39. Share-based payments
Significant accounting policies
Bank’s Pekao S.A. phantom shares-settled share-based payment transaction
The cost of transactions settled with employees in phantom shares is measured by reference to the fair value of the liability as of the balance sheet date.
The fair value of the liability is estimated based upon the Bank’s shares price on the (WSE) as of the balance sheet date and expected number of phantom shares to which full rights will be acquired.
The cost of phantom share-based payments is recognized in personnel expenses together with the accompanying increase in the value of liabilities towards employees presented in ‘Provisions’.
The accumulated cost recognized for transactions settled in phantom shares for each balance sheet date until the vesting date reflects the extent of elapse of the vesting period and the number of rights to shares the rights to which – in the opinion of the Bank’s Management Board for that date based on best available estimates of the number of phantom shares – will be eventually vested.
System of Variable Remuneration for the Management Team od Bank Pekao S.A.
The system of variable remuneration is addressed to Employees defined in the Bank as persons in managerial positions, who have a significant impact on the risk profile of the Bank and who are key employees for the fulfillment of the Bank’s strategy, risk management and long-term increase of the Bank’s income.
The aim of the system is to support the execution of the Bank’s operational strategy, its risk management and to limit conflict of interests.
Under the system the participant who is a member of the Management Board may receive an individual bonus, while a participant who is not a member of the Management Board may receive a bonus based on the bonus pool approach ensuring comprehensive performance measurement at an individual level, organizational unit and results of the entire Bank as well as risk assessment’ verification of the Participant’s compliant behaviour with respect to law provisions and standards adopted by the Bank.
The compensation consists of cash payment and cash-settled share based payment realized in the form of phantom shares as cash equivalent amounting to the value of granted phantom shares.
System of Variable Remuneration for the Management Team of the subsidiaries Pekao Group
In order to meet the requirements concerning the rules of establishing the policy of variable remuneration components for individuals holding managerial positions (Regulation of the Minister of Development and Finance on the risk management system and internal control system, remuneration policy and a detailed method of estimating internal capital in banks of 6 March 2017 , the Bank’s subsidiaries, Pekao Bank Hipoteczny S.A., Pekao Leasing Sp. z o.o., Pekao Investment Banking S.A, , Pekao Faktoring Sp. z o.o,. Pekao Direct Sp. z o.o. and Pekao Towarzystwo Funduszy Inwestycyjnych S.A. use a variable remuneration system for the management.
Within the system participant can receive the bonus depending on the performance and results of work of the participant, of the business unit and the company’s results in the area of responsibility of the person, taking into account the results of the whole company, as well as verification of the compliance of Participant’s behaviour with respect to law provisions and standards adopted by the company.
At least 40 % components of variable renumerations is settled and paid in the time-period of 3 to 5 years since the granting date.
The companies measure the future employees benefits at fair value of accepted liabilities, in accordance with IAS 19 ‘Employee benefits’. Results of liabilities meassurement at fair value are presented in income statement as personnel expenses.
Financial data
During the reporting period ending on 31 December 2022 the Bank had the following share-based payments transactions
| SYSTEM 2018 (*) | SYSTEM 2019(*) | SYSTEM 2020 (*) | SYSTEM 2021 (*) | SYSTEM 2022 (*) | |
| Transaction type | Cash-settled share based payments | ||||
| Start date of the assessment period | 1 January 2018 | 1 January 2019 | 1 January 2020 | 1 January 2021 | 1 January 2022 |
| Program announcement date | April 2018 | January 2019 | January 2020 | January 2010 | January 2022 |
| Program granting date | 25 July 2019 | 15 July 2020 | 8 July 2021 | 7 July 2022 | Date of the Supervisory Board meeting at which the 2022 assessment will be made and the bonus will be awarded (and in the case of participants who are not members of the Management Board, the date of the Bank’s Management Board meeting at which the bonus pool for 2022 will be launched and the 2022 |
| Number of instruments granted (pcs) | 110 184 | 145 481 | 135 996 | 132 363 | To be determined on the date the program is awarded |
| Maturity date | 31 July 2024 | 31 July 2024 | 31 July 2025 | 31 July 2026 | 31 July 2028 (entire program) |
| Vesting date for Management Board Members |
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| Vesting conditions | Risk assessment, Compliance assessment, Continuous employment, Reaching the aim based on financial results of the Bank for a given period | ||||
| Program settlement | (*) In the period until 31 December 2022, the programs implemented before 2018 were also in force. The payments of these were subject to deferral or retention in the period covered by the report.
(**) The participant will receive a cash payment amounting to the number the possessed phantom shares times the average closing price of the Bank’s shares at the Warsaw Stock Exchange for 30 calendar days preceding the day of the Supervisory Board meeting, where it evaluates the Bank’s financial statements for a given year and benefits from acquired phantom shares in the amount corresponding to the dividend paid to shareholders during the retention period for shares acquired by the participant. (***) If the variable remuneration for a given year exceeds a particularly high amount, then 60% of the variable remuneration is deferred. |
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Since January 2019, the System of Variable Remuneration for the Management Team has been in force, reflecting the provisions of the resolution of the General Meeting of the Bank on adjusting the remuneration of members of the management board to the requirements of the Act on the principles of determining the remuneration of persons managing certain companies.
For the System 2018, 2019, 2020, 2021, 2022 the fair value of the program was estimated based upon the Bank’s shares price on the WSE as of the balance sheet date and expected number of phantom shares to which the rights will be acquired.
For the System 2022, as of 31 December 2022 the Bank prepared the program valuation, presuming that the phantom shares were granted on 31 December 2022. This value will be changed at the actual date of granting the program.
The system of variable remuneration realized in the form of phantom shares is a program settled in cash, and therefore its fair value is adjusted on each balance sheet date until the the program settlement, which in case of this program coincides with the vesting date.
The carrying amount of liabilities for cash-settled phantom shares amounted to PLN 51 194 thousand as at 31 December 2022 (as at 31 December 2021 – PLN 48 420 thousand).
The total intrinsic value of liabilities for vested rights to phantom shares amounted to PLN 29 280 thousand as at 31 December 2022 (as at 31 December 2021 – PLN 42 096 thousand).
The remuneration expenses for 2022 relating to the system of variable remuneration in the form of phantom shares amounted to PLN 21 143 thousand (in 2021 – PLN 13 555 thousand).
The table below presents changes in the number of Bank’s phantom shares.
| 2022 | 2021 | |
| Opening balance | 345 051 | 354 232 |
| Granted during the year | 132 364 | 135 996 |
| Redeemed during the year | – | – |
| Exercised during the year | -138 915 | -145 177 |
| Terminated during the year | – | – |
| Existing at the period-end | 338 500 | 345 051 |
The table above does not present the number of shares granted in respect of System 2022. This number will be determined in 2023 after the Supervisory Board assessed the Bank’s financial statements and assessed the achievement of individual goals for 2022, compliance assessment and risk assessment. The hypothetical number of shares determined on the basis of the base value of the granted bonus to each of the program participants and arithmetic mean of the Bank’s share price on the WSE in December 2022 amounts to 207 364.
System of Variable Remuneration for the Management Team of the subsidiaries Pekao
The carrying amount of liabilities for cash-settled phantom shares amounted to PLN 8 040 thousand as at 31 December 2022 (as at 31 December 2021 – PLN 7 404 thousand).
The remuneration expenses for 2022 relating to the system of variable remuneration in the form of phantom shares amounted to PLN 4 860 thousand (in 2021 – PLN 4 498 thousand).