Remuneration report

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Remuneration report

Remuneration system for the Board of Management

The remuneration system for the Board of Management focuses strongly on long-term objectives, and thus creates a pronounced incentive for sustainable corporate development. It complies with

  • the recommendations of the German Corporate Governance Code, applicable since 5 May 2015,
  • the provisions of the German Remuneration Regulation for Insurance Companies (VersVergV) of 18 April 2016, and
  • Article 275 of the Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).


The full Supervisory Board decides on the remuneration system for the Board of Management, and reviews it regularly. The Personnel Committee of the Supervisory Board, comprising the Chairman of the Supervisory Board, one shareholder representative and one employee representative, prepares the resolutions for the full Supervisory Board.

Structure of the remuneration system for the Board of Management

Component Share1 Assessment basis/ parameters Corridor Precondition for payment Payment
Basic remuneration plus remuneration in kind/fringe benefits 30% Function
Responsibility
Length of service on Board
Fixed Contractual stipulations Monthly
Variable remuneration 70% Corporate performance
Result contribution of organisational unit(s)
Personal performance
     
30% annual performance
(for 100% performance evaluation/
achievement of objectives)
  Group objective
Business field objectives
Divisional objectives
Personal objectives
Overall performance
0–200% (fully achieved = 100%) Achievement of annual objectives In the second year, on condition that 50% of the net amount paid out is invested by the Board member in Munich Re shares that must be held for at least a four-year period
70% multi-year performance
(for 100% performance evaluation/
achievement of objectives)
  Objectives for the business fields
– Reinsurance
– ERGO
– Munich Health2
Personal objectives
Overall performance
0–200% (fully achieved = 100%) Achievement of three-year objectives In the fourth year, on condition that 25% of the net amount paid out is invested by the Board member in shares that must be held for at least a two-year period
Pension          
Defined contribution plan   Target overall direct
remuneration3
Pension
contribution
  • Retirement
  • Insured event
  • Premature termination
 

1 For the variable remuneration, the share shown presupposes 100% performance evaluation/achievement of objectives.
2 The field of business/division Munich Health was disbanded as at 1 February 2017, so that no objectives have been set with effect from 2017.
3 Target overall direct remuneration comprises basic remuneration plus variable remuneration based on 100% performance evaluation/achievement of objectives.

Fixed components

The fixed components of remuneration comprise basic remuneration, plus remuneration in kind and fringe benefits.

Basic remuneration
The basic remuneration comprises a fixed cash compensation for the financial year, paid out as a monthly salary.

Remuneration in kind/fringe benefits
Remuneration in kind and fringe benefits include – in particular – company cars, insurance premiums and health screening examinations, and are reviewed against market practice at regular intervals. Income tax on the benefits in question is paid individually for each member of the Board of Management, with the Company bearing the amount due. Remuneration in kind and fringe benefits are disclosed in the Annual Report using expenditure as the basis of valuation.

Variable remuneration

The variable remuneration component is geared to the overall performance of the Group and defined divisional units, and to the personal performance of the individual members of the Board of Management. The amount depends on the extent to which the annually set objectives for annual and multi-year performance are met, and how the component “evaluation of overall performance” is assessed.

Processes have been laid down for specifying respective objectives and assessing their achievement. These processes require review by the external auditor, who checks the criteria for measuring the envisaged financial objectives and whether their achievement has been assessed in accordance with the guidelines established by the Company. The outcome is notified to the Supervisory Board.

Achievement of objectives and overall performance is measured at the end of the one-year and three-year periods in question, there being no adjustment of targets during these periods. The corridor for the achievement of the individual objectives and for the overall annual and multi-year performance is 0–200%. Payouts are made at the end of the periods under consideration. With a view to promoting a management approach that takes due account of the Company’s long-term interests, the members of the Board of Management are obliged to invest a fixed part of the paid-out variable remuneration in Munich Reinsurance Company shares.

Annual objectives, multi-year objectives, overall performance evaluation and investment in shares together form a well-balanced and economic (i.e. strongly risk-based) incentive system, with great importance being attached to ensuring that the targets set for the members of the Board of Management do not have undesirable effects. No guaranteed variable salary components are granted.

Variable remuneration based on annual performance

Firstly, annual targets for the variable remuneration component geared to annual performance are set on the basis of the consolidated result of Munich Re (Group), the results from the reinsurance and ERGO fields of business, divisional results and personal performance. In addition, the Supervisory Board assesses overall performance – particularly performance not taken into account in the objectives – of the Board of Management as a whole and the individual Board members, and it also takes into account developments during the appraisal period that are beyond the influence of the Board. Full achievement of the annual objectives (100%) allows for payment of 30% of the overall target amount for variable remuneration.

The variable remuneration for annual performance is determined on the basis of evaluation by the full Supervisory Board and then paid out in the year after the one-year assessment period. Of the net payout amount, 50% must be invested in Munich Reinsurance Company shares that must be held for at least a four-year period.

Details of the assessment bases for the annual performance can be seen in the following table:

Variable remuneration based on annual performance

Category of objective Share1 Assessment basis Parameters
Collective contribution to corporate success 25%–60%    
Group objective   Derived from key performance indicators in external reporting and other important portfolio and performance data
Return on risk-adjusted capital, RORAC2
Business field objectives
     
– Reinsurance
  Value-based economic performance indicators:
– Property-casualty reinsurance
– Life reinsurance
Components of economic earnings:3
 
– Value added
– Value added by new business
– Change in the value of in-force business
– ERGO   Value-based economic performance indicator
Economic earnings3
Individual contribution to corporate success 20%–55%    
Divisional objectives   Value-based economic performance indicators:
– Property-casualty reinsurance and Munich Health
Life reinsurance
Components of economic earnings:3
 
– Value added
– Value added by new business
– Change in the value of in-force business
Personal objectives
  Personal objectives per Board member Special focal points such as
– Pricing and cycle management
– Client management
– Individual leadership
Overall performance evaluation
20%
Overall performance of individual Board members and of the Board of Management as a whole Assessment by Supervisory Board taking into account Section 87 of the German Stock Corporation Act (AKtG) and the German Corporate Governance Code

1 The objectives are weighted individually according to the responsibilities of the individual Board members.
2 Further information on RORAC is provided on page 47.
3 Further information on economic earnings is provided on page 46.

Variable remuneration based on multi-year performance

For the multi-year performance remuneration component, three-year targets based on the financial results of the reinsurance, ERGO and Munich Health fields of business and on individual performance are fixed every year. The Supervisory Board also assesses the overall performance of the whole Board of Management and the individual Board members. This allows for a response to developments during the three-year appraisal period that are beyond the influence of Board members, and which can also be taken into account along with performance not included in the agreement of objectives. Full achievement of the multi-year objectives (100%) allows for payment of 70% of the overall target amount for variable remuneration.

The variable remuneration for the multi-year performance is determined on the basis of evaluation by the full Supervisory Board and then paid out in the year after the three-year assessment period. Of the net payout amount, 25% must be invested in Munich Reinsurance Company shares that must be held for at least a two-year period.

Details of the assessment bases for the multi-year performance can be seen in the following table:

Variable remuneration based on multi-year performance

Target category Share1 Assessment basis Parameters
Collective contribution to corporate success 0%–60%
   
Business field objectives (three-year average      
– Reinsurance   Value-based economic performance indicators:
– Property-casualty reinsurance
– Life reinsurance
Components of economic earnings:2

– Value added
– Value added by new business
– Change in value of in-force business
– ERGO3   Value-based economic performance indicator Economic earnings2
– Munich Health3   Value-based economic performance indicator Component of economic earnings:2
– Value added
Individual contribution to corporate success 20%–80%
   
Personal objectives (three-year period)   Personal objectives per Board member Special focal points such as
– Strategic goals
– Client management
– Innovation initiatives
– Digitalisation initiatives
Overall performance evaluation 20%
Overall performance of individual Board members and the Board of Management as a whole Assessment by Supervisory Board taking into account Section 87 of the German Stock Corporation Act and the German Corporate Governance Code (incl. corporate
responsibility)

1 The objectives are weighted individually according to the responsibilities of the individual Board members.
2 Further information on economic earnings is provided on page 46.
3 The business-field objective for Munich Health and for ERGO is an “individual contribution to corporate success” for the Board member responsible.

Weighting of remuneration components

In the case of 100% achievement of objectives, the weightings of the individual components in terms of total remuneration were as follows: basic remuneration 30%, variable remuneration 70%, of which 30% was based on annual performance and 70% on multi-year performance.

Continued payment of remuneration in the case of incapacity to work

In the case of temporary incapacity to work due to illness or for another cause beyond the Board member’s control, the remuneration is paid until the end of the contract of employment. The Company may terminate the contract prematurely if Board members are incapacitated for a period of longer than 12 months and it is probable that they will be permanently unable to fully perform the duties conferred on them (permanent incapacity to work). In this event, the Board member will receive a disability pension.

Other remuneration

Stock option plan
No stock option plans or other incentive systems are in place for the Board of Management.

Remuneration for other board memberships
In the case of seats held on other boards, remuneration for board memberships must be paid over to the Company or is deducted in the course of regular remuneration computation. Exempted from this is remuneration for memberships explicitly classified by the Supervisory Board as private.

Severance cap and change of control
Members of the Board of Management appointed before 1 January 2017 have no contractual right to severance payments. If the Board member’s activities on the Board are terminated prematurely without good cause, payments due may not exceed the equivalent of two years’ total remuneration (three years total remuneration in the event of acquisition of a controlling interest or change of control within the meaning of Section 29 (2) of the Securities Acquisition and Takeover Act – WpÜG) and may not cover more than the remaining period of the employment contract. If the employment contract is terminated for good cause on grounds that are within the Board members control, no payments are made to the Board member. The calculation is based on the overall remuneration for the past financial year and, if necessary, on the probable overall remuneration for the current financial year.

Members of the Board of Management appointed for the first time after 1 January 2017 whose contracts are terminated by the Company without good cause will have a contractual right to a severance payment. Such payments may not exceed the equivalent of two years total remuneration, and are restricted by the remaining term of the Board member’s contract. Total annual remuneration is calculated on the basis of fixed annual remuneration and the variable remuneration paid out for the prior full financial year before the contract was terminated; remuneration in kind, other ancillary benefits and contributions to occupational retirement schemes are not taken into account. Payments received by a Board member during a period of notice and after termination of the appointment are offset against any severance payment. There will be no right to severance payments if the Board member’s contract is terminated by the Company for good cause.

Pensions

Up to and including 2008, the members of the Board of Management were members of a defined benefit plan, providing for payment of a fixed pension amount.

As of 2009, newly appointed members of the Board have become members of a defined contribution plan. For this plan, the Company provides a pension contribution for each calendar year (contribution year) during the term of the employment contract. It uniformly amounts to 25.5% of the target overall direct remuneration (= basic remuneration + variable remuneration on the basis of 100% achievement of objectives). The pension contribution is paid over to an external pension insurer. The insurance benefits that result from the contribution payments constitute the Company’s pension commitment to the Board member.

Board members appointed before 2009 were transferred to the new system. They kept their pension entitlement from the previous defined benefit plan (fixed amount in euros) existing at the date of transfer on 31 December 2008, which was maintained as a vested pension. For their service years as of 1 January 2009, they receive an incremental pension benefit based on the defined contribution plan.

The Supervisory Board determines the relevant target pension level for pension commitments from defined benefit plans and defined contribution plans – also considering length of service on the Board – and takes account of the resultant annual and long-term cost for the Company.

The members of the Board of Management are also members of the Munich Re pension scheme, which is a defined contribution plan.

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