13.3. mBank Group’s incentive system

The incentive system of mBank is based on the remuneration policy and intangible elements (e.g. possibility of career development). The incentive system plays a key role in developing corporate culture and builds a competitive advantage by acquiring and retaining competent employees.

The remuneration policy at mBank covers both the base salary (fixed component) as well as the variable part depending on the objectives achieved by the whole organisation and by individual employees.

In 2014, incentive programmes both for the Management Board Members and Key Managers were implemented at mBank Group.

Incentive Programme for the Management Board Members of the Bank

On March 14, 2008, the Ordinary General Meeting of mBank adopted an incentive programme for the Management Board Members of mBank.

Under the programme, the Management Board Members of the Bank have the right to take up bonds with pre-emptive right to take up shares of mBank and, as originally planned, to take up shares of Commerzbank AG. In 2010, the programme was changed in the part concerning shares of Commerzbank, so that the Management Board Members may obtain the right to receive a cash equivalent corresponding to the value of the shares of Commerzbank calculated on the basis of 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 shares have already been granted. Payments are settled in three equal deferred tranches and the last settlements of the programme are scheduled for 2015.

The bonds may be acquired by the Management Board Members over the years 2010 – 2018, provided that their employment continues.

On December 7, 2012, the Supervisory Board decided to replace the 2008 incentive programme with a new incentive programme. Under the new programme, the Management Board Members of the Bank have the right to receive a bonus, including a “non-cash bonus”, paid in the Bank’s shares, including phantom shares (i.e. virtual shares).

The non-cash bonus, under which the Management Board Members are eligible to take up bonds with pre-emptive right to take up shares has been granted under the programme for the years 2012-2013. The right to take up bonds can be exercised in three equal deferred annual tranches. The terms of the entitlement and the amount of the outstanding deferred tranche under the granted non-cash bonus depend on assessment of the financial position of the Bank by the Remuneration Committee and on appraisal of the performance of a Management Board Member over a time horizon which is longer than one financial year.

The bonds may be acquired by the eligible people over the years 2010 – 2018.

On March 31, 2014, the Supervisory Board acting in line with the recommendation of the Remuneration Committee approved the mBank S.A. Incentive Programme Rules which replaced the mBank S.A. Incentive Programme Rules of December 7, 2012.

Under the programme, the Management Board Members of the Bank are eligible to receive a bonus, including a non-cash bonus paid in Bank shares, including phantom shares.

The basis of the acquisition of the right to receive a bonus and of the calculation of the bonus amount for a financial year includes:

  • net return on equity (net ROE) of mBank Group;
  • monthly remuneration of the Management Board Memeber at December 31, of the financial year for which the bonus is to be awarded.

One part of the base bonus is the equivalent of 50% of the base amount calculated depending on the ROE. As the remaining 50% of the base amount, the Remuneration Committee of the Supervisory Board may award the other part of the bonus if it decides that the Management Board Member has achieved the annual/multi-annual business development target. The decision whether to award the other part of the bonus is made at the sole discretion of the Remuneration Committee of the Supervisory Board, which uses its own judgment to confirm whether the MbO are achieved, taking into account the situation on the financial markets in the previous financial periods.

The two parts of the bonus constitute the base bonus of the Management Board Member for the financial year. 40% of the base bonus is not deferred and is paid in the year when it is determined, as follows: 50% in cash and 50% in Bank shares, or bonds with a pre-emptive right to take up shares, or phantom shares.

The remaining 60% of the base bonus is deferred and paid in three equal tranches in three subsequent years after the year when the base bonus is determined, as follows: 50% of each deferred tranche in cash and 50% of each deferred tranche in Bank shares, or bonds with a pre-emptive right to take up shares, or phantom shares.

The Supervisory Board acting on the basis of a recommendation of the Remuneration Committee of the Supervisory Board may decide to withhold the full amount or to reduce the amount of the deferred tranche depending on later assessment of the performance of the Management Board Member in a time horizon longer than one financial year, i.e., for a period of at least 3 years, taking into account the Bank’s business cycle as well as the risk inherent in the business of the Bank but only if the action or omission of the Management Board Member had a direct and negative impact on the financial results and the market position of the Bank in the period of the assessment, and only if at least one of the elements covered by the score card is not achieved.

The Remuneration Committee of the Supervisory Board may decide to withhold the full amount or to reduce the amount of the non-deferred and deferred bonus for the financial year, including the deferred tranches not yet paid, in cases referred to in Article 142.1 of the Banking Law Act. Withholding the full amount or reducing the amount of a non-deferred and deferred bonus or any deferred tranche by the Remuneration Committee of the Supervisory Board may also apply to a deferred and non-deferred bonus, including a deferred tranche not paid to a Manager following the expiration or termination of the contract.

Employee Programme for the Key Staff of mBank Group

On October 27, 2008, the Extraordinary General Meeting of the Bank adopted an incentive programme for the key staff of mBank Group. In 2010, the Management Board of the Bank decided to launch the programme and approved the list of programme participants for Tranche III. Within Tranche III, 13,000 options were granted. In 2011, within Tranche IV and V of the programme, 20,000 options and 19,990 options were granted, respectively. The rights started to be exercised in 2012 for Tranche III, in 2013 for Tranche IV, and the process will last until December 31, 2019. The rights under Tranche V may be exercised after meeting specific conditions concerning the acquisition of rights in the period from May 1, 2014 to December 31, 2019. The conditions for acquiring the rights refer to:

  • Being in an employment relationship throughout the term of the Tranche.
  • Achieving an economic ratio of mBank Group specified by the Management Board.
  • Obtaining a specific annual appraisal of the programme participant in each year of the Tranche.

In 2011, the programme was suspended and the remaining tranches were not activated.

On April 11, 2013, the Extraordinary General Meeting of the Bank adopted a resolution concerning a new incentive programme for key staff of mBank Group, which replaced the 2008 incentive programme; however, for persons who acquired bonds or were granted the right to acquire bonds, the programme will be carried out under the existing principles.

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

The bonds may be acquired by the eligible persons within the duration of the programme but not later than December 31, 2019. The Management Board of the Bank/the Supervisory Board of a subsidiary where the Program is carried out may decide to suspend the programme in whole or to reduce the number of bonds or the number of bonds deferred in a given tranche for an eligible person in justified cases.

On March 31, 2014, the mBank Supervisory Board acting in line with the recommendation of the Remuneration Committee approved a resolution amending the employee programme rules, which replaced the 2013 employee incentive programme for key staff of the mBank Group; however, for persons who acquired bonds or were granted the right to acquire bonds in Tranche III, IV, V or VI, the programme will be carried out under the existing principles.

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

Starting with Tranche VII, the right to acquire bonds granted to an eligible person will be divided into four parts exercisable as follows: one part – non-deferred bonds representing 50% of 60% of the discretionary bonus amount granted for the financial year in the year when the right was determined, and then subsequent three equal parts – deferred bonds representing 50% of 40% of the discretionary bonus amount granted for the financial year on the lapse of 12, 24, and 36 months after the date that the right was granted, in accordance with internal regulations of mBank Group governing the rules of variable remuneration for mBank risk-takers.

The Management Board of the Bank/the Supervisory Board of a subsidiary may decide to suspend the programme in whole or to reduce the number of non-deferred or deferred bonds in a given tranche for an eligible person in cases referred to in Article 142.1 of the Banking Law Act, i.e., occurrence or risk of a balance-sheet loss, risk of insolvency or bankruptcy, conditions laid down in agreements with programme participants under which work or other services are provided to the Bank and the subsidiaries.

Detailed information on the incentive programmes is presented in Note 44 to the mBank S.A. Financial Statements for 2014 under the International Financial Reporting Standards.