Structure and system
The remuneration scheme for senior executives below the Executive Board (management levels 2 and 3) consists of a fixed annual salary and a system of variable remuneration. This is comprised of a short-term variable remuneration component, the annual cash bonus, and a long-term share-based remuneration component, the Share Award Plan. This variable remuneration has been uniformly applied worldwide since 1 January 2012 to all Group senior executives (i. e. Managing Directors, Directors and General Managers). It satisfies the requirements of the Regulation on the Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (VersVergV), which entered into force on 13 October 2010, inasmuch as – in its basic principles and parameters – it meets the special requirements of § 4 VersVergV and is appropriately realised according to the various management levels. As part of the reorientation of the remuneration system for senior executives the Share Award Plan of the Executive Board was consciously extended to include management levels 2 and 3. Given that at the same time the stock appreciation rights plan for senior executives was cancelled with effect from the 2012 allocation year, this means that a uniform share-based remuneration component has been maintained for the Executive Board and senior executives alike.
Members of staff on the levels of Chief Manager, Senior Manager and Manager are also able to participate in a variable remuneration system through the Group Performance Bonus (GPB). The Group Performance Bonus (GPB) is a remuneration model launched in 2004 that is linked to the success of the company. This tool is geared to the minimum return on equity of 750 basis points above the risk-free interest rate and the return on equity actually generated. For those participating in the GPB 14.15 monthly salary payments are guaranteed; a maximum of 16.7 salary payments is attainable. Since its launch the maximum amount of the GPB was paid out in 2006, 2007, 2009, 2010, 2012 and 2013.
The group of participants and the total number of eligible participants in the variable remuneration systems of Hannover Re are set out in the table on the following page.
Measurement of variable remuneration for senior executives
The measurement of the variable remuneration is based on three elements: Group net income, divisional targets and individual targets. The weighting of the elements is dependent upon whether responsibility is carried in a treaty / regional department or in a service department. In the treaty / regional departments the Group net income is weighted at 20 %, the divisional targets at 40 % and the individual targets also at 40 %. In the service departments the Group net income carries a 40 % weighting, while the individual targets account for 60 %. Agreements on divisional targets and individual targets as well as on their degree of goal attainment are arrived at as part of the Management by Objectives (MbO) process.
The Group net income is measured by the three-year average return on equity (ROE) of the Hannover Re Group above the risk-free interest rate. Goal attainment is calculated as follows: for each individual financial year of the last three financial years it is calculated by how many percentage points the RoE of the Hannover Re Group exceeds the risk-free interest rate. The average of these three differences determines the three-year average RoE above the risk-free interest rate. The risk-free interest rate is the average market interest rate over the past five years for 10-year German government bonds.
If the three-year average RoE above the risk-free interest rate reaches the expected minimum return on equity of 750 basis points, goal attainment stands at 85 %. Goal attainment of 100% is recorded at 882 basis points. The maximum possible goal attainment is 200 %. A lower limit is placed on goal attainment of -50 % (penalty) for management level 2 (Managing Director) and 0 % for management level 3 (Director and General Manager).
The measurement of the divisional targets – which in the case of the treaty / regional departments account for 40 % of overall goal attainment – is geared to the actual value created. The Intrinsic Value Creation (IVC) of the division encompassing the relevant area of responsibility is therefore used as a one-year measurement basis. Negative performance contributions are excluded here – the minimum possible goal attainment is 0 %. The maximum possible goal attainment is limited to 150 %.
|Group of participants and total number of eligible participants in variable remuneration systems|
|Valid: 31 December 2014|
|Participants||Variable remuneration system||Number of eligible participants in the variable remuneration system|
|Managing Director||Management level 2||Cash bonus and Share Award Plan||Hannover Re Group|
All 160 Group senior executives worldwide receive a cash bonus upon corresponding goal attainment. 159 of them participate in the Share Award Plan.
|Director||Management level 3|
|Chief Manager||Group Performance Bonus (GPB)||Home Office Hannover|
623 staff (excl. seconded employees) out of the altogether 1,269 at Hannover Home Office (incl. 94 senior executives) are GPB-eligible.
Attainment of the agreed IVC results in goal attainment of 100 %. Outperformance of the divisional targets, i. e. a degree of goal attainment in excess of 100 %, requires at least the agreement and attainment of a positive IVC. Furthermore, a degree of goal attainment in excess of 100 % should be geared to a real comparison of planned IVC with actual IVC. A maximum degree of goal attainment of 150 % is conditional upon attainment of an excellent positive IVC and implies that the actual IVC of the division is significantly in excess of the planned IVC.
Individual targets are agreed and measured for a period of one year. The degree of goal attainment is between 0 % and 100 %.
Amount and payment of variable remuneration for senior executives
The overall degree of goal attainment determines the amount of variable remuneration including share awards. On management level 2 (Managing Director) 60 % of the variable remuneration is paid out annually in cash and 40 % is granted in the form of share awards. On management level 3 (Director and General Manager) the variable remuneration is split into 65 % cash payment and 35 % granted as share awards.
On management level 3 (Director and General Manager) the minimum variable remuneration amounts to EUR 0 on the premise that the degree of attainment for all goals is 0 %. For management level 2 (Managing Director) in treaty / regional departments the minimum limit for the variable remuneration is set at -10 % if the degree of goal attainment for Group net income is -50 % while at the same time goal attainment of 0 % is determined for the divisional targets and individual targets. For management level 2 (Managing Director) in service departments -20 % of the variable remuneration is possible as the lower limit, if the degree of goal attainment for Group net income is -50 % and at the same time goal attainment of 0 % is determined for the individual targets.
In view of the fact that outperformance of up to 200 % is possible for Group net income and up to 150 % for divisional targets, a maximum total degree of goal attainment of 140 % can be attained in both treaty / regional departments and service departments. Given outperformance of all targets, a maximum of 140 % of the variable remuneration can therefore be attained on management levels 2 and 3.
Allocation and payment of share awards to senior executives
The total number of share awards allocated is determined according to the value per share of Hannover Re. This value is arrived at from the average of the closing prices of the shares in a period extending from 20 trading days before to 10 trading days after the meeting of the Supervisory Board at which the consolidated financial statement is approved. The number of share awards is established by dividing the specified portion of the total bonus (40 % or 35 %) by the value per share, rounded up to the next full share.
Following expiry of a vesting period of four years the value of one Hannover Re share calculated at the disbursement date is paid out for each share award. The value of the Hannover Re share is again determined from the average of the closing prices of the shares in a period from 20 trading days before to 10 trading days after the meeting of the Supervisory Board that approves the consolidated financial statement. In addition, a sum in the amount of the dividend is paid out for each share award, insofar as dividends were distributed to shareholders. The level of the dividend payment is the sum total of all dividends per share paid out during the period of the share awards multiplied by the number of share awards.
In the case of the allocation and payment of share awards to participants in the Share Award Plan who are located abroad, the rate of exchange used to convert the average share price is the average of the relevant exchange rate in a period from 20 trading days before to 10 trading days after the meeting of the Supervisory Board that approves the consolidated financial statement. For payment of the dividend to participants in the Share Award Plan who are located abroad, the rate of exchange used to convert the dividend per share is the average of the relevant exchange rate in a period from 20 trading days before to 10 trading days after the Annual General Meeting that approves the dividend payment for the financial year just ended.
The cash bonus for the 2013 financial year was paid out in June 2014. The share awards for the 2013 financial year were also allocated in June 2014; they will be paid out in the spring of 2018 including dividends paid for the 2013, 2014, 2015 and 2016 financial years.
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