Effective January 1, 2014, Germany introduced a new Institution Remuneration Ordinance (Institutsvergütungsverordnung or InstitutsVergV) which introduces new restrictions on remuneration. The new ordinance applies to all major financial institutions and generally aims at structuring the remuneration of their employees to discourage such employees from taking excessive financial risks in order to achieve higher remuneration.
Among other things, there are new rules on the permissible proportions of fixed and variable remuneration. In essence, the higher the variable compensation element or the more senior the position of the employee, the longer the vesting period and the greater the evidence of sustained performance must be before that remuneration vests.
There has also been a revised categorization of financial institutions to ensure that the major institutions (bedeutendes Institut) are subject to more restrictive provisions.
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