Leadership Performance Plan
The purpose of the LPP is to provide an incentive for Swiss Re’s senior management to create sustainable company performance over the long term. The LPP is a forward-looking instrument awarded to participants to incentivise decision-making that is also in the shareholders’ interest.
The design 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.
The amounts disclosed under LPP in the section “Compensation disclosure and shareholdings 2017” reflect the grants made in April 2017. The LPP 2017 will be measured over the period 2017 to 2019 and vests in 2020. Grant levels are determined based on multiple factors including the role being performed and market benchmarks.
The individual grant level for each member of the Group EC is based on a stable CHF amount which in any year cannot exceed 1.5 × annual base salary for each member of the Group EC excluding the Group CEO and 2 × annual base salary for the Group CEO. In 2017, the total of the LPP grants awarded to members of the Group EC including the Group CEO amounted to CHF 13.5 million. The LPP grant awarded to the Group CEO amounted to CHF 2.0 million.
The vesting and performance measurement period is three years with no additional holding requirement. For LPP awards granted to Group EC members and other key executives, the duration of the LPP is five years comprising a three-year vesting and performance measurement period and an additional two-year holding requirement.
At the grant date, the award amount is split into two underlying components: Restricted Share Units (RSUs) and Performance Share Units (PSUs). A fair market value methodology executed by a third party determines the number of RSUs and PSUs granted.
Restricted Share Units
The performance condition for RSUs is 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 2017 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%. Vesting starts at the 50th percentile of TSR relative to peers with 50% vesting 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 has been increased to 16 companies in total, and includes Allianz SE, American International Group Inc, Aviva PLC, AXA SA, Chubb Limited, Everest Re Group Ltd, Hannover Rueck SE, MetLife Inc, Muenchener Rueckversicherungs-Gesellschaft AG, Prudential PLC, QBE Insurance Group Ltd, Reinsurance Group of America Inc, RenaissanceRe Holdings Ltd, SCOR SE, XL Group Ltd and Zurich Insurance Group Ltd.
The LPP pool granted each year is reviewed in the context of sustainable business performance and affordability, and funded as part of the total variable compensation pool.
At the end of the three-year measurement period, both RSUs and PSUs will typically be settled in shares.
Forfeiture and clawback provisions apply in a range of events (the same as outlined in the VAI section) as defined in the LPP plan rules, enabling Swiss Re to seek repayment where appropriate. 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. For LPP performance outcomes over past years please refer to Performance outcomes 2017.
* The annual risk-free rate is determined as the average of 12 monthly rates for ten-year US Treasury bonds of the corresponding performance year.
** Maximum vesting percentage excludes share price fluctuation until vesting.