KBC
Group Remuneration Policy for the Board of Directors and members of the
Executive Committee of KBC Group NV, KBC Bank NV and KBC Insurance NV
Approved
by the General Meeting of Shareholders on 2 May 2024 with 73.20 % of votes
cast.
Introduction
This remuneration policy has been drafted to
comply with Article 7:89/1 of the Belgian Companies Code (which includes the
transposition of Article 9a of the European Shareholders’ Rights Directive of
17 May 2017). This document describes the remuneration policy for the members
of the Board of Directors of KBC Group NV, KBC Bank NV and KBC Insurance NV and
for the members of the Executive Committee of KBC Group NV, KBC Bank NV and KBC
Insurance NV. The purpose of this policy is to create a remuneration framework
that not only complies with prevailing European and national legislation and
regulations, but is also in line with and contributes to the business strategy
(incl. the corporate sustainability strategy). It aims to ensure consistency
with sound and effective risk management in line with the Risk Appetite
Statement, as approved by the Board of Directors, to prevent excessive
risk-taking and to be aligned with the long-term interests of the KBC group.
On the advice of the Remuneration Committee, the
Board of Directors submits the remuneration policy (and changes to this policy)
to the General Meeting for approval in the event of any material changes or
otherwise at least every four years.
This policy stipulates that remuneration schemes
(incl. the conditions for awarding and paying remuneration) are gender-neutral
in order to guarantee equal pay for equal work or work of equal value.
BOARD
OF DIRECTORS
Directors are appointed by the General Meeting
for a four-year term of office.
The Board of Directors of KBC Group NV is made
up of non-executive directors and three executive directors (the CEO, the CFO
and the CRO). The three executive directors sit on the Executive Committee, are
remunerated as members of the Executive Committee and do not receive any
remuneration as a director. The description of the remuneration below therefore
only relates to the non-executive members of the Board of Directors.
Members of the Board of Directors of KBC Group
NV receive solely an annual fixed emolument and a fee for each meeting
attended. Board members are only paid in cash and do not receive any variable
remuneration, are not covered by incentive programmes and do not receive a
performance-related emolument. No pension contributions are payable on the
remuneration of Board members.
Some Board members are also members of the Board
of Directors of KBC Bank NV and/or KBC Insurance NV. If meetings of the Board
of Directors of KBC Group coincide with Board meetings of KBC Bank and/or KBC
Insurance, the attendance fee will be paid just once for directors sitting on
more than one of these Boards.
The base remuneration of Board members is set at
a level that reflects the qualifications and efforts required in view of the
group’s complexity, the extent of their responsibilities and the number of
Board meetings. The Deputy Chairman of the Board of Directors of KBC Group is
entitled to additional base remuneration.
In light of the considerable time required for directors residing outside
Belgium to attend Board meetings, an additional attendance fee is paid to them
for each meeting attended physically. In view of his extensive responsibilities
in relation to the ongoing supervision of KBC group affairs, the Chairman of
the Board of Directors of KBC Group NV is not paid attendance fees but instead
receives a higher base remuneration.
Base remuneration is approved annually by the General Meeting of KBC Group,
with due consideration given to all legal and statutory requirements in this
respect.
Directors sitting on
the Audit Committee (AC) or the Risk & Compliance Committee (RCC) receive
an additional base remuneration for the additional effort they make in that
regard. The chairman of the AC and the chairman of the RCC receive an
additional base remuneration on top of that. Some directors are members of both
the AC and RCC and/or also sit on the AC or RCC of KBC Bank NV and/or KBC
Insurance NV. Directors sitting on more than one of these committees receive
the base remuneration just once. Directors who are members of the Nomination
Committee or the Remuneration Committee do not receive any additional remuneration.
No notice periods or
severance payments apply with regard to termination of the contract with
non-executive members of the Board of Directors.
The remuneration of
individual Board members is specified in the annual report on the Corporate Governance
site.
EXECUTIVE
COMMITTEE
The members of the Executive Committee are
appointed by the Board of Directors (on the advice of the Nomination Committee)
for an indefinite period.
The remuneration of the members of the Executive
Committee of KBC Group is set at a level that is consistent with their
decision-making powers, tasks, expertise and responsibilities. It reflects
their contribution to the management and growth of the KBC group and ensures
the group’s continued ability to attract and retain the best qualified
individuals as members of the Executive Committee. To emphasise the fact that
the Executive Committee acts as a body which bears collective responsibility,
the remuneration for all the members, apart from the president, is largely
identical (except for a small difference in how the CRO’s variable remuneration
is calculated, as required by regulation).
The remuneration of the members of the Executive
Committee is assessed annually, taking into account developments in regulatory
requirements, market practice, company performance and changes in staff
remuneration. It is determined by the Board of Directors of KBC Group in its
supervisory role based on the advice of the Remuneration Committee of KBC Group
and of the President of the Executive Committee of KBC Group (with the
exception of his own remuneration).
The remuneration of the
members of the Executive Committee of KBC Group consists of the following fixed
and variable components.
The fixed components
are:
-
a
fixed monthly emolument;
-
a supplementary retirement pension benefit and supplementary death
and invalidity cover.
The variable components are:
an annual variable emolument based
on the performance of the Executive Committee as a whole;
- an annual variable emolument based on the individual performance of the
Executive Committee member.
The fixed emolument is
adjusted to take account of the health index in the same way as for staff in
Belgium, i.e. a two-monthly adjustment based on the four-month moving average
of the health index. The calculation
base for the variable remuneration component will be index-linked each year.
In the exceptional case
that a member of the Executive Committee would, on behalf of KBC, hold a paid
directorship in another company, the remuneration for holding such an office
would be deducted from the fixed/variable income of the member holding the
directorship.
In addition to the above remuneration, members of
the Executive Committee are also entitled to the same benefits as those awarded
to senior management in Belgium. This includes, but is not limited to,
insurance cover for accidents occurring during the performance of the mandate,
a company car, mobile phone and hospitalisation insurance.
Members of the Executive
Committee are also entitled to a monthly flat-rate expenses allowance that was
agreed with the Belgian tax authorities (currently 335 euros).
Risk
adjustment
Payment of the variable remuneration component
is risk-adjusted (ex ante and ex post):
Ex ante risk adjustment
A
quantitative ex ante risk-adjustment mechanism (called a ‘risk gateway’) is in
place for all Key Identified Staff, including the members of the Executive
Committee. It comprises a number of capital and liquidity parameters that have
to be met before the variable remuneration component for the respective
performance year may be awarded. The parameters are set each year by the Board
of Directors. If one or more of these parameters are not met, no variable
remuneration can be awarded for the performance year in question.
Ex post risk adjustment – malus
arrangement and clawback
Ex post risk
adjustment operates either by reducing deferred amounts that have still to be
acquired (malus arrangement), or by clawing back deferred amounts already
acquired or paid in the past, up to maximum five years after payment, at the
discretion of the Board of Directors of KBC Group and to the extent permitted
by law.
A malus arrangement can be applied:
1.
to
the variable remuneration of a member of the Executive Committee if there is
evidence of misconduct or serious error on the part of that member (e.g., a
violation of the code of conduct or other internal rules, especially concerning
risks, use of misleading information), as well as fraud or participation in a
special mechanism by that member in order to promote or with the consequence of
promoting tax fraud by a third party;
2.
to
the variable remuneration of members of the Executive Committee if KBC Group
suffers a significant downturn in its financial performance due to misconduct
or serious error on the part of a member of the Executive Committee, as
referred to under point 1 above. A significant downturn is defined as when
either the net result or the risk adjusted profit of KBC Group in the year
preceding the one in which the amounts are to be vested has fallen by at least
25% since the year in which the variable remuneration was awarded;
3. to the variable remuneration of the members of
the Executive Committee if either the net result or the risk adjusted profit of
KBC Group in the year preceding the one in which the amounts are to be vested
has fallen by at least 50% since the
year in which the variable remuneration was awarded;
4.
to
the variable remuneration of the members of the Executive Committee if the net
result or risk adjusted profit of KBC Group is negative in the year preceding
the one the amounts were vested;
5.
to
the variable remuneration of the members of the Executive Committee if KBC
Group suffers a significant failure in risk management (e.g., reflected in a significant
increase in the capital requirement);
6.
to
the variable remuneration of a member of the Executive Committee in the event
of any regulatory sanctions where the conduct of that member contributed to the
sanction.
The malus
arrangement can be applied to deferred amounts that have still to be vested and
that relate to the year they were awarded. The KBC Group Remuneration Committee
can advise the Board of Directors of KBC Group not to apply a malus arrangement
for specific reasons. The KBC Group Remuneration Committee will also provide
advice on the percentage (from 0% to 100%) that should be applied to the malus
arrangement, with due consideration being given to:
· the impact
on the financial situation of KBC Group;
· the
seriousness of the facts that have occurred and the role of the member(s) of
the Executive Committee therein;
· all
circumstances that are broadly relevant to the incidents referred to under
points 1 through 6 above.
The final
decision as to whether a malus arrangement should be applied and what the
applicable percentage should be will be taken by the Board of Directors of KBC
Group.
A clawback
can be applied in the event of incidents referred to above under points 1 and 6
covering possible application of the malus arrangement.
The KBC Group Remuneration Committee will advise
whether a clawback should be applied and what the applicable percentage should
be (taking into account the seriousness of the facts that have occurred and the
role of the member of the Executive Committee therein). The final decision will
be taken by the Board of Directors of KBC Group.
Setting variable remuneration
The performance of the
Executive Committee is assessed once a year, based on a written performance
agreement containing pre-agreed financial and non-financial criteria relating
to the achievements of the Executive Committee and the company. These goals are
set by the Board of Directors on the advice of the KBC Group Remuneration
Committee. For the CRO, there is no link with the financial performance of the
KBC group, and the impact of risk and control topics in the assessment is more
pronounced. These goals reflect KBC Group’s value creation targets, both in the
short and long term and are centred on four broad areas, viz. implementing the
strategy, realising the financial plan, strengthening the risk control
environment and satisfying stakeholders (clients, staff, management and
society).
•
As regards implementing
strategy – besides achieving any specific targets – the main focus is on what
has been achieved in terms of client centricity, sustainability and encouraging
responsible conduct, and innovation (the digital revolution).
•
The criteria for assessing
whether the financial plans have been achieved comprise a number of financial
parameters (return, profit, capital, and cost of credit), but also an
assessment of the progress made in further implementing the bank-insurance
model and income diversification.
•
Strengthening the risk
control environment is assessed based on stated liquidity, capital and funding
criteria, implementing recommendations made by audit and the regulator, and the
degree to which the quality of the internal control environment, incl.
compliance has improved.
•
Stakeholder satisfaction is
assessed on the basis of the results from client and employee satisfaction
surveys and on the progress made in the area of sustainability.
This assessment of all these criteria is reflected in
a percentage between 0% and 100% that is applied to the maximum result-related
variable emolument. The size of the variable emolument, therefore, depends to a
small extent on achieving financial results. Risk management and compliance,
stakeholder management, innovation and sustainability are aspects that are at
least equally important in this regard.
The individual performance of the members of the
Executive Committee is assessed once a year. On the basis of the advice
obtained from the Remuneration Committee (which takes due account of the
assessment performed by the President of the Executive Committee with regard to
the performance of the members of the Executive Committee), the Board assesses
the performance of each member of the Executive Committee in view of the five
aspects of our corporate culture (PEARL: ‘Performance’, ‘Empowerment’, ‘Accountability’,
‘Responsiveness’ and ‘Local Embeddedness and Groupwide cooperation’) and the
core value of being ‘Respectful’. This results in an aggregate score for these
six aspects that ultimately determines the size of the individual variable
emolument.
If there is a
significant decline in the net result or the risk adjusted profit or a negative
net result or risk adjusted profit of KBC Group, the Board of Directors of KBC
Group can decide, on the advice of the KBC Group Remuneration Committee, to
reduce the total variable remuneration of the members of the Executive
Committee.
Total variable remuneration is capped at 50% of the annual fixed remuneration
component. There is no floor for the variable remuneration component. 60% of
the variable remuneration is not be paid straightaway but instead paid in equal
instalment spread over a period of five years.
Half the total variable remuneration is awarded in the form of phantom stocks[1]
with a retention period of one year (i.e. they are only converted into cash one
year after being awarded). This means that the final payment of the variable
component relating to financial year X will not be made until year X+7. This
enables the longer-term effects of the business strategy on the value of the
group to also be reflected in the remuneration.
Termination
Termination of the term
of office: within the limits of what is permitted by law and regulation,
members of the Executive Committee who have worked six years or less in the KBC
group (or in the legal predecessor of a KBC group company) are entitled to a
severance payment equalling 12 months' remuneration, for those who have worked
between six and nine years, it is equal to 15 months' remuneration, and for
those who have worked more than nine years, it is 18 months' remuneration. In
this context, remuneration is taken to be the fixed remuneration component for
the current year and the variable component for the last full year preceding
termination of office. Such a severance payment is not due when the initiative
for termination has been taken by the member of the Executive Committee, when
they retire and when termination is the result of acts or facts which would
qualify as grounds for immediate dismissal for just cause under Belgian labour
law.
If the term of office of
members of the Executive Committee is terminated, the following principles
apply with respect to the payment of variable remuneration:
·
Variable
remuneration awarded in previous performance years, but not yet vested or paid
at the moment of termination, still has to be paid at the scheduled time after
this termination, except when termination is the result of acts or facts which
would qualify as grounds for immediate dismissal for just cause under Belgian
labour law.
·
Variable
remuneration for the performance year in which the termination takes place will
still be awarded (pro rata temporis).
The Board of Directors of KBC Group (on the advice of the KBC Group
Remuneration Committee) can, however, decide not to award it when termination
is the result of acts or facts which would qualify as grounds for immediate
dismissal for just cause under Belgian labour law.
Deferred amounts do not
vest in an accelerated way on the date the term of office is terminated, unless
termination is due to death.
In the event of a change
in control of KBC Group, the Board of Directors of KBC Group will decide on a
possible accelerated vesting of any outstanding amounts.
Pension, disability cover and death cover
Pension arrangements, disability cover and death cover:
The members of the Executive Committee have a separate defined
contribution plan that is funded entirely by KBC. When drawing up this plan,
account was taken of the fact that the career of a member of the Executive
Committee is shorter than that of an average employee. In the pension formula,
therefore, the first ten years that an individual sits on the Executive
Committee are the ones in which a significant part of the supplementary pension
is built up. The contribution that KBC makes to the pension plan amounts to 32%
of the fixed emolument during those
first ten years, 7% for the next five years
and 3% starting from the sixteenth year of plan membership. A minimum
return of 0% (capped at 8.25%) is guaranteed on the contributions. Given the
specific structure of this pension plan, funding of the plan is not spread
equally over the entire career. During the first ten years, the size of the
payment made into the pension fund is rather large, but declines to a fraction
of what it had been previously starting from the eleventh year and even more
markedly from the sixteenth year.
The plan applies to all members of the Executive Committee who are
resident in Belgium. For the members that are not resident in Belgium, an
individual insurance policy, mirroring the content of the pension plan, is in
place. For the members who had joined
the Executive Committee prior to 1 January 2016, the vested reserves built up
(in the previous pension plan) by 31 December 2015 were transferred to the new
plan. The pension plan also includes a death benefit, which equals four times
the amount of the fixed emolument (or, if higher, the reserves that have been
built at the time of death). Where applicable, there is also an orphan's
pension, comprising a one-off benefit of 231 387 euros and an annuity of 7 504
euros per year (figures for 2024).
The invalidity benefit provided under the plan
amounts to approximately 891 131 euros (annuity – figure for 2024). All these
figures are linked to the health index.
If it is necessary to serve the long-term interests and sustainability of the
company or to assure its viability, a temporary derogation from this policy can
be granted by the Board of Directors on the advice of the Remuneration
Committee.
[1]As the Czech National Bank does not permit the exclusive use of phantom stocks (as they relate to the results of the KBC group), 50% of the phantom stocks for the member of the Executive Committee responsible for the Czech Republic Business Unit are replaced by a specific non-cash instrument, the value of which varies according to the results of ČSOB and the underlying factors determining the value of the phantom stocks.