TEB REMUNERATION POLICY

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TEB

REMUNERATION POLICY

TEB Human Resources

2013

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Following this, the Board of Directors (“BoD”) of Türk Ekonomi Bankası A.Ş. (TEB), on the recommendation of its Selection and Compensation Committee (SECOM) decided to revise the existing remuneration policy of TEB in accordance with the “Regulation Amending the Regulation on the Banks’ Corporate Governance Principles” issued by BRSA.

B/ Purpose

The new Remuneration Policy (“RP”) for TEB has been prepared in compliance with the content, structure and strategies of the Bank’s activities, its long-term targets and risk management structures and in compliance with the local regulation.

RP aims to prevent extreme risk taking and valuates the contributions to the effective risk management. RP is intended to encourage TEB to maintain risks within the principles and parameters defined and approved by its BoD.

The purpose of the RP is also to ensure that TEB can attract, motivate and retain competent and expert employees both in commercial and control functions that will help to fulfill its strategic objectives.

C/ Scope

This policy provides the basis to determine, establish and update the total remuneration of TEB employees, TEB Executive Management and the “Regulated Employees” (whose professional activities have significant impact on the risk profile of the Bank).

D/ Preparation of the RP

SECOM is responsible for the preparation of RP on behalf of the BoD and for ensuring its compliance with local regulations. Analysis and establishment of the rules of the RP will be conducted by SECOM with the involvement of Human Resources (HR), Finance, Risk and Compliance Management. After SECOM’s full review and acceptance, RP will be submitted to the BoD for approval. RP is subject to annual review.

E/ Governance and administration of the process

The preparation and the application of the RP involve various parties in the organization of the Bank, with their particular functions and responsibilities as explained below:

1. SECOM and BoD

i. SECOM is responsible for the determination, monitoring and supervision of the Bank’s remuneration implementations on behalf of the BoD.

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Remuneration guidelines and policy (this document and its subsequent modifications) for regulated employees are proposed by TEB General Manager, after consulting HR, Finance, Risk and Compliance Management, to SECOM.

SECOM is composed of at least two non-executive Board Members of TEB. TEB’s General Manager and The Head of TEB HR Group (who is also the Secretary to SECOM) are the permanent attendees of SECOM.

ii. The main duties and responsibilities of SECOM are as follows:

 Formation of a written RP which is in compliance with the BRSA Regulation.

 Determination, monitoring and supervision of remuneration implementations (including salaries, performance bonuses, premiums, awards and fringe benefits).

 Annual submission to the BoD the proposals with respect to RP and to the assessment of the implementations under the risk management.

 Determination of the criteria for the payments of performance bonuses to the employees based on the bank’s performance, business line and/or function’s performance and their individual performances and announcement of such criteria to the employees and regular review of such criteria according to the determined standards and special duty responsibilities.

 The review, at least once a year, of the criteria of the remuneration inline with the performance of the Bank and of the employees. The main purpose of such a review is to ensure that the RP does not encourage excessive risk taking nor create conflict of interest between the management and the control systems .

 SECOM considers the risk policy and other policy documents of the Bank in order to ensure the alignment of RP with the current organization chart, reporting lines and separation of duties.

2. SECOM & Finance, Risk and Compliance Management

SECOM may consult Finance, Risk and Compliance for advice about the following matters: i. Compliance of RP with the current regulations and the professional standards. ii. Adequacy of this RP and its implementation with regard to the risk policy of the Bank.

iii. Consistency of the variable remuneration practices with the preservation of an adequate level of equity capital.

iv. Other issues of expertise areas.

3. Annual guidelines

SECOM, in accordance with this RP, takes following framework decisions on behalf of the BoD:

i. remuneration process, including the level and parameters used to determine bonus pools for related group of employees,

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4. Delegations

TEB’s General Manager submit to SECOM the salary and bonus levels and strategies and all necessary information for all TEB employees.

The necessary information will justify the needs of TEB General Management to perform its mission and will include the parameters used to determine bonus pools for the various activities, methods of distribution, individual allocation and payment.

In line with general guidelines approved by SECOM, individual allocations are decided by i. SECOM for Expatriates, Assistant General Managers and above,

ii. General Manager for all Directors,

iii. Business and function heads for their own staff, in consultation with HR.

5. Audit and Control

SECOM is in charge of determining, observing and auditing remuneration issues of TEB on behalf of the BoD.

Regarding the remuneration issues, the first level control is under the responsibility of HR. Compliance and Internal Control Group is in charge of controling whether the first level control has been done.

Finance makes sure that what has been booked in the accounts coincides with what has been paid or deferred.

Internal Audit is authorized to control and review of the process to ensure that it complies with the actual facts and figures, with the guidelines and procedures stipulated in this RP and to report to the Audit Committee and to the BoD .

6. HR:

The Head of TEB HR Group is responsible for the execution of the RP of the Bank. TEB HR Group shall keep the General Manager and SECOM informed of any present and future required organizational changes and advise of any regulatory changes during the annual maintenance of the policy. HR is also required to report any deviation concerning decisions on fixed and/or variable remunerations.

F/ Remuneration Guidelines

1. Components of remuneration package

The total remuneration package of the Executive Management and other staff members of the Bank consists of

i. Fixed Remuneration (contractual)

 Fixed remuneration is intended to reward competence, experience, qualification level, as well as the level of involvement in assigned tasks.

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 It is set on the basis of the market and the principle of internal consistency within TEB.

 Market salary surveys conducted each year to adjust base salaries in order to provide external consistency and competitiveness.

ii. Variable Remuneration

Variable Remuneration is intended to reward collective and individual,  quantitative and

 qualitative achievements

measured on the basis of observed performance and individual assessments in the fullfillment of fixed objectives.

Variable remuneration takes the form of either annual discretionary bonus or Success & Sales Incentive.

o Annual discretionary bonus : The bonus pool is set on the basis of the profitability of the Bank,

the results generated by the activity and achievements and also the (local and/or professional) sector practices.

The annual discretionary bonus does not constitute a right and is set in a discretionary manner each year in accordance with the RP for the year in question, the corporate governance guidelines, and based on the achievement of the qualitative and quantitative objectives set in the annual individual performance appraisals for the year concerned.

For employees whose professional activities have a significant impact on the risk profile of the enterprise, the variable portion of their remuneration takes the form of a bonus set in accordance with specific procedures (see point G).

o Success & Sales Incentive system : Only the employees who are in the scope of Success &

Sales Incentive system are entitled to get a remuneration for their target realizations.

Each year Success & Sales Incentive guideline is announced to the related employees. Scope of the incentive model, criteria and quantification of the model are mentioned in it.

iii. Sign-on bonuses

For specific recruitment needs, cash bonuses granted to new hires can be charged to the bonus pool for the fiscal year.

The payment of these bonuses are to be decided by SECOM. These bonuses may include a reimbursement or “clawback clause” if the new hire leaves the enterprise the first year following the hire date or doesn’t fulfill the contractual targets.

iv. Benefits

TEB also provides benefits for the employees according to the local market practices, regulations and specific business needs of the Bank.

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Salary increases can result from : i. Collective measures :

Aiming to compensate inflation and market value adjustments.

Base Salary collective increase rate is set in accordance with the budget and the guidelines defined by SECOM in view of budgetary constraints, the economic outlook (inflation), legislations or contractual obligations (general increases of a legal or contractual nature) and the local market practices.

In this context, the yearly salary review takes place in April . The process consists of an overall review ensuring a systematic double check by business/function management and the TEB HR Group.

ii. Individual measures :

Aiming to reward promotions or upgrades in responsibilities, competencies and experiences. The promotional increases are held twice a year (March and August).

TEB HR administers the entire process.

3. Bonus Distributions i. Main principles

The Bank, at its sole discretion, may grant bonuses to Executive Management and other staff members, after the endorsement according to the procedures described herein, based on individual performances and contribution to the achievement of the established goals and targets of the Bank. While the profitability of the Bank is the main driver for the bonus distribution decision, this can only be done with the condition that established regulatory and internal risk mitigation, liquidity and solvency ratio targets of the Bank are respected in the relevant financial year.

Payment of bonuses will only be considered if the Bank achieves 80% of the budgeted net profit at the end of the financial year.

ii. Quantification & Accrual Process

The total amount of annual bonus provision will be pre-approved by SECOM and BoD prior to the submission of the annual accounts of the Bank to the General Shareholders Meeting.

BoD, while approving the bonus provision, will also consult SECOM on the current risk management performance of the Bank, to make sure that these are in line with regulatory and internal guidelines.

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 During the year, in consultation with HR, the Finance books necessary provisions for bonuses in accordance with the budget of the year.

 The bonus pools allocated to these activities and teams are distributed between the various business lines and functions on the basis of a criteria adapted to the specific characteristics of each activity or team, which are defined annually and in any case must be based on:

o The results of the quantitative and qualitative performance (including the creation and development of long-term competitive advantages for the Bank),

o the measurement of underlying risks,

o the market practices as well as the competition.  Individual allocations are made on basis of:

o The performance of the Bank,

o The performance of the business/function, o Individual performance based on;

a) pre-determined financial and / or non financial performance criteria,

b) professional behavior with regard to values, professional code of ethics and the Bank’s procedures,

c) contribution to risk management, including operational risk and d) the managerial behavior of the concerned party, where applicable.

 Independently of any disciplinary procedures, non-compliance with applicable rules and procedures, or blatant breaches of the professional code of ethics or ethical standards shall entail the reduction or cancellation of the bonus.

 A variable remuneration can not be guaranteed

 The bonus pools of the employees of the risk, control and compliance functions are determined independently of bonus pools for the activities whose operations they validate or verify.

 Employees transferred internally within TEB group, would, in principle, benefit from the performance bonus as long as they are eligible. Employees whose job has been canceled or who left the Bank are not eligible to get bonus.

 Employees within the scope of the sales / success incentive are not elligible of performance bonus.

G/ RP for employees whose professional activities have a significant impact on the risk profile of the enterprise (Regulated Employees)

The activities are the activities which could have a significant impact on the risk profile of the Bank.

1. The following groups of employees are concerned:

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 DCS+ TU : Senior Managers and other employees whose activities could have individually a material impact on the BNPP Group's risk profile. (BoDs in Execution and CEO),

 DCS TU: All Capital market employees

ii. Key Contributors (Retention purpose) (Key Contributors Deferred Plan KCDP TU)

KCDP TU : Key Contributors in the performance of the Bank (1% of the total population). The criterion used to determine eligibility for the Scheme is the amount of total discretionnary bonus. Among these populations, employees whose activities do have a significant impact in the risk profile of the Bank are identified each year by SECOM on the HR proposal.

Deferred Compensation Schemes are announced to regulated employees annually following the approval of SECOM.

2. Payment of the bonuses for regulated employees: i. Deferred portion / non-deferred portion :

Bonuses consist of a non-deferred portion and a deferred portion which are defined and paid under the terms and conditions of each specific plan defined yearly.

In case of dismissal for misconduct, particularly when employee’s action involves the breach of risk control rules, a breach of the ethics code, dissimulation or an action which resulted in a distortion of the conditions under which bonuses previously allocated were set, all rights to the deferred portions of the previously allocated bonuses are reduced or lost.

Employees transferred internally within the TEB Group, in principle, benefit from the payment of the deferred portion(s) as long as the initially stipulated conditions have been met.

Excluding employees who are eligible to get the severance payment according to the 4857 Labor law and 1475 Labor Law article 14 , employees who left the Bank loose all rights to the deferred portions of the previously allocated bonuses.

ii. Principle of Proportionality

The annual terms and conditions of application of the general payment rules are defined each year in detail after consultations with the HR, Finance, Risk and Compliance Groups by SECOM, and submitted to the BoD.

Eligible employees for deferred plans are determined by SECOM each year.

H/ Severance payment for Executives

As a principle, severance payment shall not reward failure or bad performance.

For the members of BoD, General Manager, Deputy General Manager and Assistant General Managers, the severance payments are to be approved by SECOM.

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10 / 11 I/ Definitions

Fixed Remuneration: The salary (or base pay) provided to an employee as expressed in a given

frequency, such as annual, monthly.

Variable Remuneration: Variable Remuneration paid in addition to fixed remuneration as an incentive

for an employee to meet certain goals or objectives

Regulated Employee: Employees whose professional activities have a significant impact on the risk

profile of the enterprise.

Key Contributors: Employees whose recent performance is recognized as being key for TEB

J/ Abbreviations

TEB: Türk Ekonomi Bankası A.Ş.

BRSA: Banking Regulation and Supervision Agency RP: Remuneration Policy

SECOM: Selection and Compensation Committee HR: Human Resources

CIB: Corporate & Investment Banking

DCS+TU : Deferred Compensation Scheme Turkey Plus DCS TU : Deferred Compensation Scheme Turkey

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TEB REMUNERATION POLICY

TEB

REMUNERATION POLICY

TEB Human Resources

2013

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