Annual Performance Incentive

Purpose

The Annual Performance Incentive (API) is a performance-based, variable component of compensation. Combined with the base salary, it provides competitive total cash compensation when both business and individual performance targets are achieved and desired behaviours are demonstrated.

Structure

Swiss Re operates a Target API (TAPI) system along with a performance management framework that provides equal weighting to results-oriented and behaviour-related performance criteria for all employees. API is awarded for both objectives achieved and the demonstration of desired behaviours.

A TAPI is set based on multiple factors, but primarily on the role being performed, internal calibration and market benchmarks. The employee’s total compensation and pay mix are taken into account when setting the TAPI. The possible payout for the API ranges from 0 to 2 × TAPI.

For Group EC members an additional cap applies, which is 3 × annual base salary.

In 2019, for the members of the Group EC including the Group CEO, the total of the aggregate TAPIs amounted to CHF 15.02 million. This is an increase compared to the prior year, which is due to the number of Group EC positions being increased from 12 to 14 in 2019 (the existing positions of Group Chief Human Resources Officer and Group Chief Legal Officer have been added to the Group EC). The 14 positions were held by a total of 16 individuals during 2019. For the Group CEO, the TAPI was CHF 2.5 million for the same year.

Funding

Swiss Re uses a three-step process to assess business performance to help determine the overall Group API pool.

The process (as shown in the chart below) comprises a financial, a qualitative and an overall assessment. The financial assessment covers four equally weighted performance factors versus targets: ROE, net operating margin, EVM profit (% of economic net worth/ENW) and ENW growth per share measured for both the Group and each Business Unit individually. Also, multi-year comparisons and an assessment of the quality of earnings are considered. The qualitative assessment is based on the achievement of key objectives that aim to reinforce the success of Swiss Re’s strategy. For each Business Unit/Group Function, an assessment is made considering five defined dimensions: client and service quality, risk and control behaviour, franchise building, human capital and talent management and strategic initiatives. Within those dimensions, the assessment includes, among others, environmental, social and governance (ESG) as well as sustainability considerations in accordance with our corporate values. The preliminary Group API pool is then reviewed considering a number of different perspectives, including pay for performance linkage, reasonableness in the market context and proportionality of value-sharing among employees and shareholders. As part of the process, the Compensation Committee can apply discretion to make upward or downward adjustments to the pool recommended for approval to the Board of Directors. For information on the discretion applied in 2019, please refer to Performance outcomes 2019 in this Financial Report.

Group API pool funding process (graphic)

Allocation

The approved Group API pool is further allocated to the Group EC and other senior executive pools, and to pools of different Business Units/Group Functions. This allocation is agreed by the Group CEO based on the assessment of financial and qualitative performance of the respective business area.

The individual API is determined considering the TAPI, business and individual performance. Individual performance is assessed against the individual’s established goals and Swiss Re’s behaviour expectations and corporate values.

Settlement

API is generally settled in cash. When the total API level for an employee exceeds a pre-defined amount, the award is split into two components: an immediate cash portion (cash API) and a deferred cash portion (Value Alignment Incentive/VAI).

Forfeiture of unsettled awards and clawback provisions for settled awards apply in a range of events, enabling Swiss Re to seek repayment where appropriate. Examples of such events are acts which can be considered as malfeasance, fraud or misconduct.