Sound Compensation

Labour law and regulatory expertise for the design of compensation systems and compensation governance.

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Dr. Martin Hörtz
Senior Manager
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About Sound Compensation

The compensation systems and compensation governance of companies in the financial sector are subject to increasing regulation. For credit institutions and financial services companies operating in Germany, the German Banking Act (KWG, Gesetz über das Kreditwesen), the Regulation on the Supervisory Requirements for Institutions’ Compensation Systems (IVV, Instituts-Vergütungsverordnung) and the CRD IV (including EBA’s compensation guideline) specify the regulatory requirements. Capital insurance companies operating in Germany must comply with the requirements of the AIF/UCITS guidelines (including ESMA’s compensation guideline). Insurance companies must design their compensation systems in line with the Insurance Compensation Regulation (VersVergV, Versicherungs-Vergütungsverordnung).
KPMG Law’s Sound Compensation Team integrates our labour law and regulatory expertise in the design of compensation systems and the compensation governance of credit institutions as well as financial services, insurance and capital management companies. KPMG AG Wirtschaftsprüfungsgesellschaft and KPMG Law pursue an integrated consultancy approach and achieve this by setting up multidisciplinary teams in the area of financial services, with a focus on companies in the financial sector.
Since 2010, we have advised more than 200 domestic and foreign companies in the financial sector on the implementation of regulatory requirements in existing compensation systems. Our Sound Compensation Team is perfectly coordinated and can support staff of our clients’ specialist departments in defining and implementing the necessary processes. Our comprehensive auditing activities as specialists working for KPMG as part of audits of compensation systems of credit institutions as well as financial services and capital management companies in annual audits are the basis of our up-to-date expertise with regard to latest (audit) trends in the financial sector.
We know what is important for external and internal auditors (auditors, financial regulators, internal auditors).

Key consultancy services

Design, implementation and modification of compensation systems
– GAP analysis of the existing compensation system in order to determine the degree of maturity with regard to the regulatory requirements
– (Re)design of the new compensation system
– Design of the contents of the concrete legal basis (compensation policy, company agreement, individual contractual provisions)
– Coordination of the new compensation system with the auditor and with the financial supervisory authority
– Communication of the new compensation system
– Implementation of compensation systems, including determination of the total bonus pool, process for target agreements and target assessments of risk takers (including malus checks)

Design, implementation and modification of the compensation governance
– GAP analysis of the existing compensation system in order to determine the degree of maturity with regard to the regulatory requirements
– Risk taker analysis
– Publication of the compensation systems (including art. 450 CRR, sec. 16 InstitutsVergV)
– Design and execution of the functions of the individual bodies (compensation committee, compensation representative) in line with requirements

Quality assurance support for audits of compensation systems (annual audit, internal audit, sec. 44 KWG audit by the financial supervisory authority)
– GAP analysis of the existing compensation system in order to determine the degree of maturity with regard to the regulatory requirements
– Support of the client during the audits, for instance, for the legal assessment of individual inquiries by the auditors
– Support during the processing of audit results (including support during follow-up audits)

Training regarding regulatory framework and practical application
– Training of board members (Management, Supervisory, Administrative Board), for instance, regarding fulfilment of regulatory professional development obligations
– Training of employees of the control units (especially human resources department, audit)
– Training of managers in important institutions, for instance, regarding rule-compliant conclusion of target agreements and target assessments
– Training of compensation officers, for instance, regarding fulfilment of regulatory professional development obligations

Preparation of legal and other opinions
– Opinions on the performance of the adequacy tests, also by the compensation committee (sec. 15 InstitutsVergV)
– Opinions regarding the adjustment of compensation systems (sec. 14 (2) InstitutsVergV)

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