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Corporate Governance – portrayed in the individual cultural and legal framework, from the standpoint of equity capital.

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VIPsight International

Article Index




The new Remuneration ordinance for Institutions 2013

As early as 2011 Arne Martin Buscher was concerned about the sudden dip in numbers of particularly high-risk profile bank employees. From the time when the so-called  “Institutsvergütungsverordnung  2010” regulation came into force specifying that it would fall to the banks to adopt certain qualitative criteria to identify risk-takers subject to special remunerative requirements, their numbers fell “in some cases by 90 percent”. Buscher works for BaFin  (Bundesanstalt für Finanzdienstleistungsaufsicht, the Federal Financial Supervisory Authority) and is the person responsible for remuneration system requirements within the department that deals with matters of principle.

Buscher proposes that future legislation not merely entrust those employees whose work is most likely to have “the strongest effect on the profile of overall risk”.  On its own, BaFin could extend the circle of risk-takers if the assessment of the principal were not deemed “plausible, broad-based and comprehensible to third parties”. The new legal framework should be approved by the end of the year. Banks are oriented towards identifying their own risk-takers by directives as yet unapproved by the EBA, European Banking Authority. As a matter of principle, every European bank should revise their remunerative system says Towers Watson. In Germany, BaFin had already pointed out defects in the old remunerative framework.

End the capping of executive’s salaries

On September 20, an opposition majority in the German Federal Council overturned the legislation capping executives’ salaries put in place by the Government in June. The law stated that general meetings of stock-market listed joint stock companies would have to approve the salaries paid to company executives. The Länder Chamber prepared a draft and passed it to the mediation committee but the shortage of parliamentary time in the run up to the elections put paid to the law. Bills that are not converted into Acts of Parliament by the end of the legislature are nullified. The Bill was a knee-jerk reaction to the debate in recent years on exaggerated salaries paid to executives. The Länder justify their position stating that the shift in decisional power to the shareholders’ meetings as to who gets paid how much in stock-market listed companies, as provided by parliament cannot be used as a means for preventing exorbitant salaries.