Corporate Governance

Supervisory Board

The Supervisory Board of BAWAG P.S.K., which is responsible for monitoring but also assisting the Managing Board, consists of six national and international representatives elected by the Annual General Meeting. An additional three members are delegated by the Works Council. (The individual members of the Supervisory Board and the composition of the committees are presented in the Boards and Officers section.)

The Rules of Procedure of the Supervisory Board comprise the rights and obligations of this board and also define the individual committees of the Supervisory Board and their responsibilities. As part of the amendment of the Supervisory Board's Rules of Procedure, some of the provisions were simplified and harmonised.

Under the ultimate responsibility of the full Supervisory Board, the approval of loans and other forms of financing and credit to individual borrowers or groups of connected customers for the purposes of section 27 of the Banking Act (exposures that equal 10 per cent or more of the Bank's eligible own funds) has been delegated to the Credit Committee. An annual report about the large exposures approved by the Credit Committee is submitted to the Supervisory Board. The Credit Committee also approves transactions with the Bank's affiliated parties (except for transactions with members of the Supervisory Board or Managing Board that are delegated to the Remuneration Committee) and material credit policies. It also advises the Managing Board in basic credit risk policy issues.

The Audit Committee reviews the Bank's accounts and the annual financial statements, and monitors the Bank's risk management and internal control systems. This committee is also in regular contact with the external auditor, the Internal Audit division and the Compliance Office. The annual audit plans and reports about the activities of the Internal Audit division and the Bank's Compliance Office are also submitted to the Audit Committee.

While the Nomination Committee deals with succession planning and selecting suitable candidates for the Managing Board, the Remuneration Committee deals with relationships between the Bank and the members of the Managing Board as well as the executives. For example, it decides the performance targets for the Managing Board and also the remuneration paid to and contracts signed with the members of the Managing Board. The Remuneration Committee also approves transactions with members of the Supervisory Board and Managing Board and determines the Remuneration Policy according to CRD III and the Austrian Banking Act.

The Related Parties Special Audit Committee reviews all financing commitments and transactions above a certain amount involving companies with controlling influence as defined in IAS 24 or companies related to these controlling companies. The Related Parties Special Audit Committee is intended to ensure transparency in all transactions involving the Bank's shareholders.

Managing Board

As per the end of the year 2010, the Managing Board consisted of six members.

The Rules of Procedure of the Managing Board define the responsibilities and tasks of this board. According to these Rules of Procedure, the Managing Board has the right to form committees and to issue statutes for these committees. The following executive committees have been formed:

• The Enterprise Risk Meeting for steering the total bank risk;
• The Credit Policy Committee, which focuses on credit guidelines and strategies;
• The Credit Approval Committee, which decides on financing transactions above a certain threshold;
• The Strategic Asset Liability Committee, which deals with strategic issues regarding capital and liquidity planning;
• The Tactical Asset Liability Committee, which deals with operative topics of the asset-liability management; and
• The Legal and Compliance Committee, which discusses the implications of new or relevant legal regulations on the Bank.

The Bank has also established a series of additional non-executive committees. These include:

• The Exposure Review Committee, which was set up in 2009 for the ongoing analysis of certain credit exposures;
• The Capital Management Meeting, which monitors the development of the regulatory capital ratios and the changes in risk-weighted assets; and
• The Capital Expenditure Committee, which decides on investments above a certain threshold.

Code of Corporate Governance

BAWAG P.S.K. voluntarily adopted the Austrian Corporate Governance Code for listed companies in 2006. Additional amendments to the Code were made in 2010 and were implemented in BAWAG P.S.K.'s own code in the second half of the year.

The Bank prepared its first-ever annual corporate governance report for the financial year 2009 and published it on the Internet. A corporate governance report was also prepared for the financial year 2010.

Compliance with the Corporate Governance Code was audited by independent third parties in 2010 and revealed that all key provisions of the Code were fulfilled with the exception of those that do not apply due to its closed shareholder structure.

Compliance

The Compliance Office is a sub-unit of BAWAG P.S.K.'s Legal division but reports directly to the Managing Board. Regular reports are also submitted directly to the Bank's Audit Committee.

The key responsibilities of the Compliance Office are preventing money laundering and combating terrorism, monitoring compliance with sanctions, securities compliance, as well as the prevention of insider trading, market abuse and conflicts of interest. A series of detailed guidelines have been put into place to ensure compliance with all legal requirements.

In addition to all relevant laws such as the Securities Supervision Act, all employees are also bound by a Code of Conduct that contains, among other things, guidelines for business conduct and customer service, for how conflicts of interest are to be handled and for preventing market abuse and money laundering.

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Personnel Development

Management Development

Our work on the establishment of a successful leadership culture continued during the year, including in the form of the initiative "Erfolgreich Führen - Meine Bank". The Bank's strategy, current position and developments in connection with the state of the economy were discussed at large group events in which Managing Board members participated.

"LEAD - neue Führungskräfte", a new leadership development programme, was launched in the autumn of 2010 and will help middle- and lower-level managers get off to a good start in their first managerial positions.

A range of unit-specific activities, primarily tailored team-building and strategy workshops for management teams, were also conducted in 2010.

Talent Development

The first run of the "EMERGE" talent development programme was completed successfully in the spring of 2010. Some of the participants, employees with concrete potential to fill relevant expert and managerial positions, have already taken on new responsibilities. Preparations for a second run in 2011 are already under way.

In Retail Sales, the "Sales Talent Management" process, which was completed for the second time already in 2010, has proven to be an effective instrument for succession planning and for managing training requirements. Part of the computer-assisted process is the nomination of participants for the "TOP Team Vertrieb" programme for the development of future retail sales managers.

In Corporates, the "Sales Empowerment Programme", which is aimed at increasing cross-selling, was a main topic in 2010. This tailored development programme nurtured cross-selling skills and customer relationship management capabilities of relationship managers. Apart from that, control and coaching measures were implemented in a targeted manner on the management level to support the achievement of objectives.

Training

The newly developed training plan for branch sales was introduced in 2010. Training plans and seminars were prepared based on new requirements profiles.

Tailored initiatives such as specialist and behavioural training were also completed again in many different areas of the Bank such as the Customer Service Centre. The e-learning system was also revised as part of this.

Performance Management

The new Management by Objectives (MBO) process was successfully introduced in 2010. A high implementation rate was already achieved in the first phase. The new BAWAG P.S.K. Success Factors were also applied for behavioural assessment in the MBO process, and represent a Bank-wide standard for a performance-oriented and open corporate culture.

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Corporate Social Responsibility (CSR)

CSR Report

BAWAG P.S.K. released its second Corporate Social Responsibility report in April 2010. This report discusses the measures BAWAG P.S.K. has implemented and the progress we have made in our efforts to conduct our business in a sustainable manner. It also contains an action plan for further improvements. This was also the first report to include the Communication on Progress (COP) required due to our membership in the UN Global Compact.

The Bank joined the UN Global Compact in April 2009. BAWAG P.S.K.'s Corporate Social Responsibility officer is also a member of the steering committee of the Austrian Global Compact Network. Representatives of BAWAG P.S.K. participated in working groups on the topics of sustainability reporting and anti-corruption under the framework of the UN Global Compact Network in Austria.

New Chance Account

On 1 April 2009, PSK Bank became the first bank in the country to offer a basic current account to any customer regardless of his or her credit rating. This New Chance Account (Neue Chance Konto) is available to anyone without limitations, does not include an overdraft facility and is offered all over Austria. This product is designed for the roughly 50,000 people in Austria who otherwise have no access to one of the most important banking services, electronic payment transactions, because of their credit history.

The New Chance Account has generated a great deal of positive response. At the end of 2010, an impressive 7,712 customers were already using this product. The New Chance Account is one of the fruits of our proactive commitment to human rights, and for us is a way to counter discrimination and social exclusion.

Its nomination for the most important sustainability award in Austria, the TRIGOS, in June 2010 was also a major honour for the New Chance Account.

Diversity Charter

In reflection of our commitment to promoting diversity, BAWAG P.S.K. in November became one of the first companies in Austria to sign the Diversity Charter. This charter has clearly defined goals and is intended as a guideline for all of its members. The Diversity Charter spotlights the many benefits of diversity in the economy and society, and promotes dialogue between different stakeholder groups. The members actively commit to increasing mutual respect, tolerance and appreciation with regards to diversity in their organisations.

A complete overview of our CSR activities and facts and figures on our environmental impact and staff can be found in the CSR Report 2010.

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Sponsoring

BAWAG P.S.K.'s key sponsoring areas in 2010 were again the arts, education and social issues. In the arts, our efforts focused on the new opening of the BAWAG Contemporary gallery near the Bank's headquarters. The gallery, which is intended to be a meeting point for the art scenes of different cities, is located at Franz-Josefs-Kai 3 and is a venue for the display of the creative visions and energies of young contemporary artists.

The Bank also supports projects in music, design, architecture, theatre and film. In the social area, we collaborate closely with charitable organisations, especially Caritas and the RED NOSES Clown Doctors, and also launched the www.meinespende.at interactive donation platform in the latter part of the year. In education, we are striving to enter into additional collaboration projects with vocational secondary schools.

In all of these projects, BAWAG P.S.K. sees itself as an active sponsoring partner. We aim to establish long-term partnerships to jointly develop projects and ideas. This often results in cooperation with individual institutions and project partners over many years, and makes it easier to identify and use synergies.

An overview of BAWAG P.S.K.'s sponsoring activities can be found at http://www.bawagpsk.com/sponsoring .

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