Remuneration of the Executive Board
Responsibility
The Supervisory Board has hitherto delegated responsibility for determination of the amount of the remuneration paid to Hannover Re’s Executive Board to the Standing Committee. The Act on the Adequacy of Management Board Remuneration stipulates that the full Supervisory Board shall decide on the determination of the total remuneration of the individual members of the Executive Board. At its meeting on 4 November 2009 the Supervisory Board amended the Rules of Procedure of the committee with immediate effect. Pursuant to Item 3.2 of the Rules of Procedure, the committee shall decide in lieu of the Supervisory Board on the content, formation, modification and termination of employment contracts with the members of the Executive Board with the exception of remuneration- related content. The latter shall be decided upon at a full meeting of the Supervisory Board.
Objective
The purpose of the remuneration system for the Executive Board is to appropriately recompense the members of the Executive Board according to their scope of activity and responsibility. In this context, an appropiate variable portion of the total remuneration makes direct allowance for the joint and individual performance of the Executive Board as well as for the performance of the company.
Structure of the remuneration received by the Executive Board
With this objective in mind, the remuneration system consists of three components: fixed emoluments, a variable bonus as well as a share-based remuneration component based on a virtual stock option plan with a longer-term incentive effect and risk element.
The fixed emoluments, paid in twelve monthly instalments, are guided by the professional experience and area of responsibility of the Board member in question.
The variable bonus is cash compensation measured by the performance in the financial year; half is based on the individual Board member's profit contribution (performance bonus) and half on the net income generated by the Group as a whole (profit bonus).
The members of the Executive Board are also entitled to receive stock appreciation rights under the virtual stock option plan implemented in 2000 for certain members of the Group's management.
The content of the stock option plan is based solely on the Conditions for the Granting of Stock Appreciation Rights. Under these conditions, stock appreciation rights are awarded separately for each financial year provided the internal and external performance criteria defined in advance by the Supervisory Board are met.
The internal performance criterion is satisfied upon achievement of the target earnings per share (EPS) calculated in accordance with IAS 33 “Earnings per Share”. The external performance criterion is the increase in the value of the Hannover Re share. The benchmark used to measure this increase in value is the weighted ABN Amro Global Reinsurance Index. The benchmarks cannot be retrospectively altered.
Exercise of the stock appreciation rights does not give rise to any entitlement to the delivery of Hannover Re stock, but merely to payment of a cash amount linked to the performance of the Hannover Re share. The amount paid out is limited to a maximum calculated as a quotient of the total volume of compensation to be granted in the allocation year and the total number of stock appreciation rights awarded in the year in question. The waiting period before these virtual stock options may be exercised was two years until 31 December 2009. With the aim of making greater allowance for the long-term effect in the remuneration structure, the waiting period was extended to four years with effect from the 2010 allocation year. At the end of this remuneration report we explain in greater detail the changes decided upon by the Supervisory Board with effect from 1 January 2010 as a consequence of the Act on the Adequacy of Management Board Remuneration.
For further details of the virtual stock option plan please see the explanations provided in the notes to this Group Annual Report, Section 8.2 “Share-Based Payment”.
Amount of remuneration received by the Executive Board
The total remuneration received by the Executive Board of Hannover Re on the basis of its work for Hannover Re and its affiliated companies is calculated from the sum of all components that resulted in a charge in the financial year concerned, irrespective of whether they accrued to the relevant Board member. Pecuniary advantages from non-cash compensation are also included. The stock appreciation rights awarded have also been included in the total remuneration at their fair value on the date when they were granted. The figures for the previous year have been adjusted for comparative purposes since the presentation last year was based on the cash receipts and disbursements method.
| Total remuneration received by the executive Board in TEUR | 2009 | 2008 | 2007 |
|---|---|---|---|
| 1At the balance sheet date, no Board resolution had yet been passed on the amounts to be paid for 2009. The amount shown for the variable bonuses is based on estimates and the corresponding provisions constituted. | |||
| 2Since the Supervisory Board decides upon the final allocation of the number of stock appreciation rights at the March meeting after the balance sheet date and given that the period of the stock appreciation rights commences on 1 January of the subsequent year, the stock appreciation rights to be awarded for the financial year are expensed in subsequent years. | |||
| Fixed emoluments | 1,674.2 | 1,909.2 | 1,782.1 |
| Variable bonuses1 | 2,383.3 | 1,804.1 | 2,689.2 |
| Remuneration from Group companies netted with the bonus | 116.7 | 113.5 | 145.3 |
| Stock appreciation rights granted2 | – | 527.3 | 1,197.9 |
| Taxable amount from non-cash compensation | 144.7 | 91.1 | 84.9 |
| 4,318.9 | 4,445.2 | 5,899.4 | |
| Change in the value of stock appreciation rights already awarded | 704.2 | (1,375.7) | (490.0) |
| Exercised stock appreciation rights | 146.8 | 449.7 | 433.8 |
| Total | 5,169.9 | 3,519.2 | 5,843.2 |
In the 2009 financial year no stock appreciation rights were granted for the 2008 allocation year because the internal performance criterion was not satisfied; in the previous year 215,280 stock appreciation rights totalling EUR 0.5 million were granted for the 2007 allocation year. Stock appreciation rights granted in previous years were exercised in an amount of EUR 0.1 million (EUR 0.4 million).
As at 31 December 2009 the members of the Executive Board had at their disposal a total of 318,170 (484,232) granted, but not yet exercised stock appreciation rights with a fair value of EUR 2.1 million (EUR 1.4 million). The remuneration paid to former members of the Executive Board totalled EUR 0.7 million.
The Annual General Meeting of Hannover Re held on 12 May 2006 resolved by a voting majority of 85.5% to avail itself until 31 December 2010 of the option contained in the Act on the Disclosure of Management Remuneration (VorstOG) not to specify the remuneration of the Executive Board on an individualised basis by name.
Retirement provision
The pension agreements of the members of the Executive Board with Hannover Re contain commitments to an annual retirement pension calculated as a percentage of the fixed annual emoluments. Commitments also exist on the basis of a defined contribution scheme. There were five (seven) individual commitments to the active Board members in the year under review. An amount of EUR 1.5 million (EUR 1.5 million) was allocated to the provision for pensions in the year under review. This includes the allocation to the employee-funded provision constituted from deferred compensation – an allocation that was made from the variable bonus for the previous year. The provision stood at EUR 8.4 million (EUR 9.9 million) as at 31 December 2009. In addition, contributions to a pension fund in an amount of EUR 0.05 million were paid.
The remuneration paid to former members of the Executive Board and their surviving dependants, for whom thirteen (eleven) pension commitments existed, totalled EUR 1.3 million (EUR 1.3 million) in the year under review. Altogether, an amount of EUR 13.8 million (EUR 10.7 million) has been set aside for these commitments.
Sideline activities of the members of the Executive Board
The members of the Executive Board require the approval of the Supervisory Board to take on sideline activities. This ensures that neither the remuneration granted nor the time required for this activity can create a conflict with their responsibilities on the Executive Board. If the sideline activities involve seats on supervisory boards or comparable control boards, these are listed and published in the Annual Report of Hannover Re. The remuneration received for such seats at Group companies is deducted when calculating the variable bonus and shown separately in the table.