Corporate Governance Statement of Arion bank for 2021

Arion Bank is an Icelandic public limited company whose shares are listed on Nasdaq Iceland and Nasdaq Stockholm. In conjunction with the Bank’s annual financial statements, the Board annually submits a Corporate Governance Statement. 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 principally by electing the Board of Directors, which in turn appoint the CEO and monitor the Bank’s conduct of business. The 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.

Fundamental 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 are the Bank’s corporate culture, strategy, and operational procedures. Good corporate governance and corporate culture helps 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 further in later in this statement, the Bank’s Annual Report and in the Bank’s Pillar 3 report. Establishing and maintaining effective risk management and controls constitutes a key challenge in the Bank’s activity and to the Bank’s overall soundness.

Arion Bank's Corporate Governance Statement for 2021 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.

Corporate Governance Statement of Arion Bank for 2021

Arion Bank‘s 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 by the Bank’s AGM in 2021, Arion Bank strives to offer competitive salaries so that the Bank can attract and retain outstanding employees and that jobs at the Bank are sought after by qualified individuals.

When implementing the policy, it must be ensured that excessive risk taking is not encourage but rather supports the Bank's long-term goals and its healthy operation. The remuneration 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 main highlights regarding the remuneration policy in 2021 were:

  • According to remuneration surveys, Arion pays competitive salaries without being a market leader. Wages in the Bank increased on average by 4.7% year-over-year whereas the general wage index increase in Iceland was 8.3%.
  • Based on an authorization granted by the Bank’s AGM in 2020, a five-year employee share option plan was rolled out. A total of 628 employees signed share option agreements with the Bank in February 2021. The plan is based on provisions in the Icelandic Tax Code and is considered as part of fixed remuneration for employees. All employees may annually purchase shares in the Bank for a maximum amount of ISK 600,000. The maximum purchase amount will increase to ISK 1,500,000 as of 2023, in line with amendments made to the Tax Code and an authorization granted by the Bank’s AGM in 2021. In the first year the scheme will involve options on a maximum of 3.5 million shares and after that a maximum of 7.1 million shares. The options under the share option scheme can therefore amount to a maximum of 32 million shares over a period of five years. The Bank considers obligations relating to the share option plan when holding own shares.
  • The Bank’s Board of Directors approved a revised bonus system in late 2020 for the 2021 reference period. All permanent employees, excluding employees of supervisory units, are part of the system and as an overarching benchmark, the Bank’s ROE has to be higher than the weighted average ROE of the Bank’s main competitors. Majority of employees may receive a bonus for up to 10% of their fixed annual salary in the form of cash payment and without deferral. Managers, and those employees who have the greatest influence on the Bank’s revenues and costs, may receive a bonus of up to 25% of their fixed annual salary in the form of shares in the Bank. This group consists of approximately 1/6 of employees and share received are subject to sale restriction/deferred for three years. The Bank considers obligations relating to the bonus scheme when holding own shares.
    The Bank’s Rules on Variable Remuneration are published on the Bank’s website.
  • No special severance agreements were entered into with executives in 2021.

Arion Bank's Remuneration Policy