Value Alignment Incentive
Purpose
The VAI is a mandatory deferral of a portion of the API and introduces a time component to this performance-based, variable compensation. This supports the Group’s business model by aligning a portion of variable compensation with sustained long-term results. The aim is to ensure that the ultimate value of the deferred variable compensation through VAI is affected by the longer-term performance of the relevant Business Unit and the Group.
Plan duration
The VAI supports a longer-term perspective by linking awards to performance over a three-year period.
Performance measurement
Starting with the 2015 award, the performance measurement calculation has been simplified to increase transparency. This was achieved by using fewer performance factors (at the Business Unit and Group level) and, where possible, published EVM information (ie EVM profit – previous years’ business).
The performance factors of the VAI are calculated based on the three-year average of the published EVM previous years’ business profit margin. EVM is Swiss Re’s proprietary integrated economic valuation and accounting framework for planning, pricing, reserving, and steering the business (please refer to the EVM section of this Financial Report). The EVM previous years’ business profit margin is the ratio of EVM previous years’ business profit to EVM capital allocated to previous years’ business in the current year.
A higher EVM previous years’ business profit margin (for all prior underwriting years) results in a higher performance factor. Conversely, a lower EVM previous years’ business profit margin results in a lower performance factor. The performance factor is a linear function whereby payout ranges from 50% to 150%.
Structure
The higher the API granted, the greater the amount of compensation that remains at risk through deferral into the VAI, as shown in the table below.
Portion of API that is deferred
| Download |
|
Deferral into VAI |
Group CEO |
50% of API |
Other Group EC members |
45% of API |
Other key executives |
40% of API |
All other employees |
50% of the amount exceeding USD 100 000 with a minimum deferral amount of USD 5 000 at USD 100 000 and up to a maximum of 40% of API |
Funding
The VAI is not funded as a separate pool. The Group API pool includes amounts paid in cash and amounts to be deferred into the VAI.
Settlement
At the end of the deferral period, VAI will be settled in cash. For the full three-year performance measurement period, forfeiture conditions apply.
Additionally, clawback provisions apply in a range of events as defined in the VAI plan rules, enabling Swiss Re to seek repayment of settled awards. Examples of such events are the participant’s conduct or acts which can be considered as malfeasance, fraud or misconduct.
For VAI performance outcomes over past years please refer to Performance outcomes 2017.