Leadership Performance Plan
The purpose of the LPP is to provide an incentive for Swiss Re’s senior management to create successful and sustainable company performance over the long-term. The LPP is a forward-looking instrument awarded to participants with an objective to incentivise decision-making that is also in the shareholders’ interest.
The intention of the LPP is to:
- focus participants’ energies on earnings, capital efficiency and Swiss Re’s position against peers, all of which are critical to sustained shareholder value creation;
- focus participants on long-term goals;
- attract and retain individuals of exceptional skill; and
- provide competitive compensation that rewards long-term performance.
For Group EC members and GMDs, the duration of the LPP is five years comprising a three-year vesting and performance measurement period and an additional two-year holding requirement. For all other participants, the vesting and performance measurement period is three years with no additional holding requirement.
At the grant date, the award amount is split into two underlying components, Restricted Share Units (RSUs) and Performance Share Units (PSUs), using a fair market value methodology executed by a third party.
Restricted Share Units
The performance condition for RSUs is return on equity (ROE) with a linear vesting line. Vesting is at 0% for an ROE at the risk-free rate* and at 100% for an ROE at a predefined premium above the risk-free rate. The premium is set at the beginning of the plan period and for LPP 2015 this premium has been set at 900 basis points above the risk-free rate. At the end of each year, the performance against the ROE condition is assessed and one third of the RSUs are locked in within a range of 0% to 100%. At the end of the three-year period, the total number of units locked in at each measurement period will vest (capped at 100%**).
Performance Share Units
The performance condition for PSUs is relative total shareholder return (TSR) measured over three years. The PSUs vest within a range of 0% to 200%. The vesting curve starts with 50% vesting at the 50th percentile TSR relative to peers and is capped at 200%** vesting at the 75th percentile relative to peers. In case of a negative TSR over three years, the Compensation Committee retains the discretion to reduce the level of vesting.
Swiss Re’s TSR performance is assessed relative to the TSR of the pre-defined peer group. This peer group consists of companies that are similar in scale, have a global footprint or a similar business mix as Swiss Re. The peer group which is set at the beginning of the plan period includes ACE Ltd, Allianz SE, American International Group Inc, Amlin PLC, AXA SA, Everest Re Group Ltd, Hannover Rueck SE, Muenchener Rueckversicherungs-Gesellschaft AG, PartnerRe Ltd, Reinsurance Group of America Inc, RenaissanceRe Holding Ltd, SCOR SE, XL Group PLC*** and Zurich Insurance Group Ltd.
At the end of the three-year measurement period, both RSUs and PSUs will typically be settled in Swiss Re Ltd shares. For Group EC members and GMDs, an additional two-year holding is required. For the full three-year performance measurement period, forfeiture conditions apply.
Additionally, clawback provisions apply in a range of events (the same as outlined under the VAI section) as defined in the plan rules, enabling Swiss Re to seek repayment of settled awards.
The amounts disclosed under LPP in the section compensation decisions in 2015 reflect the grants made in April 2015. This LPP award will be measured over the period 2015 to 2017 and will vest in 2018.
Swiss Re also makes it possible for all LPP participants to have shares sold or automatically settled on a net basis as applicable, to cover statutory tax and social security liabilities that may arise at vesting.
* The annual risk-free rate is determined as the average of 12 monthly rates for 5-year US Treasury Bonds of the corresponding performance year and 10-year US Treasury Bonds for the LPP 2016 and onwards.
** Maximum vesting percentage excludes share price fluctuation until vesting.
*** Catlin Group Ltd has now been integrated into XL Group PLC.