iif+ ow compensation report 20111020

7/29/2019 IIF+ OW Compensation Report 20111020

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COMPENSATION REFORM IN WHOLESALE BANKING 2011:ASSESSING THREE YEARS OF PROGRESS

OCTOBER 2011


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Foreword

on bhalf f th Ba f dicts f th Institut f Intnatinal Financ IIF an th IIFs Sting

Cmmitt n Implmntatin, a plas t psnt Compensation Reform in Wholesale Banking 2011:

Assessing Three Years of Progress.

Cmpnsatin pactics in th banking inust hav cm a lng a sinc th Institut fist issu its

svn Pincipls f Cnuct in th Jul 2008 Final Report of the Committee on Market Best Practices. Th sults

f u thi annual suv f cmpnsatin stuctus in hlsal banking, cnuct b th managmnt

cnsultanc fim f ol iv wman, sh that th inust has ma significant pgss n th c

uimnts f th Financial Stabilit Ba FSB b putting in plac ffctiv iskalign cmpnsatin

stuctus incluing fal, clabacks an nhanc gvnanc sstms.

This pt pvis th inust, gulats an th public ith an vvi f stps takn b th inust

in appling th FSBs Pincipls an Implementation Standards an in stablishing iskalign cmpnsatinsstms. Th pt intifis aas h th has bn significant pgss such as mbing th us f

isk mtics, using fals an clabacks, an stngthning gvnanc sstms. Th suv als inicats

aas h futh k is n such as n isclsu, futh isk ata finmnt an stss tsting.

Finall, th pt highlights k inust an public sct challngs t th cnsistnt intptatin an

applicatin f cmpnsatin pincipls acss juisictins an vaius sgmnts f th makt.

Th Institut is gatful f th paticipatin f th 51 mmb fims h cntibut t th suv an th

iniviual supplmnta intvis that fm th backbn f this pt. Spcial thanks g t th pjct

tam at oliv wman f thi ptis an icatin an t th IIF wking Gup n Cmpnsatin

f viing afts an f pviing valuabl fback. w hp that this pt ill sv as a usful ai

in suppt f th inusts cnstuctiv ngagmnt ith th public sct, infming iscussins ithgulats an, m bal, in th public ana.

w bliv that cntinu pgss in th fm f cmpnsatin sstms, in th ba cntt f

stngthn inust pactics, mains a piit f th inust in th pi aha. Givn th sults

f u suv, a pi f cnsliatin ma n b ui t all iniviual fims t ass spcific

tchnical issus lat t th m ganula implmntatin f stanas as fims align thi pactics

m clsl ith FSB an natinal stanas. Th Institut ill cntinu t pmt th impvmnt

f cmpnsatin pactics as pat f its ba missin t avanc sun inust pactics in isk

managmnt an gvnanc acss th financial sstm.

Josef Ackermann

Chaiman f

th Managmnt

Ba an th Gup

ecutiv Cmmitt

dutsch Bank AG

Klaus-Peter Mller

Chaiman f th

Supvis Ba

Cmmzbank AG

Rick Waugh

Psint an Chif

ecutiv offic

Sctiabank

Charles Dallara

Managing dict

Institut f

Intnatinal Financ


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IIF BoArd oF dIreCTorS

CHAIrMAN

JoSeF ACKerMANN*

Chairman of the Management Board and

the Group Executive Committee

Deutsche Bank AG

VICe CHAIrMAN

roBerTo e. SeTUBAL*

President and Chief

Executive Officer

Ita Unibanco Banco S/A

Vice Chairman

Board of Ita Unibanco Holding S/A

VICe CHAIrMAN

doUGLAS FLINT

Group Chairman

HSBC Holdings plc

VICe CHAIrMAN

rICK wAUGH*

President and Chief

Executive Officer

Scotiabank

VICe CHAIrMAN

wALTer B. KIeLHoLZ*

Chairman of the Board

of Directors

Swiss Reinsurance

Company Ltd

TreASUrer

MArCUS wALLeNBerG

VICe CHAIrMAN deSIGNATeChairman of the Board

SEB

HASSAN eL SAyed ABdALLA

Vice Chairman and Managing Director

Arab African International Bank

wALTer BAyLy

Chief Executive Officer

Banco de Crdito del Per

MArTIN BLeSSING

Chairman of the Board of Managing Directors

Commerzbank AG

GAry d. CoHN

President and COO

The Goldman Sachs Group, Inc.

IBrAHIM S. dABdoUB

Group Chief Executive Officer

National Bank of Kuwait

CHArLeS H. dALLArA (ex oFFICIo)

Managing Director

Institute of International Finance

yooN-dAe eUH

Chairman and CEO

KB Financial Group

FrANCISCo GoNZLeZ

Chairman and CEO

BBVA

JAMeS P. GorMAN

President and CEO

Morgan Stanley

PIyUSH GUPTA

Chief Executive Officer and Director

DBS Group Holdings & DBS Bank Ltd


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SHUqING GUo

Chairman

China Construction Bank

JAN HoMMeN

Chairman of the Executive Board

ING Group

JIANG JIANqING

Chairman of the Board and PresidentIndustrial and Commercial Bank of China

CHANdA KoCHHAr

Managing Director and CEO

ICICI Bank Ltd.

NoBUo KUroyANAGI

Chairman

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

JACKo MAree

Group Chief Executive

Standard Bank Group

MASAyUKI oKU


Sumitomo Mitsui Financial Group

FrdrIC oUdA

Chairman and CEO

Socit Gnrale

VIKrAM PANdIT


Citigroup Inc.

CorrAdo PASSerA

Managing Director and Chief Executive Officer

Intesa Sanpaolo S.p.A.

BAUdoUIN ProT


BNP Paribas Group

* Member of the Administrative and Nominations Committee

UrS roHNer

Chairman of the Board of Directors

Credit Suisse Group AG

SUZAN SABANCI dINCer

Chairman and Executive Board Member

Akbank T.A.S.

PeTer SANdS

Group Chief ExecutiveStandard Chartered PLC

yASUHIro SATo


Mizuho Financial Group

MArTIN SeNN


Zurich Financial Services

MICHAeL SMITH


Australia and New Zealand Banking Group Ltd

JAMeS e. (JeS) STALey

Chief Executive Officer,

Investment Bank

J.P. Morgan

ANdreAS TreICHL

Chairman of the Management Board

and Chief Executive

Erste Group Bank AG

PeTer wALLISoN,BoArd SeCreTAryArthur F. Burns Fellow in Financial Policy Studies

American Enterprise Institute


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Contents

1. Cntt f th pt 2

2. ecutiv summa 3

2.1. Gnal stat f th inust: dvlping iskalign cmpnsatin sstms 3

2.2. A a f significant inust pgss; sm challngs main 3

2.3. Th i implicatins f fm f th inust an f gulats 5

3. Builing a iskalign sstm f cmpnsatin: K aas f inust pgss 7

3.1. Paut stuctus 7

3.2. Us f bnus guaants 9

3.3. risk ata an ngagmnt ith th isk functin 10

3.4. Gvnanc an th invlvmnt f bas an isk stakhls 13

4. K aas f nging k 15

4.1. dvlpmnt f isk ata 15

4.2. Multia pfmanc ata 16

4.3. Stss tsting 17

4.4. Placing fals at isk 17

4.5. Tatmnt f matial isk taks 19

5. Pgss n cmpnsatin isclsu 21

6. Lking aha: implicatins f th inust an f gulats 23

6.1. Inust impact an unintn cnsuncs 23

6.2. Implicatins f gulats 25

7. Suv mthlg 27

Appni

A.1. Glssa 28

A.2. wking Gup acknlgmnts 30


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1. CONTEXT FOR THE REPORT

This pt psnts th sults f th 2011

jint Institut f Intnatinal Financ IIF an

oliv wman suv n cmpnsatin in hlsal

banking, cnuct in ApilJul 2011. As th thi

IIF cmpnsatin suv sinc th financial cisis, this

k cntinus t tack pgss in implmnting

glbal cmpnsatin stanas bas n anss

fm 51 laing financial institutins incluing bth

stanaln hlsal banks an hlsal ivisins

f lag banking gups. This as suv sa

incas lvls f paticipatin fm Banks acss all

gins. Suv spnnts inclu psntativs

fm all ggaphic gins1 an cmbin, accunt

f v 70% f th glbal hlsal banking

vnu pl:

Asia Pacific: 7

eup: 26

Mileast an Afica: 4 Amicas: 14

Total: 51

1 Ggaphic split bas n th lcatins f spnntinstitutins hauats

Cmpnsatin schms in banking hav bn th

subjct f numus bats in th last f as.

It is n t as sinc th FSB implmntatin

stanas las. This cis bnchmaks

pgss t th FSB stanas hv, fims a als

spning t t th facts in assing th

tpic f cmpnsatin

Banks a spning t tnsiv natinalguianc n cmpnsatin. Ths natinal

guilins a gnall cnsistnt ith th

FSB Pincipls, althugh th iff in th

intptatin f ths Pincipls int spcific

supvis guilins.

Cmpnsatin fms a taking plac in th

cntt f ba inust ffts in th ak f

th financial cisis t impv vall gvnanc

an isk managmnt stanas

It shul b nt that th finings f this pt acnsistnt ith cnt publicatins b bth th FSB

an th Fal rsv. Th intntin f this pt

is nt t pat th c utlins f th FSB Pincipls

t itat aas f pgss bsv in pvius

as. Th sults f pvius pts can b btain

n ust. Insta, this pt ill fcus n th

main aas f chang fm pvius as sults:

1. K aas f inust pgss

2. K aas f fcus f futh k

3. Falking implicatins f gulats an

th inust as a hl


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2. EXECUTIVE SUMMARY

2.1. GENERAL STATE

OF THE INDUSTRY:

DEVELOPING RISK-ALIGNED

COMPENSATION SYSTEMS

Sinc th nst f th cisis, th hlsal bankinginust has bn unging an intnsiv vi

f makt pactics acss all aas f activit,

incluing cmpnsatin. In this cnnctin,

cmpnsatin fm has sught t vlp a m

bust, risk-aligned system of compensation that

would guard against imprudent risk taking and

therefore contribute to financial stability. Th

Pincipls f Cnuct n Cmpnsatin publish

b th IIF in Jul 2008 psnt an al inust

fft t ass th shtcmings f pvailing

cmpnsatin pactics at th tim b linking

cmpnsatin t isk ajust pfmanc an

b lating it t vall pfmanc f th f im.

Th Financial Stabilit Bas FSB Pincipls n

Cmpnsatin issu in Apil 2009 st ut glbal

bnchmaks intn to make both the overall

financial system and the individual firms within

it more stable.

Significant industry progress in tms f FSB

Pincipls an Implmntatin Stanas has bn

ma sinc th last IIF Cmpnsatin Suv pt

in Sptmb 2010. This is th sult f cntinu

cnsiabl ffts b th inust. Suv sults

inicat that the trajectory of change is positive

across the compensation agenda an that th

hlsal banking inust is n fcusing npactical implmntatin f th FSBs Pincipls f

Sun Cmpnsatin. Hv, as cmpnsatin

fm has bn implmnt, some unintended

consequences hav stat t mg hich mit

th attntin f bth gulats an managmnt

f hlsal banks.

2.2. A YEAR OF SIGNIFICANT

INDUSTRY PROGRESS; SOMECHALLENGES REMAIN

Survey respondents are well into the process

of implementing substantial changes to their

compensation models an it is n pssibl t

bsv aas h th inust can cnsi that

mst f th impvmnts that align cmpnsatin

pactics ith FSB stanas a in plac. Ntabl

aas f significant pgss inclu

Impv us f isk ajust mtics an th

invlvmnt an cmpnsatin f th risk

Functin. Profit after risk charges is the

primary metric used for bonus pool setting

at 75% of respondents an th invlvmnt

f th risk Managmnt functin in cmpnsatin

stting has incas. This als aligns ith th


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finings f th IIF pt Making stis in

financial svics isk managmnt Apil 2011.

Changs t paut stuctus t pvi futh

alignmnt btn isk taks incntivs an

th banks isk pfil. df cmpnsatin

stuctus a in plac acss th suv

spnnts an 91% of respondents have

vesting periods of 3 years or longer for

deferred compensation.

Strengthening of core governance

practices with an increased emphasis on

risk alignment th l, cmpsitin an

activitis f munatin cmmitts an thi

links t isk gvnanc hav bn significantl

stuctu sinc th cisis.

dvlpmnts in th applicatin f guaants

th usag fmulti-year guarantees is

now negligible.

In aitin t ths changs, nt a gradual shift

in culture an a mv t mpl ngagmnt ncmpnsatin fm. whn ask t intif th

main bstacls t inust alignmnt ith th FSB

Pincipls an Implmntatin Stanas nl 5%

f spnnts cit resistance to change among

business heads. Such sistanc as fun t b

cmmn in th IIFs fist suv in 2009. Btt

unstaning an appciatin f cmpnsatin

fm a incasing at sni lvls an banks a

n fcus n nsuing that such unstaning is

tansmitt thughut th ganizatin mpl

Implementation standards(released Sep 2009)

Key FSB principles(April 2009)

Surveyfindings

GOVERNANCE

BONUS POOLCALCULATION

AND FUNDING

DETERMINATIONOF INDIVIDUALREMUNERATION

PAYOUTSTRUCTURES

AND SCHEDULES

DISCLOSURE

Link to BU/individualperformance

Sensitivity of payouts to risktime horizon of the businessand future performance

Use of non-cash instruments No use of unconditional

multi-year guaranteedbonuses

Risk adjustmentof remuneration

Link to Group performance Implications for

capital position

Disclosure requirements

Risk adjustments inbonus allocation

Accountability inperformance measurement

Active Board involvement

Involvement of theRisk function

Control functionsindependence

Basic payout structures /conditions in place (e.g.deferrals, vesting periods,non-cash rewards)

Good progress on guarantees

(e.g. multi-year guaranteesnegligible)

Challenges in practicalapplication of clawbacks

Strong progress in adoptionof key risk metrics

Ongoing work required todevelop and apply thesemetrics further (capital akey area being developedat many banks)

Improved disclosure toregulators vs. 2009

Range of approaches topublic disclosure

As above - challenge indrilling down risk metrics

Room for improvements instress testing

Continued governancedevelopments core FSBstandards in place

Improved engagement andindependence of Risk

Specific guidelines introduced to level the playing

field globally

Mandatory use of payout conditions(e.g. malus / clawbacks)

40-60% of bonus should be deferred; >60% for the

senior-most management (% increasing with levelof pay/seniority)

At least 3 years deferral period; should be higherfor businesses with a higher risk holding period

>50% of bonus to be awarded in non-cashinstruments; stock based instruments subject toappropriate vesting policy

Risk adjustments should reflect the cost and quantityof capital consumption as well as the liquidity risk

A firms financial performance should be reflectedin bonus pool sizing

Capital build up to take priority over remunerationpayouts regulators to limit bonus payouts when ithinders build out of a sound capital base

RemCo should submit a remuneration review toregulators / public annually. Internal / externalreview if appropriate)

Detailed description of remuneration framework andquantitative impact of current / deferred remuneration

No new guidance in Sep 2009; previous guidance includes

Thorough measurement /stress testing of risk positions

Effective approach to capital allocation for therisk exposure

Reliance on expert judgement to reflect opaque risks

Remuneration Committee (RemCo) should involvemajority non executives and work closely with theRisk Committee

Remuneration for control staff should be adequateand independent

exHIBIT 1: oVerVIew oF ProGreSS VS. FSB IMPLeMeNTATIoN STANdArdS

Source: Institut f Intnatinal Financ & oliv wman 2011 Cmpnsatin Suv


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buin t n cmpnsatin stuctus as

intifi as th 4th mst imptant implmntatin

challng in this as suv up fm 9th plac

last a.

Th fcus f gulats an financial fims has

bn n structural changes t cmpnsatin an

in spit f th plitical an putatinal pssus

fac b th inust, the purpose of reforms

has not been to set compensation levels. This

ul link cmpnsatin fm isk alignmnt

an ul thf nt cntibut t th c

stabilit bjctiv. Th bat aun cmpnsatin

lvls cntinus but is nt th fcus f this pt.

In th fcus f th bat n lvls might ivt

attntin fm ffctivl cmplting th valuablk untakn b gulats an th inust n

cmpnsatin stuctus.

evn ith all th pgss that has bn ma, fm

f cmpnsatin stuctus is a pcss that ns

t aapt t changing cnitins in th gulat

an makt nvinmnt as ll as t changs in

th fims n businss mls. Th pincipls

an bjctivs guiing this fft, hv, main

bal vali thughut this pcss.

As pct, sval challngs a still bing

ass an cmpnsatin reform remains

on the agenda as 54% of respond ents plan to

continue to improve their variable compensation

structures over the next 12 months. Banks ma

n hav cmplt c changs such as incasing

th func f munatin cmmitt mtings

an appling isk ajustmnt t pfit masus, but

th a still king n changs that a tchnicall

an ganizatinall m ifficult t implmnt. K

aas f futh k inclu

Th need for continued efforts on risk data

and stress testing. data challngs a an

nging aa f k f all banks an th suv

highlight that th majit f spnnts a

cntinuing k n th accuac f thi ata.

Technical issues related to new measures

such as bonus-malus and clawback clauses.

Ths fatus a n in plac but man banks

nt that th n t ass sm maining

pactical issus v th applicatin f pfmanc

bas bnusmalus an fal at isk/

claback clauss.

Th tatmnt f matial isk taks MrTs.

Institutins a cmpling ith th uimnt

t intif MrTs an tail thi cmpnsatin

appachs t ths iniviuals. Hv, a wide

range of approaches can be observed in the

identification and treatment of MRTs making

it iff icult t mak maningful cmpaisns

acss banks.

Managing isclsu as intifi as a challng

in pvius as. 90% of survey respondents

now disclose core items to regulators in line

with FSB standards. In aitin, stps hav bn

takn at a numb f institutins t ngag ith

th public an impv th ualitativ planatins

f cmpnsatin appachs ithut isclsing

cnfintial ata. However, a broader debate

remains over public disclosure. It is apppiat

that ach institutin shul tak a statgic vi n

h much infmatin th ish t iscls publiclgivn thi businss ml an th lng tm intst

f thi shahls.

2.3. THE WIDER IMPLICATIONS

OF REFORM FOR THE INDUSTRY

AND FOR REGULATORS

As fms tak hl, banks an gulatscan n bgin t tak stck f th impact f

cmpnsatin fm an stat t assss if all

lmnts f cmpnsatin gulatin a achiving

thi si sults.

As is nt thughut this pt, significant

progress has been made in line with the key

objectives of the FSB Principles. Th n gal


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f ths fms is t contribute to financial

stability by instituting incentive systems

designed to minimize imprudent risk taking

through risk alignment, phasing of payouts and

better accountability. Th ffts nt abv n

gvnanc, paut stuctus an isk managmnt

align ictl ith ths gals.

Hv, it is still too early to come to a final

assessment of what the broader overall result

of compensation regulation on the industry will

be in terms of both intended and unintended

consequences. Sm si ffcts can ala b

nt ivn in pat b cmpnsatin fms but

als b ba inust stuctuing pstcisis.

F ampl, althugh cus t multia bnusguaants, hich a incnsistnt ith th FSB

pincipls, is n ngligibl, th incas intnsit

f cmptitin f talnt has l t a is in th usag

f singla bnus guaants t n his. Th

suv als highlights th incas in fi salais

as a pcntag f ttal cmpnsatin acss bth th

Fnt offic an th risk Functin. This vlpmnt

cul hav th ffct f ptntiall ucing th

flibilit f cmpnsatin pls, ucing th

alignmnt ith pfmanc an incasing th

fi cst bas f hlsal banking activitis.

As fims cntinu thi fm ffts, man suv

spnnts vic cncns abut th iffnt

as in hich ths glbal pincipls a bing

implmnt in lcal juisictins. This pt

s nt sk t pps a glbal nsizfitsall

appach t th tails f cmpnsatin fm.

Natinal gulatins an supvis appachs,

hil cnsistnt ith th FSB Pincipls, ma iff

in lin ith th vaing lgal, cultual an makt

nvinmnts. Suv spnnts highlight th

flling t challngs th fl th fac in th

implmntatin pcss:

1. Lack f gulat cnsistnc acss ithin

juisictins in th implmntatin f spcific

stanas 94% f spnnts

2. Fistmv isavantags t changs in

cmpnsatin stuctu spciall vsus th nn

bank sct an ptntiall lss avanc ps

69% f spnnts

whn pb futh, spnnts fm all gins

intifi futh lat cncns that gulats

cul an shul sk t ass. F ampl,

th applicatin f gulatins ithin as ll as

acss gins .g. th eU an th apppiat

balanc btn psciptiv an supvis

gulat appachs.

In summary, the 2010 compensation cycle

has been a year of notable progress on the

core compensation principles laid down by

the FSB and the results of this survey indicate

a step change for the industry from pre-crisis

compensation approaches. Hv, lking

fa, th bunais f th bat a n

shifting as banks gappl ith th hast lmnts

f cmpnsatin fm an fac pactical/

tchnical issus an inhnt makt challngs

an fluctuatins in th cmptitin f talnt.

evinc f th impact f cmpnsatin fms

n th inust ill bcm cla as th inust

pgsss v th nt f as. This ill incas

th pssu n bank managmnt t assss th

impact f cmpnsatin changs n thi businss

mls in tms f businss aa fcus, cssslling

an cssbusinss sngis an vall cultu.

It ill als incas th pssu n gulats t

spn t bank cncns gaing gulat

claificatins an al lif implmntatin issus.


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3. BUILDING A RISK-ALIGNEDSYSTEM OF COMPENSATION: KEY

AREAS OF INDUSTRY PROGRESS

Th suv shs that banks hav ma substantial

changs in sval k aas that cntibut ictl

t th cls alignmnt f cmpnsatin ith

punt isktaking:

3.1. PAYOUT STRUCTURES

Th ajustmnt f paut stuctus t align

m clsl ith th isk tim hizn f businss

pfmanc has bn a k fcus f cmpnsatin

gulatin. This as suv inicats that

paut stuctus hav n vlp in lin

ith FSB guilins.

Fistl, th FSB Implmntatin Stanas cmmn

that 40% t 60% f vaiabl cmpnsatin f sni

cutivs, matial isk taks an high ans shul

b f v a numb f as in lin ith th isk

pfil f th businss. Ths masus hav n bn

incpat int vituall all natinal guilins an

th inust has bn spning.

70% 80% 90%60%50%40%10% 20% 30%0%

WEIGHTED SHARE OF RESPONSES

Variable compensation for senior executives etc.

based on individual, business-unit andfirm-wide performance measures

Stock based instruments are subject to anappropriate vesting policy

Deferred compensation has at least a3 year deferral period

Payout conditions exist relating tovariable compensation

40-60% of variable compensation is deferred

>60% of compensation for senior-mostmanagement is deferred

Compliance arrangements preventingemployees from undermining risk alignment

effects embedded in compensationagreements have been established

>50% of variable compensation is awarded innon-cash instruments

In businesses that have a risk holding periodhigher than 3 years, the risk holding periodmatches the compensation deferral period

100%

Implemented theguideline in full(responses in 2010)

Implemented theguideline in part orin modified form

Plan to implementby end-2011

We believe theguideline isirrelevant to ourbusiness

exHIBIT 2: LeVeLS oF ALIGNMeNT wITH THe IMPLeMeNTATIoN STANdArdS reGArdING

PAyoUT STrUCTUreS

Shs spnss ight b 2010 hlsal banking vnus.



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rspnss n fal ats suggst that avag

inust pactics a in lin ith this uimnt.

on avag, 43% f th ttal hlsal bnus pl

as f in th 2010 cmpnsatin un.

This is a significant chang. Th ptin f paut

f has almst ubl sinc 2007 an

has incas almst fiv pcnt sinc last a.

Mv, this avag ati unstats th at

f fal f tp ans. Th avag maginal

fal ats, i.. fal ati f amunt supassing

a thshl, f tp ans a n clal abv

60%. Accing t th sults fm this as suv

th average marginal deferral ratio is now

68%, a considerable increase from 45% in the

2008/09 survey.

Scnl, th FSB Implmntatin Stanas

cmmn that th fal pi shul nt

b lss than th as, pvi that th pi

is cctl align ith th isk tim hizn f

th businss. This requirement is now met by

90% of respondents that vest the deferred

compensation for a period of 3 years or more.

A significant pptin f suv paticipants hav

incas th fal pi vn futh this a

ith almst 20% f spnnts inicating vsting

pis f up t 4 as.

Thil, th FSB Implmntatin Stanas pps

that a substantial pptin .g. >50% f vaiablcmpnsatin shul b aa in shas

shalink instumnts , h apppiat,

th nncash instumnts, as lng as ths

instumnts cat incntivs align ith lngtm

valu catin an th tim hizns f isk. The

vast majority of banks (92%) indicate that they

have implemented this guideline in full or in a

modified form, an mst f th maining banks

plan t implmnt this b th n f 2011.

20%

10%

40%

30%

0%

50%

WEIGHTED AVERAGE SHARE

OF BONUS POOL

2007* 2008* 2009 2010

+31%

23%

30%

38%

43%

+26%

+12%

exHIBIT 3: deFerred CoMPeNSATIoN AS A SHAre

oF ToTAL wHoLeSALe BoNUS PooL

Shs spnss ight b 2009 * an 2010 hlsal banking vnus.

Source: Institut f Intnatinal Financ & oliv wman 2010 * an 2011Cmpnsatin Suv

exHIBIT 4: VeSTING PerIodS For

deFerred CoMPeNSATIoN


Source: Institut f Intnatinal Financ & oliv wman 2011Cmpnsatin Suv

100%20% 40% 60% 80%


AVERAGE VESTING PERIOD

1 year

2 years

3 years

4 years

5 years

Other

0%

2010

2011


15/40

3.2. USE OF

BONUS GUARANTEES

Th inust has ma cnsiabl changs in

th us f bnus guaants sinc 2007. Th cla

gulat piit has bn th liminatin f

multia guaants an guaant bnuss t

isting staff n th basis that such guaants a

incmpatibl ith th pincipl f th alignmnt f

cmpnsatin ith isk an pfmanc. Significant

pgss cntinus t b sn n ths issus.

Guaant bnuss a us in th maktplac

as a mchanism t cmpnsat mpls h

lav thi mpls t k f a cmptit f

th lst unvst pa. As such, th cntibut t

a m flibl makt f talnt, but multiabnus guaants a nt cnsistnt ith th

pafpfmanc pincipl an thf th

FSB Implmntatin Stanas cmmn that

minimum bnuss shul nl ccu in th cntt

f hiing n staff an b limit t th fist a.

Multia bnus guaants an guaants t

isting mpls a thus m timntal

t sun isk managmnt pactics.

In th aitinal cmmnta pvi t

supplmnt suv spnss, man paticipants

stss thi suppt f th pincipl that guaants

shul b appli nl in cptinal cicumstancs

an spcificall in latin t cmpnsatin f sni

n his fging munatin at thi pvius

mpl as a sult f thi mv.

rsults f this as suv sh that multia

guaants hav vituall isappa. Th sha f

multia bnuss t n his in th avag bnus

pl cas fm 0.13% t 0.05% in th 2010

cmpnsatin un.

Bnus guaants t isting mpls a als

bcming lss funt. Accing t th suv

sults, th sha f bnus guaants t isting

mpls in th avag bnus pl cas fm

2.8% t 2.2% in th 2010 cmpnsatin un fm

th a bf. Suv paticipants cmmnt that

guaants t isting his shul nl b gant

un cptinal cicumstancs an shul b

subjct t apppiat gvnanc pcsss.

12%

10%

8%

6%

4%

2%

2007* 2008* 2009 2010

0

14%

WEIGHTED AVERAGE SHARE OFBONUS POOLS

Guarantees toexisting employees

Guarantees to newhires (one year)

Guarantees to newhires (multi year)

0.56%

7.1%

4.0%

0.50%

0.05%

0.13%

6.1%

8.5%

2.2%

5.5%

2.8%

6.5%

exHIBIT 5: deVeLoPMeNT oF BoNUS GUArANTeeS AS A PerCeNTAGe oF THe ToTAL BoNUS PooL

Shs spnss ight b 2010 hlsal banking vnus.Source: Institut f Intnatinal Financ & oliv wman 2011 Cmpnsatin Suv


16/40

Althugh th us f n a bnus guaants t

n his has incas in 2010, cautin shul b

takn in aing t much int ths ata. Bank hiing

pattns natuall fluctuat v tim an man suv

spnnts plain that ths n a guaants

cptinal cisins in ict spns t sni

staff hiing pssus uing 2010. As such, this is nt

ncssail an immiat tpic f cncn but it is an

aa that aants nging mniting t nsu that,

as pct, it flcts a nff spns t makt

cicumstancs ath than a stuctual shift.

3.3. RISK DATA AND

ENGAGEMENT WITH

THE RISK FUNCTION

data ualit psnts a cntinuus challng.

Banks hav ma g pgss but cntinu

t k n th unling ata an isk suppt

functin stuctus n t unpin an liv

n cmpnsatin fm.

100%90%80%70%60%50%40%30%20%10%

Profit after risk charges

Profit

Financial performance vs. targets

Revenues after risk charges

Financial performance vs. peers

Gross or net revenues

Revenue growth

Historical performance

Stock-based performance

Other measure

0%


Used as aprimary metric

Used as asecondary metric

exHIBIT 6: FINANCIAL MeTrICS USed To deTerMINe THe SIZe oF THe wHoLeSALe BANKING

BoNUS PooL




17/40

3.3.1. rISK dATA

Pgss has bn ma n th applicatin

f iskajust ata t cmpnsatin. Pfit aft

isk chags is n th mst imptant financialmtic us t tmin th siz f th hlsal

banking bnus pl an 82% of respondents have

implemented the risk adjustments requested by

the FSB Implementation Standards in full or

modified form.

whil g pgss has bn ma t gt t basic

isk ajustmnt mtics, isk ata an masumnt

mthlgis a a cmpl tpic. Man banks hav

nging pgamms f k una t vlp

thi capabilitis an impv th ganulait f thi

iskajust ata.

3.3.2. rISK FUNCTIoN CoMPeNSATIoN

Pgss has als bn ma n fming th

cmpnsatin stuctus f th risk functin. T

guaant inpnnc, munatin f allcntl functins risk, lgal cmplianc tc.

shul b auat an shul b inpnnt

fm th sults f th businss th suppt in

t gua against a isttin f incntivs

in latins ith suppt businsss. Pvailing

g pactics n risk functin munatin

a illustat b n suv spnnts

cmmnt bl:

70%60%50%40%30%20%10%

Achievement of budget targets

Efficiency/timeliness

Policy adherence

Risk adjusted profits ofbusiness supported

Questionnaires including Front Office

Losses

Questionnaires incl. independentbodies,e.g. Risk Committee

Other Qualitative metrics

Other Quantitative metrics

0%

WEIGHTED SHARE OF RESPONDENTS

2011

2010

exHIBIT 7: THe MeTrICS USed To deTerMINe rISK FUNCTIoN CoMPeNSATIoN



To maintain the independence of controlfunctions [...] annual cash incentive compensation

awards in these groups are based on overall [firm]

performance as well as individual performance,

and not on the performance of the [business]

supported. Individual performance is primarily

assessed against: i) execution of governance

accountabilities, and ii) re sults against goals

related to the control function and/or

[firm] overall.


18/40

Th sults fm this as suv sh that in 2010

fims ha in plac a cla spaatin f th risk

functin fm th pfmanc f th businss units

suppt, ith only 3% of respondents using the

risk-adjusted profits of supported business to

calculate Risk Management staff compensation.

This cmpas ith 19% in 2009 an psnts

a cnsiabl stp tas m inpnnt

risk functin munatin. Th sults als sh

an incas us f ualitativ assssmnt in th

calculatin f th risk bnus pl.

This as suv sults sh that th avag

ati f incntiv cmpnsatin t bas salais

f risk functin mpls cas in th 2010

pfmanc pi in lin ith a gnal shift fm

incntiv cmpnsatin t high bas salais.

Th mian ati f incntiv cmpnsatin in 2009

an 2010 as abut 30% an nl ~5% f paticipants

spn that th i nt us an incntiv

cmpnsatin in risk functin munatin.

80%60% 70%50%40%30%20%10%

Risk management compensationbased exclusively on mechanisms

not linked to firm performance

Risk management compensationpartly based on firm performance

and partly on other mechanisms

Risk management compensationbased exclusively on

firm performance

0%


2011

2010

exHIBIT 8: LINKAGe oF rISK MANAGeMeNT FUNCTIoN CoMPeNSATIoN To BUSINeSS

PerForMANCe MeTrICS

70% 80% 90%60%50%40%10% 20% 30%0%


Implemented theguideline in full

Implemented theguideline in part orin modified form

Plan to implementby end-2011

We believe theguideline isirrelevant to ourbusiness

Board of Directors has a RemunerationCommittee exercising oversight of the

compensation systems design and operation

Remuneration Committee involvesmajority non executives*

Remuneration for control staff is determinedindependently from that of other

business areas

Remuneration Committee works closely withthe Risk Committee

Remuneration for control staff is principallybased on performance measures reflectingachievement of objectives of their function

Remuneration committee commissions anindependent compensation review annually

Remuneration committee submits anindependent compensation review to

regulators annually

Remuneration committee submits anindependent review to the public annually

100%

exHIBIT 9: LeVeLS oF ALIGNMeNT wITH THe FSB IMPLeMeNTATIoN STANdArdS reGArdING

CoMPeNSATIoN GoVerNANCe

Shs spnss ight b 2010 hlsal banking vnus bth ehibits 8 an 9. *Incluing supvis ba f tti ba stuctus



19/40

exHIBIT 10: INVoLVeMeNT oF THe HUMAN reSoUrCeS ANd rISK MANAGeMeNT FUNCTIoNS IN

CoMPeNSATIoN deCISIoN MAKING



100%100% 50% 50%

Involved in periodic compensation

policy reviews

Determining size of total bonus pool

Allocating bonus pool to divisions andbusiness units

Setting the compensation of employeesabove a certain pay threshold

Determining choice of performancemetrics for compensation

Establishing compensation formulas

Designing incentive compensation plans

0%0%

WEIGHTED SHARE OF RESPONSES WEIGHTED SHARE OF RESPONSES

HUMAN RESOURCES RISK MANAGEMENT

Sameinvolvement

Greaterinvolvement

Noinvolvement

3.4. GOVERNANCE AND THE

INVOLVEMENT OF BOARDS AND

RISK STAKEHOLDERS

effctiv gvnanc stuctus a an ssntial

suppting fact in builing a iskalign

cmpnsatin ml. This as suv cntinus

t buil n th psitiv gvnanc mssags

bsv in last as sults. Suv spnss

inicat significant invlvmnt f managmnt

stakhls in th cmpnsatin cisin making

pcss; 100% f spnnts inicat th is

invlvmnt in cmpnsatin fm th flling k

managmnt stakhl gups: th balvl

munatin cmmitt, ivisinal managmnt,human sucs an financ.

Invlvmnt f th risk Managmnt Functin

has bn an aa f fcus sinc th financial

cisis. Th sults f th 2008/09 suv sh

that invlvmnt f th risk Managmnt in

cmpnsatin cisin making as nt cmmn

inust pactic. Sinc thn hv, ngagmnt

ith risk has bn a maj aa f cmpnsatin

fm an th sults fm this as suv sh

a significant increase in the Risk Management

functions involvement rate from 46% in 2009

to 98% this year.

Th ualit f intactin ith risk Managmnt

n cmpnsatin has als impv an pn,

ith 60% f spnnts inicating high lvls f

risk functin invlvmnt acss th cmpnsatin

pcss. Th natu f this incas paticipatin

fm th risk functin v th past 18 mnths

vais acss paticipants an inclus, f ampl,

incas invlvmnt in munatin cmmitts,

uantitativ an ualitativ pfmanc assssmnt,

an a gat sa in th sign f cmpnsatin

stuctus. This is significant pgss fm p

cisis invlvmnt an can n cnclu

that th isk managmnt functins l in th

cmpnsatin cisin pcss in mst institutins

is ll stablish.


20/40

exHIBIT 11: exAMPLeS oF INCreASING rISK eNGAGeMeNT IN CoMPeNSATIoN GoVerNANCe

The Remuneration Policy is now incorporated within the Risk Management Framework. []; The as sessment

of all incentive plans by Risk has been strengthened; Performance asses sment and remuneration outcomes

for Risk control per sonnel are determined independently from the busi ness which they support

CRO is member of the Incentive Committee and takes part in all the decisions. [Risk] is also involved in the

definition of the risk takers positions for the de sign of a deferral compensation policy for these positions.

Greater involvement of the CRO who attends both Risk Committee and also the Remuneration Committee. In

addition, the establishment of the risk appetite framework as one of the inputs to the pay review process.

[Risk] is now tasked with developing and introducing risk based performance measures into the bank

e.g. RAROC

[Remuneration] Committee involves the [Risk Committee], as well as the CFO and CRO, in asses sing the

financi al performance of [the company and busines s units/lines]. This assessment in cludes the sustai nabilityof earnings, performance against risk appetite goals, client and employee metrics, and any control,

compliance or audit concerns that should af fect funding.

[] Over the past 18 months Risk has had a larger input into ex-ante bonus pool adjustments, ensuring

performance measures are risk-adjusted and providing a risk perspective on divisional performance.

In 2010, remuneration risk evaluation committee was formalized as the body that evaluates the quality of

results, incurred risks and compliance. This committee participated in 2010 bonus process for the fir st time.


21/40

4. KEY AREAS FORONGOING WORK

In aitin t th pgss ma in th aas list

abv, sval piitis hav bn intifi h

th inust ns t cntinu t fcus its ffts

ging fa:

4.1. DEVELOPMENT OF RISK DATA

As nt abv, vall suv spnss

mnstat that cla pgss has bn ma

in th us f isk ajustmnts in th cmpnsatin

cisin making pcss. Nvthlss, suv

spnnts cgniz th cntinu n f

futh k n isk ata an a cntinuing t

vlp thi mtics an mthlgis.

risk ajustmnts a cuntl cmmnplac nl

at th highst ganizatinal lvls. Th sults fm

this as suv inicat that 93% f spnnts

a abl t calculat pfit aft isk chags at th

hlsal bank lvl, but 39% f suv spnnts

a nt t abl t liabl calculat iskajust

pfits at th m ganula lvl f th puct.

As ith last as suv, th masumnt an

incpatin f isk int th cmpnsatin pcss

at all ui lvls mains th scn lagst

implmntatin challng intifi b spnnts,

pc nl b th alignmnt f fals ith

multia isk tim hizn b businss. ovall,

suv spnss mnstat that futh k

ns t n n mtics an mthlgis

an suv spnnts cgniz this. Manbanks cmmnt in thi spnss that th

50%

90%

80%

70%

60%

40%

30%

20%

10%

Gross or netrevenues

Profit Profit after riskcharges

Revenuegrowth

Financialperformance vs.

peers

Capitalusage

0%

100%

WEIGHTED SHARE OFRESPONSES

Individual level

Desk level

Product level

Major division

Wholesale

exHIBIT 12: GrANULArITy oF dATA AVAILABILITy For dIFFereNT PerForMANCe MeTrICS




22/40

hav k ala una n impving thi

ata. F ampl, capital usag is highlight

as a paticulal activ fil f k ith 47% f

spnnts inicating that futh vlpmnt

is plann in this aa.

4.2. MULTI-YEARPERFORMANCE DATA

rspnss t this as suv inicat that

34% f spnnts us multia pfmanc

t tmin th bnus pl siz. Atisk fals

an claback clauss ala intuc a multi

a lmnt t cmpnsatin mls. Th us f

multia pfmanc mtics thf pvis a

ptntial aitinal mth f impving alignmnt

btn th isk hizn f th businss an th

timlin f cmpnsatin. Th us f multia

pfmanc assssmnt pis is ncuag

in t nsu that th assssmnt is basn lngtm pfmanc an that th actual

pamnt f pfmancbas cmpnnts f

munatin is spa v a pi hich taks

accunt f th unling businss ccl.

exHIBIT 13: exAMPLeS oF AreAS wHere SUrVey reSPoNdeNTS PLAN FUrTHer worK oN

rISK MeTrICS

Current FTP model being revised in next 12 months

Direct costs and cost allocation: Working on enhancements to: (i) improve transparency; (ii)

ensure alignment of allocations with business drivers / performance; Capital usage: Working on

enhancements to better understand the business drivers that impact capital u sage levels to ensure

appropriate utilization (and allocation) of capital; Technology: Metrics / methodologies are in place in

the most relevant situations

Product Level capital usage; Capture and segregate by geographies, as well as e xisting approach

by product line [for past book of business]; Performance Adjusted Factors [for franchise value];

Triangulation using Gauge Financials [ for support/tech]

Work done to ensure FTP treatment meets characteristics of products; direct costs recorded at lowest

level; indirect costs allocated to drivers of costs; Capital aligned to assets driving capital and recorded at

lowest level.

Allocation of funding costs; attribution of direct personnel and operating costs; attribution of direct

personnel and operating costs and directly attributable indirect costs; additional allocation via keys or

quantities; via direct attribution of RWA.

Franchise value is taken into consideration as one of the components in determining performance for the

business, however, it is not a formulated input in sizing up the bonus pool.

The Group currently uses a qualitative approach to adjusting for risk. The Group is looking to move to an

Economic Capital measure in future.


23/40

4.3. STRESS TESTING

This as suv assss th status f

cmpnsatin stss tsting ithin spnnt banks

f th fist tim. Stss tsting f cmpnsatinstuctus an bnus pls is nt pat f th FSB

Pincipls but sm institutins fin it valuabl as a

managmnt tl in that it alls sni managmnt

t tst th linkag btn cmpnsatin pls an

pfmanc un tm maccnmic

pfmanc ntun cnitins.

Stss tsting f cmpnsatin schms shul b

vi as a lng tm vlpmnt tagt ath

than a gulat cncn an appachs t stss

tsting va ith mst institutins fcusing n basic

tsting f linkags btn cmpnsatin an

vall financial pfmanc an / mpl

bhavius. This as suv fun that 45% f

spnnts nt t cnuct an stss tsts n

thi cmpnsatin schms. wh fims cnuct

stss tsts, this is n pminantl at a fim lvl

t valuat th utcms f iffnt pfmanc

scnais, , in th cas f sm spnnts,

t valuat iffnt attitin ats an tst n

cmpnsatin instumnts.

Th alignmnt f pa ith isk an pfmanc is

a k cmpnnt f th FSB pincipls an stss

tsting ffs banks a valuabl pactical tl in this

ga. It alls bank managmnt t tst h

vaiatins in pfmanc can shul impact

cmpnsatin. It als uips managmnt ith

uantifi scnais f managmnt actin in cas

f unpfmanc. As such, th suv sults

inicat that man hlsal banks cul bnfit

fm futh vlpmnt f stss tsts an scnai

analsis f thi cmpnsatin schms.

4.4. PLACING DEFERRALS AT RISK

df pamnts align th isk pfils f

mpls nl hn th f cmpnsatin is

plac atisk n th basis f futu pfmanc, an

subjct t bnusmalus claback clauss. Ths

tls ff as t stngthn th linkags btn th

isk tim hizn f th businss an th timlin f

f pauts f cmpnsatin, i..

Atisk fal alls fims t link f

cmpnsatin t futu pfmanc; f

cmpnsatin is hl at isk an ma b cas

pning upn isk bhavius .g. ulbaking an iskbas utcms futu lsss.

Clabacks all ala vst cmpnsatin

t b claim, usuall bas n gss nglignc

th malfasanc.

Bnusmalus alls f cmpnsatin

t cas/incas in valu bas n futu

pfmanc. Tpicall appli t unvst aas.

Th ma b pactical ifficultis assciat ith

th applicatin f ths tls. Pfmanclinkfals a cumbsm t intuc an thi

intuctin has bn at as th thi gatst

exHIBIT 14: PerCeNTAGe oF SUrVey

reSPoNdeNTS wHere CoMPeNSATIoN

SCHeMeS Are STreSS TeSTed UNder dIFFereNT

PerForMANCe SCeNArIoS

60%20% 40% 50%10% 30%


Yes, at firm level

Yes,at divisionallevel

(e.g., Fixed Income)

Yes, at businessarea level

Yes, at individualemployee level

No, compensationschemes are not

stress tested

0%


24/40

implmntatin challng t cmpnsatin fm

f th scn cnscutiv a1.

Th suv sults abv inicat that pfmanc

lat clauss a ftn us n unvst f

cmpnsatin but th a nt t pvasiv; 65%

f spnnts hav clauss link t mpls

cmpans futu pfmanc hil m than80% hav clauss pnnt n mpls nt

cmmitting hamful acts.

1 Th tp t pactical implmntatin challngs intifi bsuv paticipants als main th sam as last a i..1. Masumnt an incpatin f isk in th

cmpnsatin pcss2. Alignmnt f fals ith isk tim hizn b businss/ls

exHIBIT 15: USAGe oF CLAwBACK/MALUS CLAUSeS



100%60% 70% 80% 90%50%40%30%20%10%

Deferred compensation linked to futureperformance of employees transactions

Deferred compensation linked to

futurebusiness unit performance

Deferred compensation dependent onemployee not working for competitor

Deferred compensation dependent onemployee not committing harmful acts

0%


Clawback clauses(incl. malus)

Holding fundsin escrow

Deferred remuneration may be reduced or eliminated having regard to any adverse ourcomes that

have arisen to protect the f inancial soundness of [the company]. Deferred rumenation will be forfeitedupon resignation/termination.

The Groups deferral instruments have both an implicit and explicit performance adjustment which,

when taken together, provide incentives for employees to align their behavior to the perfomance of both

their division and the Group as a whole.

[If] an employee leaves the organization, deferred compensation may be forfeited in the event that they

work for a key competitor...

Conditions relate primarily to Groupe-wide p erformance, however malus [...] provisions could be

triggered at the level of major business unit [...] or division.


25/40

4.5. TREATMENT OF MATERIAL

RISK TAKERS

As a m cnt gulat vlpmnt, iffnt

gulats hav stat t avcat spcial tatmnt

f mpls hs pfssinal actins can hav a

matial ffct n th banks isk psu, matial

isk taks MrTs as th hav cm t b knn.

This as suv inclu a ustin t assss th

tatmnt f MrTs f th fist tim.

Th vall mssag fm th suv sults is

that spnnt banks a activl making spcial

ffts t intif an manag thi MrTs an a

spning t gulat cncns n iffntiatingth cmpnsatin f ths k staff. Hv, givn

amaticall iffnt gulat intptatins, th

tatmnt f MrTs vais gatl acss th inust

an gins. Sval spnnts mphasiz that

thi finitins f MrTs a align ith ths f th

spnnts cspning natinal gulatins

.g. UK FSA c staff, hil sm th banks

appl gnal ganizatinal guilins .g. all

mpls abv ctain ank an pa lvl t

fin th MrT pl.

exHIBIT 17: AddITIoNAL CoMPeNSATIoN MeCHANISMS APPLIed To MATerIAL rISK TAKerS


Source:Institut f Intnatinal Financ & oliv wman 2011 Cmpnsatin Suv

Limit on cash bonuses, plus shareholding requirement

Upfront equity award with retention period, retention

period following vesting of deferred equity awards

Specific governance processes and

disclosure requirements

Retention in all shares payments and to cash deferral

Enhanced level of clawback / ex-post risk adjustment

and additional retention period after shares

have vested

Special independent feedback process [] separate

year-end compensation review

Retention period following vesting of deferred

equity awards

Stricter rules under the FSA Remuneration Code

exHIBIT 16: wHoLeSALe BANKING reVeNUeS

IN reLATIoN To THe NUMBer oF IdeNTIFIed

MATerIAL rISK TAKerS


Source: Institut f Intnatinal Financ & oliv wman 2011

Cmpnsatin Suv

10%

20%

30%

0%

WHOLESALE BANKING REVENUE PER MRT/MM USD

40%

WEIGHTED SHAREOF RESPONSES

2

00

Average revenue per MRT(weighted): 68 MM USD

50%40%30%20%10%

HOW DOES THEIR TREATMENT DIFFER?

Larger %deferred

Larger % of deferral

at risk and linkedto performance

More onerousobjective-setting, reviewand reporting processes

Greater lengthof deferral

Other

0%


26/40

Th numb f MrTs ang il, fm ~125

t ~5000 amngst suv spnnts, an th

impact f ths iffnt appachs t MrTs is als

appant hn scaling th numb f MrTs b th

spnnt banks spctiv hlsal banking

vnus. Th ati f MrTs t hlsal banking

vnu vais nmusl acss institutins; fmlss than t millin US llas t v 200 millin

US llas p MrT. This vaianc is an f

magnitu high than th iffncs in mpls

avag puctivit.

Intifi MrTs a subjct t a ang f vaius

spcial tatmnts acss th spnnt banks:

Appimatl half f th spnnts

appl a high fal at f MrTs

vaiabl cmpnsatin. Almst n thi incas th pcntag f

f cmpnsatin at isk as ll as appling

m nus bjctivstting, vi an

pting pcsss.

Ths m bspk mniting an viing

pcsss ncssitat a small, m managabl

numb f MrTs fims ith lag MrT pls tn

t appl simpl n siz fits all appachs.

Givn ths m maning uimnts n MrT

munatin, th significant iffncs s inh man MrTs gulats ui is a maj suc

f cssjuisictinal incnsistnc.

Mst spnnts intifi MrTs bas n thi

l in th ganizatin an uantitativ isk limits.

Cnsuntl, th functins mst ftn invlv in

intifing MrTs Human rsucs an risk.

exHIBIT 18: FUNCTIoNS MoST oFTeN INVoLVed IN IdeNTIFyING MrTS Are Hr ANd rISK



The definition of Covered Employees is set out

in the Compensation Policy which was issued bythe Board of Directors.

Human Resources, Risk, Compliance - signed off

by RemCo and Board.

100% 100%80%60%40%20%


WHICH FUNCTIONS WERE INVOLVEDIN IDENTIFYING THEM?

Humanresources

Risk

Legal, audit,compliance

Business,management

Other

Finance


27/40

5. PROGRESS ONCOMPENSATION DISCLOSURE

disclsu as intifi in last as suv pt

as an aa f sl inust pgss. disclsu is

imptant in th cntt f builing an ffctiv

iskalign sstm f cmpnsatin in that

ffctiv isclsu alls banks t mnstat

t all tnal stakhls that th hav

unst an a acting upn th gulat

uimnts in t minimiz impunt

isk taking ithin thi ganizatin.

exHIBIT 19: CHANGeS IN dISCLoSUre To reGULATorS ANd To THe PUBLIC

100%100% 50% 50%

Overall principles on compensation

Details on deferral featuresof compensation

Details of forward-lookinglong-term incentives

Methodology for determining sizeof overall firm bonus pool

Details of the compensation awarded

to board members

Methodology for determiningindividual compensation

Total value of severance pay andnumber of beneficiaries

0%0%

DISCLOSURE TO REGULATORSDisclosures recommended by

FSB Implementation Standards

Other topics of disclosure

DISCLOSURE TO THE PUBLIC

Notdisclosed

Newdisclosure

Continueddisclosure

100%100% 50% 50%

Recent and planned changes tocompensation framework

Methodology for bonus pool allocation

between divisionsNumber and total value of bonus

guarantees given

Compensation levels of employeesabove a certain pay

Divisional/business unitcompensation levels

Multi-year analysis of incentivecompensation vs. results

Details of the compensation awarded tothe highest paid individuals within the

institution (name level and anonymous)

Quarterly accrual information

0%0%

DISCLOSURE TO REGULATORS DISCLOSURE TO THE PUBLIC

Notdisclosed

Newdisclosure

Continueddisclosure


28/40

Th a t iffnt aas f isclsu that n

t b cnsi:

1. rgulat isclsu in hich fims n t

ngag in tail iscussin f th tchnical

aspcts f thi cmpnsatin famks .g.isk alignmnt, stabilit safguas

2. Public isclsu hich has th ba gal

f assuing all stakhls as ll as th public

that th institutin is managing cmpnsatin

ffctivl an nsuing that incntivs nt

suppt impunt isk taking

This as sults sh that isclsu stanas

hav impv in lin ith th pints ui b

th FSB Implmntatin Stanas, but va

il b juisictin an b bank tp. Th Pilla3 uimnts f th Basl Cmmitt buil n th

FSB Pincipls an st pctatins that isclsu

shul b sufficintl ganula an tail t all

maningful assssmnts b makt paticipants

f th banks cmpnsatin pactics, hil nt

uiing isclsu f snsitiv cnfintial

infmatin. rgulats acknlg th pincipl

f pptinalit in that th is nt a unifm n

siz fits all appach t isclsu.

rgulat isclsu is th natual piit f suv

spnnts an almst all fims n iscls th

c lmnts ui b th FSB. Th avag

isclsu at acss th itms ui b th FSB

is 87% an f itms nt ui b th FSB th

isclsu at is 54%.

disclsu f aitinal cmpnsatin infmatin

t th shahls an th public vais significantl

b institutin pning n cultu, ggaphic

lcatin an lvls f shahl activism tc.

Cmpnsatin is a cmmciall snsitiv tpic an

ach bank ns t mak a cisin n h much

infmatin it is ppa t iscls publicl bn

that ui b th gulats. Suv spnnts

illustat vaing appachs anging fmminimal isclsu in lin ith gulatin t a plic

f aitinal public cmmunicatin f pincipls

an appachs. In cass h spnnts hav

incas lvls f public isclsu th mphasis

has bn n pviing infmatin n thi changing

cmpnsatin mthlgis, in paticula, n

appachs t fals.

exHIBIT 20: ILLUSTrATIoN oF rANGe oF reSPoNdeNT APProACHeS To dISCLoSUre

An important objective of the Compensation Policy is to provide all relevant internal and external par ties

with appropriate information and transparency, thereby promoting a thorough understanding of the

Groups compensation practices.

Disclosure is formulated in strict compliance with relevant national requirements. As compared to 2010,

much more detail has also been disclosed.

Disclosures are made annually in a published annual report to stakeholders. Separate disclosures arenot made to regulators.


29/40

6. LOOKING AHEAD:IMPLICATIONS FOR THE INDUSTRY

AND FOR REGULATORS

As fms cntinu t b implmnt, banks an

gulats can n bgin t vi th impact f

cmpnsatin fm an stat t assss hth th

si utputs f all lmnts f th cmpnsatin

gulatin packag a bing achiv.

6.1. INDUSTRY IMPACT AND

UNINTENDED CONSEQUENCES

As nt thughut this pt, significant pgss

has bn ma n cmpnsatin fm. Th cntal

pups f th FSB Implmntatin Stanas as

t limit impunt isk taking an th mphasis fmuch f th k n n cmpnsatin paut

stuctus, isk managmnt an gvnanc

ictl suppts this iginal gal. Hv,

significant changs a una m bal

acss th inust an it is still t al t cm

t a final assssmnt f th vall cmbin sults

f cmpnsatin gulatin n th inust. Sm

aspcts f th fms appa t hav givn is

t unintn cnsuncs. eampls f ths

can ala b nt, incluing a changing pfil

f guaants ithin th bnus pl an a shift inth cst bas an mi btn fi an vaiabl

cmpnsatin. This shift aa fm vaiabl a

an tas fi salais natuall implis a ptntial

uctin in th link btn cmpnsatin an

iskajust pfmanc.

Althugh th us f multia guaants as

cnmn b th FSB Pincipls is n ngligibl,

th incas intnsit f cmptitin f talnt

in th ak f th cisis l t an incas in th

us f singla bnus guaants t n his

u t a ifficult cuiting makt. Suv sults

sh that aft t as f cnscutiv cass,

th us f singla bnus guaants f n

his s fm 5.5% f th avag bnus pl in

2009 t 8.5% in 2010. Hv, cautin shul b

takn in aing t much int this infmatin.

Bank cuitmnt ns an hiing csts natuall

fluctuat v tim an this shul nt ncssail

b vi as a sustain incas in bnus lvls.

onging mniting ill b n t cnfim thatthis shift in singl a bnuss as in u t

tmpa makt cnitins an s nt psnt

a stuctual shift back tas singl a guaants.

2011 is shing n challngs f hlsal banks

an hiing namics a changing as man laing

hlsal banks hav publicl annunc uctins

in hacunt an stuctuing f businss units.

Changs in th appach t cmpnsatin a als

iving changs in th vall cst bas f hlsal

banking at man institutins. empl csts aincasing vall an a bcming lss flibl as

cmpnsatin mphasis has shift fm bnuss

t bas salais. Fnt ffic salais hav bn

incas uing th last 12 mnths amng ~60%

f spnnts an futh incass a pct

f th cming a b 27% f banks. A simila st

can b bsv f th risk Managmnt functin.

Th impact f this in tms f ptntiall ucing th


30/40

flibilit f cmpnsatin pls an incasing th

fi cst bas f hlsal banking activitis has

ala bn nt b inust analsts.

Suv spnnts vic cncns that an unvn

plaing fil ma ist btn banks that pat

un iffing gulat stuctus ith a fa that

sm institutins paticulal nnbanks ma b

abl t ff m attactiv cmpnsatin stuctus

in th cmptitin f talnt.

Th final impact f all ths changs n th inust

vall is nt t ctain but hat s sm cla is

that bank managmnt ill n t pa incasingl

cls attntin t th ffct f cmpnsatin changsn thi businss mls v th nt f as.

6.2. IMPLICATIONS

FOR REGULATORS

rgulats als fac sm challngs as th

cntinu thi k n cmpnsatin fms th

als n t main aa f th ptntial taffs

an unintn impacts that ma sult fm th

implmntatin f cmpnsatin gulatin in th

vaius juisictins an in th iffnt sgmnts f

th financial makts. rgulats n t ah t

th FSB Pincipls in thi sign an implmntatin

f natinal gulatins, but this ill natuall still

sult in vaiatins in appach an intptatin

in iffnt juisictins pning n th spcificmakt cntt.

exHIBIT 21: FroM yoUr FIrMS PerSPeCTIVe, wHICH oF THe FoLLowING CoMPeNSATIoN ISSUeS

PreSeNT THe GreATeST IMPLeMeNTATIoN CHALLeNGeS To CoMPeNSATIoN reForM?



Top 3 issues in 2010

Risen from place 7

70%60%50%40%30%20%10%

Measurement and incorporation ofrisk in the compensation process

Alignment of deferrals with risk timehorizon by business/roles

Introduction of performance-linked deferralsinto compensation framework

Capturing linkages between businesses inorder to accurately assess performance

Resolution of tensions between management andboard perspectives on compensation reform

Implementation of deferred compensation (e.g.,accounting treatment, tax efficiencies, etc)

Accurate measurement offinancial performance

Board access to CRO perspectiveson compensation

Limited pool of qualified directors able / willing

to serve on compensation committees

0%


70%

60%

56%

29%

26%

19%

10%

5%

0%


31/40

Banks hav spn t an cntinu t k n th

pincipls f sun cmpnsatin st ut b th FSB.

Hv, glbal banks fac a challng in assing

multipl gulat appachs t th issus an

man suv spnnts vic cncn v h

ths glbal pincipls a bing intpt b

lcal gulats. Th t mst imptant bstacls

t ffctiv implmntatin f th FSB stanas

intifi b th suv :

1. Lack of regulatory consistencies across or within

jurisdictions in the implementation of specific

standards (94% of respondents)

Th aim f th FSB fms is t st cnsistnt

cmpnsatin pincipls intnatinall but th

ill natuall b iffncs in implmntatin b

lcal gulats. This pt s nt subscib t

th ntin that hat is n is a glbal n

sizfitsall appach t cmpnsatin fm, but

gulats n t cnsi th implmntatin

challngs fac b banks. Th a gulats

cinat ith ach ths, al ith subsiiais

f fign banks an cnsi pactics hich hav

bn ag ith hm gulats shul b aas

f futh cnsiatin b gulats t nsu

ffctiv implmntatin.

2. Concern over potential first mover disadvantages

(69% of respondents)

Givn th pgss nt in this as suv

pct that this cncn shul bcm

lss pvalnt. It is cla that incasing numbs

f banks a n align ith th FSBs

pincipls an as such, th issu f fist mv

isavantag shul b lss lvant in pactic

than man banks still pciv it t b. Hv,

sm cncns ill main as lng as th a

incnsistncis in cmpnsatin uimnts

amng banks an btn banks an th nn

banking sct.

Th ntin f pptinalit has bn

acknlg b gulats as a snsibl

appach t alling iffntiatin in thpactical tatmnt banks f iffnt sizs

an businss pfils. Hv, in pactic,

pptinalit is bing implmnt iffntl

acss iffnt juisictins, aing a la f

cmplit f intnatinal banks managing

glbal cmpnsatin schms.

Cncn v bank isavantags in cmpnsatin

cmpa ith th nnbanking sct is link

t th ntin f fist mv isavantag.

Cmptitin f talnt fm nngulatntitis as th thi mst significant challng

as intifi in th chat bl.

exHIBIT 22: Key reGULATory ISSUeS ANd CoNCerNS By reGIoN

80%70%60%50%40%30%20%10%0%

WEIGHTED SHARE OF RESPONDENTS INDICATING HIGH CONCERN

HIGH CONCERN INDIFFERENT REGIONS

APAC

Americas

EMEA

Consistent application of regulationsacross/between regions

Consistency of regulation with localtax/labor law

Quality of bank implementation ofregulations

Scope of regulatory application

Standards of enforcement

Balance between prescriptive vs.supervisory regulatory approaches

Consistent application of national/international regulation within regions


32/40

whn assssing th implmntatin cncns

intifi abv it is nticabl that banks a nt

highlighting funamntal bais t chang. Insta,

thi c cncns lat t gulat issus an

ustins aun th makt an businss impact

f cmpnsatin fm an aun th pactical

applicatin ifficultis. Th suv spnnts

hav f th mst pat cmplt th c changs

ui b th FSB pincipls an as such, sft

issus such as mpl ngagmnt an m

ganula implmntatin f th stanas a n

mving up th agna.

whn pb futh, spnnts fm all gins

intifi spcific cncns that gulats cul an

shul sk t ass, f ampl, th applicatin

f gulatins ithin as ll as acss gins an

th apppiat balanc btn psciptiv an

supvis gulat appachs.

It is nticabl banks fm all gins n t al

ith th challng f pating acss multipl

gulat gims a challng that is inhnt in

th natu f bing a glbal bank an is nt uniu

t th tpic f cmpnsatin.


33/40

7. SURVEY METHODOLOGY

Th Institut f Intnatinal Financ an oliv

wman Cmpnsatin Suv as cnuct

btn Apil an Jul 2011.

whlsal banking ivisins, an in paticula

invstmnt banking an capital makts sals

an taing, accunt f th majit f vaiabl

cmpnsatin pai ut in th financial svics

inust an hav bn th aa f fcus f

cmpnsatin fm. Thf, this pt an

suv is fcus clusivl n this pat f th

financial svics inust. 79 Institut f Intnatinal

Financ mmb fims ith significant hlsal

banking patins bth stanaln hlsal

banks an th hlsal ivis ins f lag gups

invit t paticipat in th cmpnsatin

suvs. out f this sampl, hich 51 submitt a

spns an 5 clin t paticipat n th basis

that th flt th suv as lss lvant t thmbas n thi spcific businss mi ggaphic

lcatin. Ths spnss hav bn supplmnt

b a sis f intvis ith laing hlsal banks

cnuct b oliv wman. Ths banks tgth

psnt abut 70% f ttal glbal hlsal

banking vnus in 2010.

Th suv ustinnai as ppa b th IIF

an oliv wman ith input fm th IIF Tchnical

Avis panl. Th main ustinnai cntain 46

ustins ivi int th flling sctins.

Cisislat cmpnsatin fm

Cmpnsatin gvnanc

whlsal banking fnt ffic cmpnsatin

Th cmpnsatin pcss

Pfmanc masumnt

dliv

Bnus guaants

risk managmnt cmpnsatin

All analysis presented in the report is performed

using weighted response rates, where weights

reflect the respondents relative share of industry

revenues. Spaat analsis has bn pfm n

unight ata h lvant, in t valiat

th suv sults an t tmin t hat tnt

th bsv sults a ivn b a gup f lag

banks nl. It is fun that hil a iffnc btn

ight an unight sults s ist, this

iffnc is asnabl small.

All analsis has bn calculat n th actual

spnss t th iniviual ustin.

qustins in th main ustinnai hav, ith acptins, bn ans b 75% m f th

spnnts, th avag cmpltin at bing 85%.

wh chats hav bn puc analsing ata

v tim, th analsis has bn n n a cnsistnt

sampl, i.. cluing spnss fm institutins

h ata fm n m as has bn missing.


34/40

A.1. GLOSSARY

Tchnical tms an abbviatins us in th pt

a ths in stana usags in th Financial Svics

inust. F th as cnvninc, ths tmsan abbviatins a fin in th list bl.

At-risk deferral: df cmpnsatin

appach in hich pat f th bnus aa

ach a is hl at isk an ma b subtact

fm in th subsunt cunt a, pning

n pfmanc

Bonus-malus: df cmpnsatin appach

in hich pat f th bnus aa ach a is

hl at isk an ma b a t subtact

fm in th subsunt cunt a, pning

n pfmanc

Business unit: Subunit f divisin

Capital: Capital as fin in Ann 1a f th

Basl II acc an cmpaabl gulat

stana f stablishing minimum capital, as

applicabl t th spning institutin

Claw-back:Ala vst cmpnsatin

is claim bas n gss nglignc

th malfasanc

CRD: Th eU Capital ruimnts dictiv

dictiv 2006/48/eC f th eupan Paliamnt

an f th Cuncil f 14 Jun 2006 lating t

th taking up an pusuit f th businss f

cit institutins

Director (D): Tpicall th scn mst sni

lvl in a ivisin, un Managing dict Md

Division: Subunit f whlsal banking businss

aa, f ampls s activitis inclu in

whlsal Banking bl

Front office: Clint facing functins such as sals,

taing, stuctuing an cvag, cluing

suppt functins such as isk managmnt,

auit, cmplianc tc.

FSB Implementation Standards:

Th Implmntatin Stanas t th FSB

Pincipls n Sun Cmpnsatin apt

n 25 Sptmb 2009. Als f t in th

pt as th Implmntatin Stanas

th Stanas

KPI: K Pfmanc Inicat

Managing Director (MD): Businss ha

uivalnt; snimst ca

Material Risk Taker (MRT): In gnal, mpl

hs actins has a matial impact n th

cmpans isk psu pcis finitins a

givn b gulats

RemCo: Ba, Gup Businss aalvl

munatin cmmitt

Risk taker: empl hs actins hav a

matial impact n th isk psu f th fim.

VaR: Valu at risk Vice President (VP): dict pt t dict,

a m juni l

Wholesale banking:An f th activitis bl

Invstmnt banking businsss incluing

mgs an acuisitins, bt capital makts,

uit capital makts, snicat lans, an

lat activitis

Fi incm businsss incluing ats, cit,

fign chang, scuitizatin businsss,

ivativs, cmmitis, an lat activitis euitis businsss incluing cash uitis,

ivativs, an pim bkag

Pincipal financ busins


35/40


36/40

CoMPeNSATIoN worKING GroUP

MICHAeL ALdred

Reward Director

Barclays

doMINGo ArMeNGoL CALVo

Corporate SecretaryBBVA

JoHN BrAdLey

Group Head

Human Resources

UBS AG

JAVIer BUGALLo

Head of Compensation and Mobility

Human Resources

Banco Santander

SyLVIA d. CHroMINSKA

Group Head

Global Human Resources and Communications

Scotiabank

MICHAeL CUrrAN

Managing Principal

Towers Perrin MGMC

NeIL A. CUTHBerTSoN

Group Head

Performance, Reward and Benefits

Standard Chartered Bank

MArGoT dArGAN

Group General Manager

Remuneration & Rewards

Australia and New Zealand Banking Group Limited

BrIAN dUNN

Chairman McLagan and

CEO Global Compensation

Aon Hewitt.

VICKI eLLIoTTSenior Partner

Mercer

STePHANIe eMery

Head of EMEA Compensation and Benefits

JP Morgan

MIGUeL eSCoBedo


Reaseguradora Patria, S.A.B.

JAMeS FANTo

Professor

Brooklyn Law School

GUIdo FUHrMANN

Director

HR Reward Governance

Deutsche Bank AG

SerGIo GUILLINeT FAJerMAN

Head of Performance, Compensation and Benefits

Ita Unibanco S/A

CoLLeeN HArrISExecutive General Manager

Human Capital Strategy

National Australia Bank

MATT HoLMeS

Director

Government Affairs

Deutsche Bank


37/40

PHILIPP HrLe

Director

McKinsey & Company

ANNe MArIoN-BoUCHACoUrT

Head of GroupHuman Resources

Socit Gnrale

SeAN MULLeN

Vice President

Basel II Pillar 3 Business Lead

Bank of America

rUPAL PATeL

Group Reward

Human Resources

Royal Bank of Scotland

TrISTrAM roBerTS

Head of Group

Performance and Reward

HSBC

KeNNeTH SAx

Risk Management Executive

Enterprise Capital Management

Bank of America

roBerT M. SedGwICK

Partner: Executive Compensation

Morrison Cohen LLP

HArALd P. SToeHr

Managing Director and Senior AdvisorCredit Suisse AG

JoN Terry

Partner

Pricewaterhouse Coopers LLP

MICHIeL VAN deN BerG

Head of Group Remuneration and Organization Effectiveness.

Erste Group Bank AG

ALISTAIr woodLANd

Partner

Clifford Chance LLP

MArC-dAVId VAN der MoLeN

Managing Director, Global Head Compensation and Benefits

Corporate Human Resources

ING Bank


38/40


39/40

Project team

InstItute of InternatIonal fInance

GEORGE T. ABEd

Senior Conselor

dAvId SuNSTRuM

Senior Policy Assistant

JuLIEN STEINBERG

Reglatory Affairs

olIver Wyman

BRuNO dE SAINT FLORENT

Partner

NICK STudER

Partner

SARAH HABBERFIELd

Senior Manager

MIKKO LEHTONEN

Consltant

acknoWledgements

This Report is a synthesis of the ieas of many people.

The project team wol like to thank all contribtors

incling participating firms in the Working Grop

an Olier Wyman, for contribting their time, energy

an insights so generosly.

Copyright 2011 Olier Wyman Inc. an the IIF. All rights resere. This report may not be reproce or reistribte, in whole or in part, wi thot the

written permission of Olier Wyman an the IIF, an neither Olier Wyman nor the IIF accept any liability whatsoeer for the a ctions of thir parties in thisrespect. This report may not be sol withot the written consent of Olier Wyman an t he IIF. This report is intene to be rea an se as a whole an n ot

in parts. Separation or alteration of any section or page from the main boy of this report is expressly forbien an inaliates this report.

All opinions, aice an materials proie by Olier Wyman an the IIF are incle, reflecte or smmarize herein as the Content. There are no thir

party beneficiaries with respect to the Content, an Olier Wyman an the IIF isclaim any an all liability to any thi r party. In particlar, Olier Wyman an

the IIF shall not hae any liability to any thir party in respect of the Content or any actions taken or ecisions mae as a conseqence of the reslts, aice

or recommenations set forth herein.

The Content oes not represent inestment aice or proie an opinion regaring the fairness of any transaction to any an all parties. The opinions

expresse in the Content are ali only for the prpose state herein an as of the ate hereof. Information frnishe by others, pon which all or portions

of the Content are base, is b eliee to be reliable bt has not been erifie. No warranty is gien as to the accracy of sch information. Pblic information

an instry an statistical ata are from sorces Olier Wyman an the IIF eem to be reliable; howeer, neither Olier Wyman nor an the IIF make any

representation as to the accracy or completeness of sch information an has accepte the information withot frther erification. No responsibility is

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which occr sbseqent to the ate hereof.


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