Remuneration of employees and managers

Performance management is embedded into the Performance Excellence process at Hannover Re. Departmental and individual goals are derived from the strategic corporate objectives. By linking Management-by-Objectives agreements and Performance Excellence criteria we ensure that the efforts of our staff contribute directly to the success of the business strategy. We are convinced that performance-based remuneration components foster individual initiative. Through the delegation of tasks, powers and responsibility as well as the agreement of exacting goals we create a culture of entrepreneurial thinking on all hierarchical levels – among the ranks of management and staff alike. This principle is reflected as far as possible in performance-based remuneration components.

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A system of variable remuneration is in place for the management levels of Managing Director, Director and General Manager. It consists, firstly, of a long-term remuneration component (stock appreciation rights) and, secondly, of short-term variable remuneration dependent upon accomplishment of the agreed goals for the year in question (Management by Objectives). Members of staff on the levels of Chief Manager, Senior Manager and Manager are able to participate in the Group Performance Bonus.

The variable portion of the remuneration for the senior management group is dependent upon hierarchical level. On the first management level (Managing Director) the remuneration breaks down into 60% fixed annual salary and 40% short-term variable component. The remuneration of General Managers is based on a split into 70% fixed and 30% short-term variable components. While the MbO (Management-by-Objectives) process recognises the attainment of short-term goals, the long-term success of the company is reflected in Hannover Re’s virtual stock option plan (cf. Section 7.3 of the notes).

The short-term variable remuneration components at Hannover Re are linked to agreements on targets. These agreed targets are derived from the Performance Excellence process (leadership, business policy, advancement and skills enhancement, resources management, processes, employee motivation, customer satisfaction, business results). The targets agreed upon with Managing Directors in the treaty and regional departments are split equally into economic targets for their department and individual targets. Of the variable remuneration received by General Managers in the treaty and regional departments, one quarter is based on the department’s economic targets and three quarters derive from individual targets. The economic targets agreed upon for the departments encompass the combined ratio, contribution margin (DB) level 5 and IVC in non-life reinsurance and the premium growth, underwriting result and IVC in life and health reinsurance.

In the service departments the agreements on targets consisted entirely of individual targets in the year under review. This is, however, only intended to be a temporary state of affairs. It is envisaged that the MbO agreements for managers in the service departments will in future have a 25% linkage to corporate objectives and/or department goals.

The Management-by-Objectives process is overseen by Human Resources Management and Group Controlling Services; approval of the degree of goal accomplishment is subject to the approval of the full Executive Board.

For staff on the level of Manager or higher we introduced a remuneration model linked to the company’s success in 2004, namely the Group Performance Bonus (GPB). 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 and 2009.