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The transparency of remuneration policy in financial holding companies based on the example of the UniCredit Group

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Abstract

This study seeks to examine the level of transparency of remuneration policy in financial holding companies (FHCs) using the example of the UniCredit Group, as well as to identify the factors that affect its level. It will also indicate to what extent international recommendations on remuneration policy transparency have been implemented into national legal regulations and codes of best practice. Using data collected on the basis of annual reports of financial institutions that belong to the UniCredit Group from 2005 to 2018, I found that the UniCredit Group’s remuneration policy has a low level of transparency. Although the dominant bank discloses all information required by international recommendations and regulations, the subsidiary banks’ disclosures are kept to a minimum. The study also showed that the level of transparency (measured by the remuneration policy transparency index) is influenced by all the governance characteristics examined (the size of the bank’s board, the appointment of independent directors in the bank’s board, the frequency of meetings of the remuneration committee, and the direct involvement of the shareholder) and firm characteristics (the size of the bank and the financial performance measured by ROE). The study also showed that not all countries have decided to implement international recommendations on remuneration policy into their legal regulations and codes of best practice (this is especially true for countries outside the European Union).

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Availability of data and material

Annual reports are available on the websites of individual financial institutions. National and international regulations are available on the websites of individual institutions. All data and material used in the article are available upon request.

Notes

  1. Many countries, as well as international organisations, classify different economic actors into financial institutions. Therefore, for the purposes of this article, financial institutions are understood to mean banks, cooperative savings and credit unions, and money market funds. A financial institution is, therefore, a broader concept than merely a bank. However, in the article, these terms will be used interchangeably.

  2. Financial Holding Companies Act, Act No. 10,361, June 8, 2010 (Korea) [71]; Financial Holding Companies Act 2013 (No. 13 of 2013) (Singapore) [92].

  3. The FHC is a broader concept than the BHC because it is not only banks that may belong to it. Therefore, everything that refers to the BHC also applies to the FHC.

  4. According to the Global 500 ranking, the UniCredit Group was among the 500 largest companies in the world in 2018. (https://fortune.com/global500/2018/search/, accessed 18.03.2020).

  5. Due to changes in ownership structures, some of the companies that were members of the UniCredit Group in 2005 were not part of the group in 2018, and vice versa. The number of UniCredit Group companies per year is shown in Appendix A.

  6. Most of the group’s financial institutions do not have a website. For some of the financial institutions that do have such a website, it is not possible to open it in English. However, in some cases, where this is possible, the financial institutions do not make their annual reports available on the website.

  7. For the purpose of this part of the study, a transparency index will be constructed, which consists of three subindexes.

  8. A review of the literature dealing with this topic can be found in Herath and Altamimi [61].

  9. The bank’s board is understood as the supervisory board or the board of directors.

  10. The report of BCBS [8] was inspirational to such division.

  11. The exception are countries belonging to the European Union, which are obliged to implement directives and regulations issued by the European Parliament on the domestic market.

  12. Austria, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Ireland, Italy, Luxembourg, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey, and Ukraine.

  13. The data in the table is collected on the basis of regulations and national codes of best practice which were available in English.

  14. The remuneration policy transparency index was constructed on the basis of the aggregate executive remuneration policy disclosure index (Słomka-Gołebiowska, Urbanek, 2015b).

  15. The EU regulations became effective from 1 January 2014. The study has shown that there was no leap in transparency during this period.

  16. A relevant bank is a significant institution in terms of size, organisational structure and the nature, scope and complexity of its activities.

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    Agata Wieczorek

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Appendices

Appendices

Appendix A: Number of companies belonging to the UniCredit Group in 2005–2018

Source: Author’s own compilation based on the consolidated annual reports of the UniCredit SPA bank

Year

Number of companies

2005

546

2006

496

2007

657

2008

678

2009

696

2010

754

2011

790

2012

767

2013

758

2014

751

2015

713

2016

680

2017

590

2018

505

Appendix B: The surveyed companies being part of the UniCredit Group

Source: Author’s own compilation

Name

Position in the group

Country of origin

Group membership period

UniCredit SPA (earlier UniCredito Italiano SPA)

Dominant bank

Italy

2005–2018

AO UniCredit Bank (earlier ZAO UniCredit Bank)

Subsidiary bank

Russia

2007–2018

Bank BPH

Subsidiary bank

Poland

2005–2007

Pekao Bank Hipoteczny (earlier BPH Bank Hipoteczny S.A.)

Subsidiary bank

Poland

2005–2016

Bank Pekao SA

Subsidiary bank

Poland

2005–2016

Public Joint Stock Company Ukrsotsbank

Subsidiary financial institution

Ukraine

2009–2015

UniCredit Luxemburg

Subsidiary bank

Luxembourg

2009–2017

UniCredit Bank d.d. Mostar

Subsidiary bank

Bosnia and Herzegovina

2008–2018

UniCredit Bank Czech Republic and Slovakia, A.S.

Subsidiary bank

Czech Republic and Slovakia

2007–2018

UniCredit Bank Ireland p.l.c. (earlier UniCredito Italiano Bank (Ireland) p.l.c.)

Subsidiary bank

Ireland

2005–2018

UniCredit Bank Srbija JSC

Subsidiary bank

Serbia

2007–2018

UniCredit Bank Slovenija D.D.

Subsidiary bank

Slovenia

2007–2018

UniCredit Hungary Zrt.

Subsidiary bank

Hungary

2007–2018

UniCredit Bank Austria AG (earlier Bank Austria Cerditanstalt AG)

Subsidiary bank

Austria

2005–2018

UniCredit Bulbank AD (earlier Bulbank AD)

Subsidiary bank

Bulgaria

2005–2018

UniCredit Factoring Czech Republic and Slovakia, A.S.

Subsidiary financial institution

Czech Republic and Slovakia

2015–2018

UniCredit Factoring SPA

Subsidiary financial institution

Italy

2005–2018

UniCredit Jelzálogbank Zrt. (earlier HVB Jelzálogbank Zrt.)

Subsidiary bank

Hungary

2005–2018

UniCredit Leasing Cz., A.S.

Subsidiary bank

Czech Republic

2007–2018

UniCredit Bank S.A. (earlier UniCredit Tiriac Bank SA)

Subsidiary bank

Romania

2006–2018

Dom Inwestycyjny Xelion sp. z.o.o. (earlier Xelion Doradcy Finansowi sp.z.o.o.)

Subsidiary financial institution

Poland

2005–2016

Zagrebačka banka dd

Subsidiary bank

Croatia

2005–2018

UniCredit International Bank (Luxembourg) SA

Subsidiary bank

Luxembourg

2005–2018

UniCredit services s.c.p.a. (earlier UniCredit Business Integrated Solutions S.C.p.A.)

Subsidiary financial institution

Italy

2012–2018

Yapi Kredi Portfoey Yoenetimi AS

Subsidiary financial institution

Turkey

2005–2018

Yapi Kredi Yatirim Menkul Degerler AS

Subsidiary financial institution

Turkey

2005–2018

Yapi ve Kredi Banka AS

Subsidiary bank

Turkey

2005–2018

Appendix C: Dependent variables used to build TI – the remuneration policy transparency index

The scope of TI ranges from 0 to 3. It is obtained by adding up the points obtained in three subcategories: the level and structure of remuneration (maximum score 9), the variable components of remuneration policy (maximum score 6), the remuneration committee (maximum score 5). Each disclosure item in each subcategory has the same weight: 1 if disclosed, or 0 if not disclosed.

Source: Author’s own compilation

Subcategories of the remuneration policy transparency index (TI)

The level and structure of remuneration

The variable components of remuneration policy

The remuneration committee

1. Aggregate quantitative information on remuneration, broken down by business area

2. Aggregate quantitative information on remuneration, broken down by senior management and members of staff whose actions have a material impact on the risk profile of the institution

3. The amounts of remuneration for the financial year, split into fixed and variable remuneration

4. The amounts and forms of variable remuneration, split into cash, shares, share-linked instruments and other types

5. The amounts of outstanding deferred remuneration, split into vested and unvested portions

6. The amounts of deferred remuneration awarded during the financial year, paid out and reduced through performance adjustments

7. Severance payments awarded during the financial year

8. The remuneration and advantages received from any undertaking belonging to the same group

9. The remuneration is available to the public at the level of members of the management body of the institution

1. Remuneration policy

2. Information on the performance criteria on which the entitlement to shares, options or variable components of remuneration is based

3. The main parameters and rationale for any variable component scheme and any other noncash benefits

4. The ratios between fixed and variable remuneration

5. Information on link between pay and performance

6. The most important design characteristics of the remuneration system, including information on the criteria used for performance measurement and risk adjustment

1. Membership

2. Independent members of the committee

3. Charters and responsibilities

4. The number of meetings held by the committee

5. The external consultant whose services have been used by the committee

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Wieczorek, A. The transparency of remuneration policy in financial holding companies based on the example of the UniCredit Group. J Bank Regul 23, 173–198 (2022). https://doi.org/10.1057/s41261-021-00155-3

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