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 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.
The amounts disclosed under LPP in the section "Compensation disclosure and shareholdings 2016" reflect the grants made in April 2016. This LPP award will be measured over the period 2016 to 2018 and will vest in 2019. Grant levels are determined based on multiple factors which include the role being performed and market benchmarks.
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. 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, RSUs and PSUs, using a fair market value methodology executed by a third party.
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 2016 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 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 includes Allianz SE, American International Group Inc, AXA SA, Chubb Limited, Everest Re Group Ltd, Hannover Rueck SE, Muenchener Rueckversicherungs-Gesellschaft AG, Reinsurance Group of America Inc, RenaissanceRe Holding Ltd, SCOR SE, XL Group Ltd 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 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 LPP plan rules, enabling Swiss Re to seek repayment of settled awards.
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 10-year US treasury Bonds of the corresponding performance year.
** Maximum vesting percentage excludes share price fluctuation until vesting.