors;
  • Representatives of key management.

They are responsible for taking decisions which have material impact on the implementation of a strategy specified by the Bank's Management Board, the Group's results, stability and security of business and development and creating added value of the organization.

In 2010, the Management Board of the Bank decided to launch the programme and approved the list of participants for Tranche III. Within Tranche III 13,000 options were granted. In 2011 within the Tranche IV and V programme 20,000 options and 19,990 options were granted. The rights started to be exercised in 2012 for Tranche III, in 2013 for Tranche IV and the process will last till 31 December 2019. The rights under Tranche V may be exercised after meeting specified conditions concerning acquisition of rights in the period from 1 May 2014 to 31 December 2019. The conditions for acquiring rights refer to being in an employment relationship throughout the term of the Tranche, obtaining an economic ratio for mBank S.A. Group specified by the Management Board and obtaining a specific appraisal by the programme participant in each year of the Tranche. In 2011 a decision was taken on suspension of the programme and not activating the remaining tranches.

Share-Based Payments Settled in mBank S.A. Shares

The cost of the programme for key managers is charged to the income statement and recognised in correspondence with other reserve capital.

The cost of payments settled in shares is recognised in the income statement as of the date of award of the program until the acquisition date of rights, i.e.:

- from 23.08.2010 to 30.04.2012 for Tranche III;
- from 1.02.2011 to 30.04.2013 for Tranche IV;
- from 1.02.2011 to 30.04.2014 for Tranche V.

This is equity-settled share-based program.

The table below presents the number and weighted average exercise prices of share options related to the 2008 incentive programme for key managers of mBank Group.

 

 
31.12.2014 31.12.2013
Number of options Weighted average exercise price (in PLN) Number of options Weighted average exercise price (in PLN)
Outstanding at the beginning of the period 20 560 4 42 785 4
Granted during the period 2 460 - 1 310 -
Forfeited during the period 200 - - -
Exercised during the period 20 798 4 21 625 4
Expired during the period 745 - 1 910 -
Outstanding at the end of the period 1 277 4 20 560 4
Exercisable at the end of the period 1 277 4 2 285 4
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* In 2014, the weighted average exercise price of the shares at the option exercise date was PLN 500.28 (in 2013 PLN 412.85).

Options outstanding at the end of 2012 and 2013 expire on 31 December 2019.

Employee programme for key management staff of mBank Group of 2013

On 11 April 2013, the Extraordinary General Meeting of the Bank adopted a resolution amending the rules of the employee programme, which replaced the incentive programme for key management staff of mBank Group of 2008, whereas as regards the persons who acquired bonds or were granted right to acquire bonds in Tranches III, IV and V the programme will be carried out under the existing principles.

The aim of the programme is to ensure growth in the value of the Company's shares by linking the interest of the key management staff of mBank S.A. Group with the interest of the Company and its shareholders and implementing in mBank S.A. Group variable components of remuneration of the persons holding managerial positions at mBank S.A. Group in accordance with the Resolution of the Polish Financial Supervision Authority.

The programme will be applied with reference to employees having a material impact on the risk profile of mBank S.A. Group, in particular Members of the Management Board of strategic subsidiaries, Bank Directors and key staff of mBank, whose decisions have a significant impact on the implementation of the strategy specified by the Bank's Management Board, results of mBank S.A. Group, growth in the value of the Bank.

During the program have been granted the rights to acquire bonds under Tranche VI, which may be exercised in three equal parts after 12, 24 and 36 months from the date of granting this right, in accordance with the internal regulations adopted in mBank S.A. Group specifying rules of variable remuneration of the employees having a material impact on the risk profile at mBank S.A. Group.

The bonds may be acquired by the Entitled Persons during the Programme Term, and not later than by 31 December 2019. The Bank's Management Board/Supervisory Board of the Company, where the Program is carried out may take a decision on suspending the Program in whole or decreasing the number of bonds or the number of bonds deferred in a given tranche for the Entitled Person in the case of occurrence of the situations, referred to in Article 142 (1) of the Banking Law Act, occurrence of balance sheet loss or loss of liquidity, meeting the conditions set forth in the agreements with the program participants, forming the basis for work certificate or other services for the Bank and subsidiaries.

The Bank's Management Board/Supervisory Board of the Company, where the Program is carried out may take a decision on suspending the Program in whole or decreasing the number of bonds or the number of bonds deferred in a given tranche for the Entitled Person in the case of occurrence of the situations, referred to in Article 142 (1) of the Banking Law Act, occurrence of balance sheet loss or loss of liquidity, meeting the conditions set forth in the agreements with the program participants, forming the basis for work certificate or other services for the Bank and subsidiaries.

Cash Part of the Bonus

The bonus in the amount of 50% of the base amount for the year is recognised as a liability to employees and charged to the income statement in the year for which it was granted.

Share-Based Payments Settled in mBank S.A. Shares

As payments are settled in three equal annual deferred tranches on the lapse of, respectively, 12, 24 and 36 months from the date of acquisition by the program participants of the right for a given year of the program, the cost of this part of the programme is charged to the income statement and recognised in correspondence with other reserve capital.

This is equity-settled share-based program.

The table below presents the number and weighted average exercise prices of share options related to the 2013 incentive programme for key managers of mBank Group.

 

 
  31.12.2014 31.12.2013
Number of options Weighted average exercise price (in PLN) Number of options Weighted average exercise price (in PLN)
Outstanding at the beginning of the period - - - -
Granted during the period 2 233 - - -
Forfeited during the period - - - -
Exercised during the period - - - -
Expired during the period - - - -
Outstanding at the end of the period 2 233 - - -
Exercisable at the end of the period - - - -
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Employee programme for key management staff of mBank Group of 2014

On 31 March 2014, the Supervisory Board of the Bank adopted on the basis of recommendation of Remuneration Committee a resolution amending the rules of the employee programme, which replaced the incentive programme for key management staff of mBank Group of 2013, whereas as regards the persons who acquired bonds or were granted right to acquire bonds in Tranches III, IV, V and VI the programme will be carried out under the existing principles.

The aim of the programme is to ensure growth in the value of the Company's shares by linking the interest of the key management staff of mBank S.A. Group with the interest of the Company and its shareholders and implementing in mBank S.A. Group variable components of remuneration of the persons holding managerial positions at mBank S.A. Group.

Beginning from Tranche VII granted to the person entitled the right to purchase bonds will be divided into four parts, which may be realized respectively: I part – non-deferred bonds representing 50% of the 60% of the amount of discretionary bonus granted for a given financial year in the year of determining the right, and then another three equal parts – deferred bonds constituting 50% of the 40% of the amount of discretionary bonus granted for a given financial year on the lapse of 12, 24 and 36 months from the date of the grant of rights, in accordance with the internal regulations adopted in mBank S.A. Group specifying rules of variable remuneration of the employees having a material impact on the risk profile at mBank S.A. Group.

The Bank's Management Board/Supervisory Board of the Company, where the Program is carried out may take a decision on suspending the Program in whole or decreasing the number of bonds or the number of bonds deferred in a given tranche for the Entitled Person in the case of occurrence of the situations, referred to in Article 142 (1) of the Banking Law Act, occurrence of balance sheet loss or loss of liquidity, meeting the conditions set forth in the agreements with the program participants, forming the basis for work certificate or other services for the Bank and subsidiaries.

Cash Part of the Bonus

The bonus in the amount of 50% of the base amount for the year is cash payment. It is recognised as a liability to employees and charged to the income statement in the correspondence to the liability to employees.

Share-Based Payments Settled in mBank S.A. Shares

A bonus at 50% of the base amount constitutes a payment settled in mBank S.A. shares. The cost of payments settled in shares is recognised in the income statement in the correspondence with other reserve capital.

This is equity-settled share-based program.

Employee programmes of mBank Group subsidiaries

Starting from the second quarter of 2014, the Group operates an incentive programme, under which the management and employees of BRE Ubezpieczenia TUiR SA will be entitled to potential capital gains concerning 4.99% of the shares of this company. The programme meet the definition of cash-settled share-based payment transactions. The incentive programme functioning in mBank Hipoteczny is based on phantom shares of this bank and according to IAS 19 considered as incentive programme.

Summary of the impact of the Programmes on the Bank’s balance sheet and income statement

Share-Based Payments Settled in Shares

The table below presents changes in other reserve capital generated by the above mentioned incentive programmes for share-based payments settled in mBank S.A. shares.

 

 
  31.12.2014 31.12.2013
Incentive Programs    
As at the beginning of the period 29 061 23 867
- value of services provided by the employees 12 616 15 759
- settlement of exercised options (11 421) (10 565)
As at the end of the period 30 256 29 061
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Share-Based Payments Settled in Cash

The incentive programme for the Management Board of the Bank in the part comprising Commerzbank shares has no impact on other reserves as its cost is taken to the income statement in correspondence with liabilities. In 2014, the costs of the programme related to the valuation of the unsettled liabilities under this programme to fair value amounted PLN 3 370 (31 December 2013: PLN 0 thousand) (Note 10). As at 31 December 2014, liabilities due to this programme amounted to PLN 1 955 thousand (31 December 2013: PLN 1 995 thousand).

Cash Payments

The cost of the cash part of the programmes is presented in Note 11 “Overhead costs”.