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13 Share-based payments

As of 31 December 2012 and 2013, the Group had the share-based compensation plans as described below.

Total compensation cost for share-based compensation plans recognised in net income was USD 69 million and USD 126 million in 2012 and 2013, respectively. The related tax benefit was USD 17 million and USD 28 million, respectively.

Stock option plans

Stock option plans include a fixed-option plan and an additional grant to certain members of executive management. No options were granted under these plans from 2007 onwards. Under the fixed-option plan, the exercise price of each option is equal to the market price of the shares on the date of the grant. Options issued vest at the end of the fourth year and have a maximum life of ten years.

A summary of the activity of the Group’s stock option plans is as follows:

The weighted remaining contractual life is 2.3 years and all stock options outstanding are also exercisable. The fair value of each option grant was estimated on the date of grant using a binomial option-pricing model. The underlying strike price for the outstanding option series has been adjusted for the special dividend payout in 2013.

Restricted shares

The Group granted 38 930 and 10 458 restricted shares to selected employees in 2012 and 2013, respectively. Moreover, as an alternative to the Group’s cash bonus programme, 275 309 and 295 535 shares were delivered during 2012 and 2013, respectively, which are not subject to forfeiture risk.

A summary of the movements in shares relating to outstanding awards granted under the restricted share plans for the year ended 31 December 2013 is as follows:

The weighted average fair value of restricted shares, which equals the market price of the shares on the date of the grant, was CHF 50 and CHF 67 in 2012 and 2013, respectively.

Board level Performance Share Plan

In 2010, the Group granted a share plan for the Chairman and one Vice Chairman of the Board of Directors. Since 2011 no more plan was granted. The plan has a requisite service period of three years and is settled in shares. The plan is measured based on Swiss Reʼs Total Shareholder Return (TSR), representing the share price performance plus paid dividend in any performance period, against a selected peer group. The final number of shares to be released upon vesting can vary between 0% and 150% of the original grant. The fair value of the 2010 plan was based on the share price as of the date of grant, which was CHF 53.60. The 2010 plan vested in 2013.

Long-term Incentive Plan

Between 2006 and 2011, the Group annually granted a Long-term Incentive plan (LTI) to selected employees with a three-year vesting period. The requisite service period as well as the maximum contractual term for each plan is three years and the final payment, if any, occurs at the end of this performance measurement period. The plans include a payout factor which was derived from Return on Equity (ROE) and Earnings per Share (EPS) targets over the vesting period. The payout ratio can vary between 0 and 2 and the final payment for each plan will depend on whether the performance targets have been achieved over the plan period. The fair values of the plans are based on stochastic models which consider the likelihood of achieving performance targets and the impact of dividends.

The 2010 LTI grant was settled in shares in March 2013. The payout factor was driven by average ROE and average EPS over the vesting period. The share price used for measurement is based on the date of grant and was CHF 48.15.

As of 31 December 2013 the 2011 LTI grant was outstanding. The plan is expected to be settled in shares in March 2014. The payout factor is driven by average ROE and average EPS over the vesting period. The unit grant date fair value was CHF 39.39.

For the year ended 31 December 2013, the outstanding units were as follows:

Leadership Performance Plan

During 2011 the Compensation Committee reviewed the existing long-term incentive scheme, and in March 2012, the LTI was replaced by a new plan called the Leadership Performance Plan (LPP). The LPP plans are expected to be settled in shares, and the requisite service as well as the maximum contractual term are three years. At grant date the award is split equally into two underlying components – Restricted Share Units (RSU) and Performance Share Units (PSU). The RSU component is measured against a RoE performance condition and will vest within a range of 0–100%. The PSU is based on relative total shareholder return, measured against a pre-defined basket of peers and will vest within a range of 0–200%. The fair values of both components are measured separately, based on stochastic models.

The fair value assumptions included in the grant valuation are based on market estimates for dividends (and an additional special dividend of CHF 4.00 for the LPP 2013) and the risk free rate based on the average of the 5-year US government rate taken monthly over each annual period in the performance period. This resulted in risk free rates between 1.0% and 2.3% for LPP 2012 and LPP 2013.

For the LPP 2012, the grant date fair value of the RSU component is CHF 42.00 and of the PSU component CHF 35.60. For the LPP 2013, the grant date fair value of the RSU component is CHF 61.19 and of the PSU component CHF 52.59.

For the year ended 31 December 2013, the outstanding units were as follows:

Unrecognised compensation costs

As of 31 December 2013, the total unrecognised compensation cost (net of forfeitures) related to non-vested, share-based compensation awards was USD 56 million and the weighted average period over which that cost is expected to be recognised is 1.8 years.

The number of shares authorised for the Group’s share-based payments to employees was 8 172 503 and 5 538 418 as of 31 December 2012 and 2013, respectively.

Employee Participation Plan

The Group’s Employee Participation Plan consists of a savings scheme lasting two or three years. Employees combine regular savings with the purchase of either actual or tracking options. The Group contributes to the employee savings over the period of the plan.

At maturity, either the employee receives shares or cash equal to the accumulated savings balance, or the employee may elect to exercise the options.

In 2012, 1 664 419 options were issued to employees. From 2013 onwards, the Employee Participation Plan was discontinued and no more options were issued. In 2012 and 2013, the Group contributed USD 41 million and USD 34 million, respectively, to the outstanding plans.

Global Share Participation Plan

In June 2013 Swiss Re introduced the Global Share Participation Plan, which is a share purchase plan that was rolled out for the benefit of employees of companies within the Group. Swiss Re makes a financial contribution to participants in the Plan, by matching the commitment that they make during the plan cycle with additional Swiss Re shares.

If the employee is still employed by Swiss Re at the end of a plan cycle, the employee will receive an additional number of shares equal to 30% of the total number of purchased and dividend shares held at that time. In 2013, Swiss Re contributed USD 3 million to the plan and authorised 28 218 shares as of 31 December 2013.