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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, prepared the
resolutions for the full Supervisory Board
in the year under review.
The previous remuneration system for the Board
of Management was already geared to
providing incentives for Munich
Re’s long-term and sustainable success and
to bringing the interests of the members of
the Board of Management into line with those
of our shareholders. It met the relevant
company and supervisory law
requirements, including those of the German
Corporate Governance Code.
The remuneration system for the Board of
Management comprised fixed and variable
components as well as the occupational
retirement scheme. Details can be found
in the following table:
The fixed components of remuneration comprised basic
remuneration plus remuneration in kind and fringe benefits such as
company cars, insurance policies and healthcare. The payroll tax on
the remuneration in kind and fringe benefits was borne by Munich
Re.
The variable remuneration component was 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 of variable remuneration depended on the extent to
which the annually set objectives for annual and multi-year
performance were met, and how the overall performance component was
assessed.
In evaluating the overall performance of the Board of Management
as a whole and of its individual members, performance criteria not
included in the agreed objectives were also taken into
consideration in particular, and could be assessed as either
positive or negative. In addition, the Supervisory Board was able
to address developments that were beyond the influence of Board
members during the appraisal period.
Annual objectives, multi-year objectives, overall performance
evaluation and investment in shares together formed 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 did not have undesirable effects. During
the one and three-year appraisal periods, no adjustments were made
to the objectives and no guaranteed variable remuneration
components were granted.
Details of the assessment bases for the annual and multiyear
performance are provided in the following tables.
1 The objectives were weighted individually according to the responsibilities of the individual Board members. 2 Further information on economic earnings is provided on page 50. |
The financial and personal objectives set for the members of the Board of Management up to 2017 were very granular and formulated very clearly to ensure that they were objective, and could be measured and monitored. They included commercially sensitive information that was highly relevant for the market and the competition, and covered clients’ interests. That is why we did not publish specific targets on the basis of the previous remuneration system. To enhance the transparency of the remuneration report, the overall achievement of objectives for each remuneration component is now also published in the remuneration tables in accordance with the German Corporate Governance Code.
The remuneration system for the Board of Management was designed
in such a way that, owing to the “overall
performance” component, a negative
contribution to profits led to a reduction in variable remuneration
on an annual and multi-year basis. Moreover, the financial
multiyear objectives were conceived such that the result of an
adverse year caused the overall achievement of objectives to drop
to zero. Hence, owing to the decline in the result for 2017, which
was attributable to hurricane losses, no bonus for the Group
objective for annual performance was paid and three multi-year
bonus schemes were significantly impacted. On account of the
flexible bonus policy, it was also possible for no variable
remuneration to be paid at all. In addition, the malus principle
also involved the obligation on members of the Board of Management
to invest in Company shares, as a result of which part of the bonus
paid was placed at risk again and thus linked to the interests of
shareholders.
According to the contracts of employment for members of the Board
of Management appointed for the first time as from 1 January 2017,
all variable remuneration components not already paid out are
forfeited in the event of termination of a Board
member’s contract by the Company for good
cause or in the event of relinquishment by a Board member of their
appointment to the Board of Management without good cause.
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.
Stock option plans
No stock option plans or similar incentive schemes 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. 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 are terminated
prematurely by the Company 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 this is shorter. If
the employment contract is terminated for good cause on grounds
that are within the Board member’s control,
no payments are made to the Board member. The calculation is based
on overall remuneration for the past financial year and, where
appropriate, 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 have a contractual right to a severance payment.
Such payments may not exceed the equivalent of two
years’ total remuneration, and are limited
to the remaining term of the Board member’s
contract if this term is shorter. Total annual remuneration is
calculated on the basis of basic annual remuneration and variable
remuneration paid out for the prior full financial year before the
contract was terminated; remuneration in kind, other fringe
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 in the event of extraordinary termination of the
Board member’s contract for good cause.
As a matter of principle, the Company ensures that severance
payments are related to performance achieved over the whole period
of activity.
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 amount of the pension
contribution takes into consideration the peer group (including DAX
30 companies) and the pension contributions for the employee groups
below the level of the Board of Management. The pension
contributions for the members of the Board of Management are 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 defined
benefit plan (fixed amount in euros) existing at the date of
transfer, 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.
Separate Remuneration Committee from 2018
The Supervisory Board set up a separate Remuneration Committee
with effect from 1 January 2018, of which the Chairman of the
Supervisory Board and one representative each of the shareholders
and employees are members. Following the 2019 Supervisory Board
election, the Committee is to be set up in such a way that the two
shareholder representatives may not be members of the Supervisory
Board for more than ten years. This enables us to comply with a key
demand of our shareholders. As a result of the establishment of the
Remuneration Committee, responsibility for all remuneration-related
matters concerning members of the Board of Management has been
transferred from the Personnel Committee to the Remuneration
Committee. This has no effect on the remaining tasks of the
Personnel Committee, such as the appointment and dismissal of Board
members or the conclusion of contracts.
New remuneration system from 2018
The Supervisory Board agreed a new remuneration system effective
from 1 January 2018, partly because the remuneration system for the
members of the Board of Management was rejected at the 2017 Annual
General Meeting. The new remuneration system complies with legal
requirements as did the previous system, takes account of the major
issues raised in the previous year and is much leaner, less complex
and easier to comprehend. The major reduction in complexity, paired
with externally accepted indicators, means that the Company will be
able to disclose the assessment bases and evaluations for the Board
of Management’s remuneration in a more
transparent manner in future, and therefore better meet the
requirements of shareholders and their representatives.
The new remuneration system for the Board of Management will be
put to the vote at the Annual General Meeting on 25 April 2018.
The structure of the remuneration system for the members of the
Board of Management with effect from 2018 is shown below. A
particular focus is on the changes compared with the previous
remuneration system, and reasons are given in each particular
case.
Remuneration continues to comprise fixed (non-performance-related)
and variable (performance-related) components and a company pension
scheme. Details are included in the following table:
Updated overview of the structure of the remuneration
system for the Board of Management from 2018
At its meeting on 14 March 2018, the Supervisory Board of Munich
Reinsurance Company passed a resolution regarding the methodology
for assessing the multi-year component
“total shareholder return (TSR) of the
Munich Re shares compared with a defined peer
group” and determined the scaling to be
applied.
The following overview of the structure of the remuneration system
for the Board of Management from 2018 has been adapted accordingly
and replaces the overview found on page 41 of the 2017 Group Annual
Report.
Fixed remuneration
Fixed remuneration comprises basic remuneration plus the
remuneration in kind and fringe benefits (including company cars
and insurance policies) previously granted. The payroll tax on the
remuneration in kind and fringe benefits will continue to be borne
by Munich Re.
The share of basic remuneration in the target overall direct
remuneration will be increased from 30% to 50%. The higher
weighting of the basic remuneration ensures a greater balance in
the composition of the overall remuneration, which is also a
requirement under Solvency II. In accordance with Solvency II,
fixed and variable remuneration components must be in balance, so
that the fixed component represents a sufficiently high proportion
of the total remuneration and enables the undertaking to apply a
fully flexible bonus policy, including the possibility of paying no
variable remuneration at all. The reduction in the variable
component is designed to avoid providing Board members with the
incentive to take excessive risk in order to achieve a higher
bonus. Moreover, variable remuneration, which is geared solely to
financial objectives and will in future only take qualitative
aspects into consideration as part of the overall performance
evaluation, will become significantly more volatile than was
previously the case with qualitative objectives. Individual
investors have also been increasingly requesting a strengthening of
fixed remuneration. For these reasons, it seems appropriate to
raise basic remuneration.
Variable remuneration
Assessment bases and link to corporate
strategy
Variable remuneration has been completely revamped. It continues
to comprise an annual and multi-year component, both of which are
related to the future (as was previously the case). The assessment
bases used, however, differ from those in the previous remuneration
system. One of the main reasons for this is that disclosure of the
financial objectives set for members of the Board of Management
– which was requested by investors for the
sake of greater transparency – was
previously out of the question owing to its relevance for the
competition and impact on clients’
interests. The assessment bases of the new remuneration system do
not have these disadvantages.
Going forward, the exact target for the IFRS consolidated result
used for the annual bonus, and the respective figures for a 0% and
200% achievement of objectives (linear scaling) will be
communicated externally. The target cannot be adjusted
retroactively. After the assessment period has ended, the IFRS
consolidated result achieved and the corresponding achievement of
this objective will also be disclosed. As regards the total
shareholder return (TSR) of Munich Re’s
shares used for the multi-year bonus, which is measured in relative
terms in comparison with the peer group, the specific values for
assessing the achievement will not be available until the end of
the plan period. The values used for 0% and 200% of the linear
scaling will be communicated externally prior to the 2018 Annual
General Meeting. After assessing this achievement, this too will be
communicated together with the comparable values for the peer
group. This ensures comprehensive transparency regarding the
financial objectives.
As only one financial indicator each is used in the annual and
multi-year bonus, the variable remuneration component is easier to
understand. The Company has deliberately decided in favour of this
simpler method in order to reduce the complexity of the previous
remuneration system. The IFRS consolidated result and TSR on Munich
Re’s shares in comparison with the peer
group are two ambitious and exacting indicators promoting long-term
corporate strategy. Both indicators can be influenced by the Board
of Management.
Munich Re’s business strategy is geared to
profitable growth and successful positioning among our competitors.
As an established result aggregate and relevant key figure for the
capital market, the IFRS consolidated result takes account of high
and stable earnings power in the annual variable remuneration
component. The target for the IFRS consolidated result is based on
annual planning figures, which in turn reflect Munich
Re’s business strategy.
Based on its long-term strategic orientation and economic
management of the Group, Munich Re is convinced of its ability to
sustainably create value for its shareholders in the form of TSR.
TSR takes account of dividend payments as well as share price
performance. A multi-year component based on an increase in TSR in
comparison with our peer group makes up the largest portion of the
new variable remuneration for the Board of Management. From Munich
Re’s point of view, the relative TSR is
well suited for bringing in line the interests of shareholders and
of the members of the Board of Management. As TSR is measured over
a period of several years, it reflects Munich
Re’s sustainable and long-term performance
not only in absolute terms, but also in relative terms. After all,
above-average TSR development in comparison with the peer group is
not conceivable in the long term without simultaneously generating
good results and creating value for our shareholders. Surpassing
the performance of our peer group can be in the interests of
shareholders – even in a weak market
environment.
As soon as the information on the achievement of objectives is
available, as part of the overall performance evaluation the
Supervisory Board can take into consideration both in the annual
and multi-year bonus the performance of the individual members of
the Board of Management and the Board of Management as a whole,
along with Munich Re’s financial situation,
performance and future prospects. This is done by means of a
loading or reduction of up to 20 percentage points on the relevant
objective achieved.
In evaluating overall performance, in particular financial and
non-financial criteria for the individual
member’s performance and the performance of
the respective divisional unit/division and the field of business
need to be taken into consideration. Other aspects, such as those
relating to periods prior to the appraisal period in question, may
also be taken into account. For this purpose, the Supervisory Board
has compiled a set of criteria with the following examples of
bonus-malus aspects:
Transparency is provided with regard to whether and for what
loadings or reductions were made and what they amounted to.
The evaluation of overall performance can also take into account
factors that influence business development but are not reflected
in the IFRS consolidated result and TSR. Therefore, in light of the
aim of keeping the remuneration system simple and transparent, no
further financial assessment bases are needed.
Targets for the annual bonus
The aim of the annual bonus is to achieve a high IFRS consolidated
result. A target of €2,300m was set for
2018, with the following linear scaling for the
0–200% target corridor:
€1,600m = 0% achievement of objective
€2,300m = 100% achievement of objective
€3,000m = 200% achievement of objective
The target chosen for 2018 is a challenging objective for the
members of the Board of management given the prevailing
low-interest-rate policies and fierce competition in the
reinsurance markets.
Targets for the multi-year bonus
The objective of the multi-year bonus is the sustainable
performance of Munich Re’s shares in terms
of TSR in comparison with the peer group. The companies in the peer
group were selected based on comparable business activities and
size. Furthermore, they must be listed on the stock exchange and
subject to similar accounting standards as Munich Re, which is why
the peer group only includes European primary insurance and
reinsurance companies. The peer group comprises Allianz, Axa,
Generali, Hannover Re, SCOR, Swiss Re and Zurich Insurance Group.
It is the same peer group as for the
analysts’ conference.
The multi-year bonus spans five calendar years. In the first
calendar year, the initial TSR is established, and at the end of
the scheme, the end TSR is computed and compared in order to
determine achievement of the objective. The calculations are made
on the basis of reporting date figures.
Deferral
The run time of the flexible and deferred multi-year bonus takes
account of the nature and time horizon of the
Company’s business activities. The TSR in
the multi-year bonus fully reflects the sustainable and long-term
performance of Munich Re’s shares, so that
a further multi-year deferral period –
which in turn is geared to share price performance
– is neither expedient nor necessary. In
the case of the annual bonus, a deferral period does not offer any
significant added value either, as the annual bonus makes up only
15% of overall remuneration.
Limit to variable remuneration (malus) and
clawback
Given that the Supervisory Board can take into account a loading
or discount of up to 20 percentage points on both the annual bonus
and the multi-year bonus in order to reflect the achievements of
the individual members of the Board of Management and the Board of
Management as a whole, it has the option of reducing variable
remuneration in the case of negative result contributions.
According to the employment contracts for members of the Board of
Management appointed for the first time after 1 January 2017, all
unpaid variable remuneration components are forfeited in the event
of termination of a Board member’s contract
by the Company for good cause or in the event of relinquishment by
a Board member of their appointment to the Board of Management
without good cause.
In addition, all employment contracts of the members of the Board
of Management provide for the right of the Company to implement any
requirements by the supervisory authority to limit, cancel or not
pay out variable remuneration in relation to the member of the
Board of Management.
Contractual clawback provisions requiring reimbursement of
variable remuneration components already paid out are triggered in
the event of a serious breach of duty. With effect from 2018, all
employment contracts of the members of the Board of Management
include a provision according to which, in particular pursuant to
Section 93 of the German Stock Corporation Act (AktG), a member of
the Board of Management is required to reimburse the Company for
any damage attributable to them as a result of a breach of duty.
The contractual indemnity provision protects the Company; it is
designed to safeguard the Company’s assets
in the event of a serious breach of duty. In the
Company’s view, an additional clawback
provision for bonuses already paid is therefore not required.
Upper remuneration limits
The target corridor of 0–200% defines an
upper limit for variable remuneration paid to members of the Board
of Management. Any higher achievement of objectives is capped at
200%; in this case, there is therefore also no loading as a result
of the overall performance evaluation. In addition, there are caps
on the maximum amounts of total remuneration and its variable
components in accordance with the German Corporate Governance
Code.
Share ownership of the members of the Board of
Management
Unlike previously, members of the Board of Management are no
longer obliged to invest in Company shares under the new
remuneration system. There are several reasons for this:
The TSR used in the multi-year bonus reflects the performance of
Munich Re’s shares, which ensures that the
interests of the Board of Management are in line with those of our
shareholders. From the Company’s point of
view, the steadily increasing requirements under insider trading
law regarding the purchase and sale of shares as well as the rising
number of investigations – also in
connection with share-based remuneration components
– are compelling arguments against
remuneration based on an obligation to purchase shares. The
reputational damage that may ensue for a company is huge (even if
the legal proceedings are terminated) and may also have a negative
effect on shareholders.
In addition, the members of the Board of Management appointed
prior to 2017 already hold a large number of Company shares.
Moreover, all members of the Board of Management are obliged under
the 2017 annual performance plan and all or individual multi-year
performance plans (2015–2017,
2016–2018 and
2017–2019) to continue to invest in Company
shares over the next few years.
Pensions
There have been no changes to the pensions for members of the
Board of Management compared with 2017.
Other
No guaranteed variable remuneration (sign-on
bonuses/recruitment bonuses)
As a matter of principle, the Company does not pay guaranteed
variable remuneration to members of the Board of Management. We
only pay sign-on/recruitment bonuses in exceptional cases and on
production of corresponding evidence if a new member of the Board
of Management forfeits a bonus by a previous employer. Compensation
for forfeiting variable remuneration components paid by a previous
employer is in any case limited to the first year of employment.
Payment is effected in several instalments, and is tied to
prerequisites for disbursement.
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 by the Company 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 this is shorter. If the employment contract is
terminated for good cause on grounds that are within the Board
member’s control, no payments are made to
the Board member. The calculation is based on 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 have a contractual right to a severance payment.
Such payments may not exceed the equivalent of two
years’ remuneration, and are restricted by
the remaining term of the Board member’s
contract if this term is shorter. Annual remuneration is calculated
on the basis of annual basic remuneration and variable remuneration
paid out for the prior full financial year before the contract was
terminated; remuneration in kind, other fringe benefits and
contributions to occupational retirement schemes are not taken into
account. Payments received by a Board member during a period of
notice after termination of the appointment are offset against any
severance payment. There will be no right to severance payments in
the event of extraordinary termination of the Board
member’s contract by the Company for good
cause.
As a matter of principle, the Company ensures that severance
payments are related to performance achieved over the whole period
of activity.
Amount of remuneration
As previously, the level of the target overall direct remuneration
for the members of the Board of Management is set by the
Supervisory Board, taking into account the responsibilities and
performance of each member of the Board of Management, the
performance of the full Board of Management and the financial
situation, performance and future prospects of Munich Re. It takes
into consideration whether the remuneration is standard practice
and appropriate compared with other companies of the peer group
(including DAX 30 companies). The target overall direct
remuneration for the Chairman of the Board of Management is based
on the median remuneration paid to the chairs of the boards of
management of DAX 30 companies. In addition, the Supervisory Board
takes into account the level of the salaries paid to the Board of
Management in relation to the level of salaries paid to senior
managers and to general staff members over time.
Pay ratios
In 2017, the ratio of the target overall direct remuneration of
the Chairman of the Board of Management to the average target
overall direct remuneration of all Company employees (excluding the
Board of Management) was 37. The ratio of the average target
overall direct remuneration of all members of the Board of
Management to the average target overall direct remuneration of all
employees (excluding the Board of Management) was 23.
External consultants
Munich Re did not use the services of external consultants to
draft and implement the remuneration system of the Board of
Management effective from 2018.
Concluding remarks of the Supervisory Board
In the Supervisory Board’s view, the
remuneration system of the Board of Management applying with effect
from 2018 is appropriate, sustainable and transparent. The
remuneration paid is linked to the
Company’s business strategy and results,
and to the performance of Munich Re’s
shares, taking into particular consideration the interests of both
the Company and its shareholders. Besides this, the new
remuneration system brings about the transparency requested by
shareholders and their representatives with regard to the targets
and achievement of objectives, and takes account of the criticism
expressed about the previous remuneration system. The Supervisory
Board therefore calls upon all shareholders to approve the new
remuneration system.
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