ING Bank Śląski | Annual Report 2014

ING BANK ŚLĄSKI

ING BANK ŚLĄSKIAnnual Report 2014

12. Employee benefits

12.1. Benefits under the Act on employee pension programmes

Expenses incurred due to a programme of certain contributions are recognised as costs in income statement.

12.2. Short-term employee benefits

Short-term employee benefits of the Group (other than termination benefits) comprise of wages, salaries, bonuses, paid annual leave and social security contributions.

The Group recognizes the anticipated, undiscounted value of short-term employee benefits as an expense of an accounting period when an employee has rendered service (regardless of payment date) in correspondence with other on-balance liabilities.

The amount of short-term employee benefits on the unused holidays to which Group employees are entitled is calculated as the sum of unused holidays to which particular Group employees are entitled.

12.3. Long-term employee benefits

12.3.1. Benefits under the Labour Code regulations    

Provisions for retirement severance pay granted under benefits due to regulations of the Labour Code are estimated on the basis of the actuarial valuation. The provisions being the result of an actuarial valuation are recognised and adjusted on an annual basis.

Provisions for long-term employee benefits are recognised in the balance sheet item Provisions in correspondence with costs of labour in the profit and loss account. 

The assumptions of the method used to compute and present actuarial gains and losses are given in the item concerning estimates on pension and disability provisions.

12.3.2. ING Group long-term incentive system benefits

By 2012, the Bank was a participant of the Longterm Sustainable Performance Plan (LSPP), formerly LEO (i.e. Longterm Equity Ownership), introduced by ING Group. The system motivates employees of ING Group entities by correlating additional benefits granted thereto with ING Group financial results. The programme was addressed to Bank Management Board Members, executive staff and senior specialists. The system functioned in two options: 

  • Standard – employee may become a holder of ING shares or obtain pecuniary benefit; two instruments are offered under the Standard system:
    • share options, and 
    • performance shares,
  • Phantom – employee may obtain pecuniary benefit; two instruments are offered under the system:
    • phantom option, and
    • performance units.

Both above mentioned system options have a 10Y maturity and may be exercised after 3 years of their issue provided that the option holder is an employee of the Bank (or another ING Group entity) or has retired. The option exercise price is the difference between the option exercise price as set by Euronext Amsterdam at the exercise date in the so-called open period set by ING Group and the initial price guaranteed in the option strike price.

Performance shares / Performance units are awarded on a contingent basis. The number of instruments received depends on the ING Group’s results as at the end of the period adopted. 

The number of instruments to be exercised is driven by the RoE ratio (annual ratio). Depending on the ratio value, from 0% to 150% of instruments can be exercised.

As at the balance sheet date, the Group recognizes in its books the measurement of instruments held by Group employees.

The fair value of options granted is recognised as personnel costs (on the other side of the balance sheet – in capitals) and is allocated throughout the vesting period.

12.3.3. Variable remuneration programme benefits

The Group implemented the variable remuneration programme, addressed to:

  • persons holding managerial positions having material impact on the Group risk profile (to satisfy the requirements of PFSA Resolution No. 258/2011) and
  • employees displaying special potential and skills (whereto a part of the programme related to the financial instrument granted is addressed).

The variable remuneration programme replaced the ING Group incentive programme. The objective of the new Programme is to correlate the performance of key employees with the Group’s results through tying some of the allocated variable remuneration to the price of ING Bank Śląski’s shares. Variable remuneration is defined based on appraisal of performance of the programme participants. 

Programme benefits are granted in two options:

  • in the former, the benefit has two equal parts:
    • the one paid in cash and
    • the other being phantom stock, making the holder eligible to obtain cash whose final amount will be conditional on the price of ING Bank Śląski’s shares (i.e., the median of closing prices of Bank’s shares on the Warsaw Stock Exchange during a certain period),
  • in the latter, the entire benefit is granted as phantom stock.

The cash element is paid out: 

  • for the non-deferred part – immediately after the year of work the employee’s performance is appraised for, 
  • for the deferred part – payments are made after deferral periods (of 1, 2 or 3 years). 

For the benefits rendered under option one, during the deferral period the amount of variable remuneration is verified according to the programme assumptions.

The programme element paid in cash is recognised following the approach of projected unit rights and is settled over time throughout the vesting period (i.e., both during the appraisal period understood as the year of work for which employees obtain benefits and during the deferral period – adequate benefit components). The value of benefit is recognised as the obligation towards employees in correspondence with the income statement. 

The benefits granted as phantom stock are subject to one-year holding period, applicable to both the part granted after the year during which the appraisal was made and the deferred part on the terms as applicable to the cash element (i.e., of 1, 2 or 3 years). The employee who was granted the benefit shall not exercise the phantom stock-related rights during the holding period.

The fair value of phantom stock determined using the principles adopted (i.e. based on the estimates made upon applying the reduction factor) is allocated throughout the vesting period. The value of benefit is recognised as the obligation towards employees in correspondence with the income statement.

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