Remuneration of the Executive Board
Remuneration of the Executive Board
Responsibility
Objective, structure and system of Executive Board remuneration
The total remuneration of the Executive Board and its split into fixed and variable components conform to regulatory requirements – especially the provisions of the Act on the Adequacy of Management Board Remuneration (VorstAG) and the Regulation on the Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (VersVergV).
The amount and structure of the remuneration of the Executive Board are geared to the size and activities of the company, its economic and financial position, its success and future prospects as well as the customariness of the remuneration, making reference to the benchmark environment (horizontal) and the remuneration structure otherwise applicable at the company (vertical). The remuneration is also guided by the tasks of the specific member of the Executive Board, his or her individual performance and the performance of the full Executive Board.
With an eye to these objectives, the remuneration system has two components: fixed salary/non-cash compensation and variable remuneration. The variable remuneration is designed to take account of both positive and negative developments. Overall, the remuneration is to be measured in such a way that it reflects the company’s sustainable development and is fair and competitive by market standards. In the event of 100% goal attainment the remuneration model provides for a split into roughly 40% fixed remuneration and roughly 60% variable remuneration.
Fixed remuneration (approx. 40% of total remuneration upon 100% goal attainment)
Measurement basis and payment procedures for fixed remuneration | |||
Components | Measurement basis/parameters | Condition of payment | Paid out |
---|---|---|---|
Basic remuneration; Non-cash compensation, fringe benefits: Accident, liability and luggage insurance, company car for business and personal use (tax on the pecuniary advantage payable by the Board member), reimbursement of travel expenses and other expenditures incurred in the interest of the company | Function,
responsibility,
length of service on the
Executive Board Remuneration reviewed by the Supervisory Board normally at two-year intervals. | Contractual stipulations | 12 equal monthly instalments |
Variable remuneration (approx. 60% of total remuneration upon 100% goal attainment)
The profit- and performance-based remuneration (variable remuneration) is contingent on certain defined results and the attainment of certain set targets. The set targets vary according to the function of the Board member in question. The variable remuneration consists of a profit bonus and a performance bonus.
The variable remuneration is defined at the Supervisory Board meeting that approves the consolidated financial statement for the financial year just ended.
The following chart summarises the make-up of the variable remuneration components. For details of measurement and payment procedures please see the two tables following the chart.
Measurement bases/conditions of payment for variable remuneration | ||
Component | Measurement basis/parameters | Condition of payment |
---|---|---|
Profit bonus | ||
Proportion of variable remuneration: Chief Executive Officer/ Chief Financial Officer: 70%; Board members except for Chief Executive Officer/ Chief Financial Officer: 50% |
The profit bonus is dependent on the risk-free interest rate and the average Group return on equity (RoE) of the past three financial years. An individually determined and contractually defined basic amount is paid for each 0.1 percentage point by which the RoE of the past three financial years exceeds the risk-free interest rate of 2.8%. Goal attainment of 100% corresponds to an RoE of 11.6%. Goal attainment can amount to a maximum of 200% and a minimum of -100%. The IFRS Group net income (excluding non-controlling interests) and the arithmetic mean of the IFRS Group shareholders’ equity (excluding non-controlling interests) at the beginning and end of the financial year are used to calculate the RoE. The risk-free interest rate is the average market rate for 10-year German government bonds over the past 5 years and is set at an agreed level of 2.8%. The arrangements governing the profit bonus may be adjusted if the risk-free interest rate of 2.8% changes to such an extent that an (absolute) deviation of at least one percentage point arises. |
Contractual stipulations Attainment of three-year targets Decision of the Supervisory Board |
Performance bonus The performance bonus for the Chief Executive Officer and the Chief Financial Officer is arrived at from individual qualitative and, as appropriate, quantitative targets defined annually by the Supervisory Board that are to be accomplished in the subsequent year. For members of the Executive Board with responsibility for a certain business group, the performance bonus consists in equal parts of the business group bonus and the individual bonus. |
||
Business group bonus Proportion of variable remuneration: Board members except for Chief Executive Officer/Chief Financial Officer: 25% |
Resolution by the Supervisory Board of 6 March 2013 regarding the reorganisation of the business group bonus from the 2013 financial year onwards: The basis for the business group bonus is the return generated on the capital allocated to the business group in the respective 3-year period just ended (RoCa = Return on Capital allocated). An individually determined amount specified in the service contract is calculated for each 0.1 percentage point by which the average 3-year RoCa exceeds the level of 0%. A RoCa of 9.1% corresponds to goal attainment of 100%. Allowing for the planned cost of capital, this level corresponds to a return which is above the planned cost of capital and hence constitutes positive intrinsic value creation (IVC 1). Goal attainment can amount to a maximum of 200% and from 2015 onwards a minimum of -100%. The method used to calculate the IVC as a basis for determining the business group performance is checked by independent experts. The business group bonus is determined by the Supervisory Board according to its best judgement. The determination also takes into account, in particular, the contribution made by the business under the responsibility of the Board member concerned to the achieved business group performance and the relative change in the average IVC in the remuneration year. The Supervisory Board may make additions to or deductions from the arithmetically calculated values at any time in the event of over- or underfulfilment of the criteria. Special arrangements for 2013 and 2014: the basis for the average RoCa is the business group performance from 2013 onwards; the minimum business group bonus is EUR 0. |
Attainment of three-year targets (basis for 2013 and 2014: business group performance from 2013 onwards) Contractual agreement Decision of the Supervisory Board according to its best judgement |
Individual bonus
Proportion of variable remuneration: Chief Executive Officer/Chief Financial Officer: 30%; Board members except for Chief Executive Officer, Chief Financial Officer: 25% |
Personal qualitative, quantitative targets; individual contribution to the overall result, leadership skills, innovative skills, entrepreneurial skills, specific features of area of responsibility; The individual bonus for goal attainment of 100% is contractually stipulated. Over- and underfulfilment result in additions/deductions. The minimum individual bonus amounts to EUR 0 and the maximum is double the bonus payable upon complete goal attainment. |
Attainment of annual targets Decision by the Supervisory Board according to its best judgement. |
1 An instrument of value-based management used to measure the attainment of long-term goals on the level of the Group, business groups and operational units (see also “Management system”). |
Payment procedures for the total variable remuneration Of the total amount of defined variable remuneration, a partial amount of 60% is paid out in the month following the Supervisory Board meeting that approves the consolidated financial statement. The remaining amount of 40% is initially withheld as explained below with a view to encouraging long-term value creation:
Short-term | Medium-term | Long-term |
---|---|---|
60% of the variable remuneration with the next monthly
salary payment following the Supervisory Board resolution | 20% of the variable remuneration in the bonus bank; withheld for 3 years; the positive amount contributed 3 years prior to the payment date is available for payment, provided this does not exceed the balance of the bonus bank in light of credits/debits up to and including those for the financial year just ended; an impending payment not covered by a positive balance in the bonus bank is omitted; a positive balance in the bonus bank is carried forward to the following year after deduction of any payment made; a negative balance is not carried forward to the following year; loss of claims due from the bonus bank in special cases: resignation from office without a compelling reason; contract extension on the same conditions is rejected; no interest is paid on credit balances. | Automatic granting of virtual Hannover Re share awards (HR-SAs) with a value equivalent to 20% of the variable remuneration; payment of the value calculated at the payment date after a vesting period of four years; value of the share on awarding/payment: unweighted arithmetic mean of the Xetra closing prices five trading days before to five trading days after the meeting of the Supervisory Board that approves the consolidated financial statement; additional payment of the sum total of all dividends per share paid out during the vesting period; changes in a cumulative amount of 10% or more in the value of the HR-SAs caused by structural measures trigger an adjustment; the Board member has no entitlement to the delivery of shares. |
Negative variable total bonus = payment of EUR 0 variable remuneration. Any minus value of the variable total bonus for a financial year is transferred in full to the bonus bank (see “Medium-term” column). |
Handling of payment of variable remuneration components in special cases
In the event of voluntary resignation or termination/dismissal by the company for a compelling reason or if an offered contract extension on the same conditions (exception: the member of the Executive Board has reached the age of 60 and has served as a member of the Executive Board for two terms of office) is declined, all rights to payment of the balances from the bonus bank and from the HR-SAs are forfeited.
If the contractual relationship ends normally prior to the end of the vesting period for the bonus band or HR-SAs, and if a contract extension is not offered, the member of the Executive Board retains his entitlements to payment from the bonus bank – making reference to a defined forward projection of the bonus bank – and for already awarded HR-SAs.
All claims to the allocation of amounts to the bonus bank and/or awarding of HR-SAs after leaving the company are excluded. In cases where an individual leaves the company because of non-reappointment, retirement or death this shall not apply with respect to claims to variable remuneration acquired (pro rata) in the final year of the Board member’s work for the company.
Variable remuneration under the old remuneration structure (until 2011)
The virtual stock option plan with stock appreciation rights existing under the old remuneration structure remains in force for all members of the Executive Board until all stock appreciation rights have been exercised or have lapsed. In the 2013 financial year no further stock appreciation rights were granted to active Board members. Of the stock appreciation rights granted in previous years, active and former Board members exercised amounts totalling EUR 1.4 million (previous year: EUR 4.3 million) in 2013.
As at 31 December 2013 active members of the Executive Board had at their disposal a total of 288,797 (391,891) granted, but not yet exercised stock appreciation rights with a fair value of EUR 2.4 million (EUR 3.2 million).
Continued payment in case of disability
In the event of temporary incapacity for work the fixed annual salary shall continue to be paid in the same amount, at most until termination of the service contract.
If a member of the Executive Board is permanently incapacitated for work during the period of the service contract, the service contract shall terminate at the end of the sixth month after which the permanent incapacity for work is established – although no later than at the end of the service contract.
Other information
The contracts of the Board members do not include a commitment to benefits in the event of a premature termination of employment on the Executive Board owing to a change of control. Only the conditions for the granting of share-based remuneration in the form of stock appreciation rights provide for special exercise options in the event of the merger, spin-off or demerger of Hannover Re into another legal entity.
With regard to Item 4.2.3. Paragraph 2 “Caps on the amount of variable compensation elements in management board contracts” and Item 4.2.3 Paragraph 4 “Caps on severance payments in management board contracts” of the German Corporate Governance Code, we would refer the reader to our remarks in the Declaration of Conformity contained in the section “Statement of enterprise management practices” in this Group Annual Report.
If the company insists on a non-competition clause with Mr. Wallin for two years after the termination of his service contract, he shall be recompensed in a monthly amount of 50% of his most recent fixed remuneration. Income earned through the application of his working capacity elsewhere shall be counted towards this compensation insofar as such income in combination with the compensation exceeds 100% of the most recently received fixed remuneration. The non-competition clause shall not apply if the contract ends prior to the age of 65 because the company does not extend it or because Mr. Wallin declines an extension offered to him on what are for him inferior terms, or if the premature termination or non-extension is due to a compelling reason for which the company is responsible.
Amount of remuneration received by the Executive Board
The total remuneration received by the Executive Board of Hannover Rück SE on the basis of its work for Hannover Rück SE and the companies belonging to the Group is calculated from the sum of all the components set out in the following table pursuant to DRS 17 (amended 2010).
The remuneration (excluding pension payments) received by former members of the Executive Board totalled EUR 0.4 million (EUR 2.4 million).
enlarge
Download table (27 KB)
Total remuneration of the active members of the Executive Board pursuant to DRS 17 (amended 2010) | Total |
Number of share awards6 2012 = Actual 2013 = Estimate |
|||||||
---|---|---|---|---|---|---|---|---|---|
Name | Financial year | Non-performance-based remuneration | Performance-based remuneration1 | ||||||
Basic salary | Non-cash compensation/ fringe benefits2 |
Short-term | Medium-term | Long-term | |||||
Variable remuneration payable | Bonus bank | Share Awards | |||||||
in EUR thousand | 60%3 | Netted remuneration from seats with Group bodies4 |
20% (allocation)4 | 20% (allocation)5 | |||||
Ulrich Wallin | 2013 | 520.0 | 15.3 | 563.8 | 187.9 | 187.9 | 1,474.9 | 3,012 | |
2012 | 520.0 | 15.0 | 615.1 | 205.1 | 205.1 | 1,560.3 | 3,329 | ||
André Arrago | 2013 | 320.0 | 9.5 | 340.4 | 113.4 | 113.4 | 896.7 | 1,856 | |
2012 | 320.0 | 6.9 | 352.1 | 117.4 | 117.4 | 913.8 | 1,867 | ||
Claude Chèvre | 2013 | 320.0 | 13.3 | 329.6 | 109.8 | 109.8 | 882.5 | 1,760 | |
2012 | 320.0 | 5.1 | 351.9 | 117.3 | 117.3 | 911.6 | 1,906 | ||
Jürgen Gräber | 2013 | 400.0 | 14.3 | 473.2 | 157.7 | 157.7 | 1,202.9 | 2,321 | |
2012 | 400.0 | 20.7 | 440.1 | 146.7 | 146.7 | 1,154.2 | 2,592 | ||
Dr. Klaus Miller | 2013 | 320.0 | 13.8 | 329.6 | 109.8 | 109.8 | 883.0 | 1,760 | |
2012 | 320.0 | 17.9 | 352.1 | 117.4 | 117.4 | 924.8 | 1,906 | ||
Dr. Michael Pickel | 2013 | 320.0 | 17.2 | 347.6 | 115.8 | 115.8 | 916.4 | 1,856 | |
2012 | 320.0 | 9.6 | 352.1 | 117.4 | 117.4 | 916.5 | 1,906 | ||
Roland Vogel | 2013 | 380.0 | 15.7 | 347.0 | 35.3 | 115.6 | 115.6 | 973.9 | 1,853 |
2012 | 320.0 | 15.7 | 378.5 | 25.0 | 126.2 | 126.2 | 966.6 | 2,048 | |
Total | 2013 | 2,580.0 | 99.1 | 2,731.2 | 35.3 | 910.0 | 910.0 | 7,230.3 | 14,418 |
Total | 2012 | 2,520.0 | 90.9 | 2,841.9 | 25.0 | 947.5 | 947.5 | 7,347.8 | 15,554 |
1 As at the balance sheet date no Board resolution was available regarding the performance-based remuneration for 2013. The variable remuneration is recognised on the basis of estimates and the provisions constituted accordingly. 2 The non-cash compensation has been carried in the amounts established for tax purposes. 3 In 2013 altogether EUR 32,000 more in variable remuneration was paid out to Board members for 2012 than had been reserved. 4 The nominal amount is stated; full or partial repayment in 2017, depending on the development until such time of the balance in the bonus bank. In 2013 altogether EUR 10,700 more than had been originally reserved was allocated to the bonus bank for 2012. 5 The nominal amount is stated; virtual Hannover Re share awards are automatically granted in an amount equivalent to 20% of the variable remuneration. The equivalent amount will be paid in 2018 at the prevailing share price of Hannover Re. In 2013 nominal amounts of EUR 10,700 more than had been originally reserved were used as a basis for allocation of the 2012 share awards. 6 In order to calculate the number of share awards for 2013 reference was made to the Xetra closing price of the Hannover Re share on 30 December 2013 (EUR 62.38). The number to be actually awarded is established from the arithmetic mean of the Xetra closing prices of the Hannover Re share in a period from five trading days before to five trading days after the meeting of the Supervisory Board that approves the consolidated financial statement in March 2014. The applicable market price of the Hannover Re share had increased from EUR 58.96 (28 December 2012) to EUR 61.54 by the allocation date (6 March 2013) of the share awards for 2012; the share awards actually allocated for 2012 are shown here, not those estimated in the 2012 Annual Report. |
The following table shows the expense for share-based remuneration of the Executive Board in the financial year.
The table is to be viewed independently of the presentation of the total remuneration received by active members of the Executive Board pursuant to DRS 17.
Total expense for share-based remuneration of the Executive Board | ||||||
Name in EUR thousand | Year | Stock appreciation rights exercised | Change in reserve in 2013 for stock appreciation rights | Change in reserve for share awards from previous year1 | Expense for share awards allocated in current financial year2 | Total |
---|---|---|---|---|---|---|
Ulrich Wallin | 2013 | 114.0 | 58.6 | 61.6 | 40.3 | 274.5 |
2012 | 411.3 | (108.4) | 135.3 | 76.8 | 515.0 | |
André Arrago | 2013 | 535.2 | (439.2) | 109.9 | 69.5 | 275.4 |
2012 | 88.6 | 196.0 | 68.3 | 44.0 | 396.9 | |
Claude Chèvre | 2013 | – | – | 20.7 | 22.0 | 42.7 |
2012 | – | – | 11.8 | 41.4 | 53.2 | |
Jürgen Gräber | 2013 | 164.2 | (1.5) | 108.2 | 31.0 | 301.9 |
2012 | 671.5 | (273.7) | 71.7 | 29.3 | 498.8 | |
Dr. Klaus Miller | 2013 | – | 19.5 | (28.7) | 22.0 | 12.8 |
2012 | – | 16.9 | 98.3 | 70.4 | 185.6 | |
Dr. Michael Pickel | 2013 | 149.5 | (3.1) | 79.5 | 23.2 | 249.1 |
2012 | 596.9 | (238.6) | 22.9 | 23.5 | 404.7 | |
Roland Vogel | 2013 | 44.3 | 30.4 | 91.4 | 27.2 | 193.3 |
2012 | 146.6 | (28.2) | 65.4 | 25.2 | 209.0 | |
Total | 2013 | 1,007.2 | (335.3) | 442.6 | 235.2 | 1,349.7 |
Total | 2012 | 1,914.9 | (436.0) | 473.7 | 310.6 | 2,263.2 |
1 The change in the reserve for share awards from previous years derives from the increased market price of the Hannover Re share, the dividend approved for 2012, contract extensions and the spreading of the expense for share awards across the remaining period of the individual service contracts. 2 The expense for share awards is spread across the remaining period of the individual service contracts. This gives rise to a difference relative to the nominal amount shown in the table of total remuneration. |
Cash remuneration actually accruing to active members of the Executive Board | |||||
Name in EUR thousand |
Year | Fixed remuneration | Variable remuneration | Stock appreciation rights exercised | Total |
---|---|---|---|---|---|
Ulrich Wallin | 2013 | 520.0 | 614.5 | 114.0 | 1,248.5 |
2012 | 520.0 | 698.9 | 411.3 | 1,630.2 | |
André Arrago | 2013 | 320.0 | 344.6 | 535.2 | 1,199.8 |
2012 | 320.0 | 352.8 | 88.6 | 761.4 | |
Claude Chèvre | 2013 | 320.0 | 351.8 | – | 671.8 |
2012 | 320.0 | 64.8 | – | 384.8 | |
Jürgen Gräber | 2013 | 400.0 | 478.5 | 164.2 | 1,042.7 |
2012 | 400.0 | 490.5 | 671.5 | 1,562.0 | |
Dr. Klaus Miller | 2013 | 320.0 | 351.8 | – | 671.8 |
2012 | 320.0 | 378.0 | – | 698.0 | |
Dr. Michael Pickel | 2013 | 320.0 | 351.8 | 149.5 | 821.3 |
2012 | 320.0 | 374.4 | 596.9 | 1,291.3 | |
Roland Vogel1 | 2013 | 380.0 | 388.3 | 44.3 | 812.6 |
2012 | 320.0 | 453.4 | 146.6 | 920.0 | |
Total2 | 2013 | 2,580.0 | 2,881.3 | 1,007.2 | 6,468.5 |
Total | 2012 | 2,520.0 | 2,812.8 | 1,914.9 | 7,247.7 |
1 Remuneration for seats with Group bodies that is counted towards the variable remuneration accrues in the year of occurrence. 2 In 2013 altogether EUR 32,000 more in variable remuneration was paid to the members of the Executive Board for 2012 than had been reserved. |
Sideline activities of the members of the Executive Board
Retirement provision
Final-salary pension commitment (appointment before 2009)
The contracts of members of the Executive Board first appointed prior to 2009 contain commitments to an annual retirement pension calculated as a percentage of the pensionable fixed annual remuneration (defined benefit). The target pension is at most 50% of the monthly fixed salary payable on reaching the age of 65. A non-pensionable fixed remuneration component was introduced in conjunction with the remuneration structure applicable from 2011 onwards.
Contribution-based pension commitment (appointment from 2009 onwards)
The commitments given to members of the Executive Board from 2009 onwards are based on a defined contribution scheme.
A Board member who has reached the age of 65 and left the company’s employment receives a life-long retirement pension. The amount of the monthly retirement pension is calculated according to the reference date age (year of the reference date less year of birth) and the funding contribution on the reference date. The annual funding contribution for these contracts is paid by the company in an amount of 25% of the pensionable income (fixed annual remuneration as at the reference date of 1 July of each year).
In both contract variants (i. e. defined benefit and defined contribution) other income received while drawing the retirement pension is taken into account pro rata or in its entirety under certain circumstances (e.g. in the event of incapacity for work or termination of the service contract before reaching the age of 65).
Provision for surviving dependants
If the Board member dies during the period of the service contract, the surviving spouse – or alternatively the eligible children – shall be entitled to continued payment of the fixed monthly salary for the month in which the Board member dies and the six months thereafter, at most until termination of the service contract. If the member of the Executive Board dies after pension payments begin, the surviving spouse and alternatively the dependent children shall receive continued payment of the retirement pension for the month of death and the following six months.
The widow’s pension amounts to 60% of the retirement pay that the Board member received or would have received if he had been incapacitated for work at the time of his death.
An orphan’s pension shall be granted in the amount of 15% – in the case of full orphans 25% (final-salary pension commitment) or 30% (contribution-based pension commitment) – of the retirement pay that the Board member received or would have received on the day of his death if the pensionable event had occurred owing to a permanent incapacity for work.
Adjustments
The following parameters are used for adjustments to retirement, widow’s and orphan’s benefits: the price index for the cost of living of all private households in Germany (contracts from 2001 onwards) or the price index for the cost of living of four-person households of civil servants and higher-income salaried employees (contracts from 1997 to 2000).
Current pensions based on the commitments given from 2009 onwards (defined contribution commitment) are increased annually by at least 1% of their most recent (gross) amount.
Pension payments to former members of the Executive Board
The pension payments to former members of the Executive Board and their surviving dependants, for whom 14 (13) pension commitments existed, totalled EUR 1.4 million (EUR 1.4 million) in the year under review. The projected benefit obligation of the pension commitments to former members of the Executive Board amounted to altogether EUR 21.4 million (EUR 22.5 million).
Defined benefit commitments | ||||
Name
in EUR thousand | Financial year | Attainable annual pension (age 65) | DBO 31.12. | Personnel expense |
---|---|---|---|---|
Ulrich Wallin | 2013 | 220.0 | 3,284.1 | 120.8 |
2012 | 220.0 | 3,620.2 | 90.5 | |
André Arrago | 2013 | 127.0 | 2,273.0 | 85.8 |
2012 | 127.0 | 2,390.8 | 68.3 | |
Jürgen Gräber | 2013 | 158.5 | 2,133.3 | 97.9 |
2012 | 158.5 | 2,381.1 | 69.9 | |
Dr. Michael Pickel | 2013 | 120.0 | 1,163.5 | 101.2 |
2012 | 120.0 | 1,298.0 | 67.0 | |
Roland Vogel1 | 2013 | 80.4 | 786.8 | 38.1 |
2012 | 71.2 | 703.5 | 23.7 | |
Total | 2013 | 705.9 | 9,640.7 | 443.8 |
Total | 2012 | 696.7 | 10,393.6 | 319.4 |
1 Mr. Vogel was appointed as a member of the Executive Board on 1 April 2009. He was first granted a pension commitment on the basis of his service to the company prior to 2001; the earned portion of the commitment from the Unterstützungskasse is therefore established as a proportion (in the ratio [currently attained service years since entry]/[attainable service years from entry to exit age]) of the final benefit. Measurement under IFRS consequently uses the defined benefit method. An annual premium of EUR 95,000 (25% of the pensionable income) was paid for Mr. Vogel in 2013. The guaranteed interest rate of his commitment is 3.25%. |
Defined contribution commitments | ||||
Name
in EUR thousand | Financial year | Annual funding contribution1 | Attainable annual pension (age 65) | Premium |
---|---|---|---|---|
Claude Chèvre2 | 2013 | 25% | 68.4 | 80.0 |
2012 | 25% | 68.2 | 80.0 | |
Dr. Klaus Miller2 | 2013 | 25% | 48.7 | 80.0 |
2012 | 25% | 48.5 | 80.0 | |
Total | 2013 | 117.1 | 160.0 | |
Total | 2012 | 116.7 | 160.0 | |
1 Percentage of pensionable income (fixed annual remuneration as at the reference date of 1 July of each year) 2 Guaranteed interest rate 2.25% |