Corporate Governance Statement of Arion Bank for 2023
Arion Bank is an Icelandic public limited company whose shares are listed on Nasdaq Iceland and Nasdaq Stockholm. The Board hereby submits its Corporate Governance Statement for 2023. Corporate governance is focused on how responsibilities are allocated among the various bodies of the Bank and how systems for decision making are constructed, in accordance with prevailing laws and regulations. Arion Bank’s shareholders exercise governance by electing the Board of Directors, which in turn appoints the CEO and monitor the Bank’s conduct of business. CEO is responsible for the day-to-day operations of the Bank and represents the Bank in all matters concerning normal operations. The CEO must in this respect comply with the relevant legislation, the Bank's Articles of Association and the policies and instructions laid down by the Board. The CEO is responsible for the implementation of the Bank’s policies.
Fundamentals to corporate governance at Arion Bank are the Articles of Association which are approved by shareholders, and policies and other documents adopted by the Board of Directors. These include the Board’s Rules of Procedure, and the Rules of Procedure of the Board’s Sub-Committees, and policies regarding the Bank’s operations and enterprise risk management architecture. These policies are revised every year, and whenever deemed necessary. Even more important is the Bank’s corporate culture, strategy, and operational procedures. Good corporate governance and corporate culture help to foster open and honest relations between the Board of Directors, shareholders, customers, and other stakeholders, such as the Bank’s employees and the public. Corporate governance also provides the foundations for responsible management and decision-making, with the objective of generating sustainable long-term value creation The Board of Directors places great importance on good corporate governance and re-evaluates its governance practices regularly on the basis of recognized guidelines on corporate governance.
A central part of governance for financial institutions involves managing risks which will invariably arise in operations. Risk management is described in more detail later in this statement, in the Bank’s Annual Report and in the Bank’s Pillar 3 report. Maintaining effective risk management and controls constitutes a key challenge in the Bank’s activity and to the Bank’s overall soundness.
This Corporate Governance Statement is based on the legislation, regulations and recognized guidelines which are in force at the time the Bank’s financial statement is adopted by the Board of Directors.
Our Remuneration Policy
Arion Bank’s AGM approves a remuneration policy for the company annually, which outlines the main objectives and goals to guide the Bank’s Board of Directors and Executive Management when it comes to employee remuneration.
According to the remuneration policy approved at the Bank’s AGM in 2023, Arion Bank strives to offer competitive salaries so that the Bank can attract and retain outstanding employees and to ensure that jobs at the Bank are sought after by qualified individuals.
The remuneration policy should not encourage excessive risk taking but rather should support the Bank’s long-term goals and the healthy operation of the business. The policy is an integral part of the Bank's strategy to protect the long-term interests of the Bank’s owners, its employees, customers and other stakeholders in an organized and transparent manner. The Bank must ensure when implementing the remuneration policy that no discrimination takes places when determining salaries and other remuneration.
The main points concerning the implementation of the remuneration policy in 2023 were:
- According to an Intellecta salary survey, Arion Bank pays competitive salaries but is not a market leader. Salaries at the Bank increased on average by 3.2% year-on-year, while the general salary index rose by [10.8]%.
- Based on a resolution passed at the Bank’s AGM in 2020, a five-year employee share option plan was launched, from 2021 to 2026. The plan is based on provisions of the Icelandic Tax Code and is considered as part of fixed remuneration for employees. All permanent employees of the Bank and the subsidiaries Vörður and Stefnir have the option to buy shares in the Bank for a maximum of ISK 1,500,000 a year in accordance with the provisions of the Tax Code. The Bank considers obligations relating to the bonus scheme when holding own shares and the Bank’s costs take this into account. Following the exercising of employee options in 2023 and new option agreements in February and May 2023, option agreements with the employees of the Bank and subsidiaries apply to a total of 7,838,621 shares a year until 2026, and the total number of employees of the Bank and subsidiaries who have entered into option agreements is 694.
- The Bank’s Board of Directors approved a new bonus scheme in 2020 which was implemented in 2021 and which is based on various indicators and the Bank’s overall performance. All permanent employees of the Bank, excluding employees of supervisory units, are part of the scheme and as an overarching benchmark, the Bank’s ROE has to be higher than the weighted average ROE of the Bank’s main competitors. The majority of employees can receive up to 10% of their annual salaries in the form of a cash bonus immediately. The management and those employees who have the greatest impact on the Bank’s costs and revenues can receive up to 25% of their annual salaries as a bonus in the form of shares in the Bank. This applies to 1/6 of employees and shares which these employees receive are subject to 3-year lock-up/deferral. A full bonus was paid out to employees of the Bank under the bonus scheme in 2023 in respect of the Bank’s performance in 2022. The total payment amounted ISK 1.4 billion. The Bank considers obligations relating to the bonus scheme when holding own shares and the Bank’s costs take this into account. The rules applicable to variable remuneration can be found on the Bank’s website.
- No special severance agreements were entered into with executives in 2023.