Leadership Performance Plan
The purpose of the Leadership Performance Plan (LPP) is to provide an incentive for Swiss Re’s senior management (including the members of the Group EC) to create sustainable company performance over the long term. The LPP is a forward-looking instrument awarded to incentivise decision-making that is also in the shareholders’ interest.
The design of the LPP aims to:
- Focus participants’ energies on earnings, capital efficiency and Swiss Re’s position against peers, all of which are critical to sustain shareholder value creation.
- Focus participants on long-term goals.
- Attract and retain individuals with exceptional skill.
- Provide competitive compensation that rewards long-term performance.
The amounts disclosed under LPP in the section “Compensation disclosure and shareholdings 2019” reflect the grants made in April 2019. The LPP 2019 will be measured over the period 2019 to 2021 and vests in 2022. 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 2019, the total of the LPP grants awarded to members of the Group EC, including the Group CEO, amounted to CHF 13.5 million (this figure excludes any awards granted and then forfeited at a later point in the reporting year). The LPP grant awarded to the Group CEO amounted to CHF 2.0 million.
The vesting period, during which performance is measured, is three years. 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 period.
At the grant date, the award amount is split equally into two underlying components: Restricted Share Units (RSUs) and Performance Share Units (PSUs). The valuation by a third party is used to determine 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 pre-defined premium above the risk-free rate. The premium is set at the beginning of the plan period, and for LPP 2019, 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 the 75th percentile relative to peers with 200%** vesting. In case of a negative TSR over three years, the Compensation Committee retains the discretion to trigger vesting at a lower level of TSR.
Swiss Re’s three-year TSR performance is assessed relative to the TSR of the pre-defined peer group for the same period. This peer group consists of companies that are similar in scale and have a global footprint or a similar business mix to Swiss Re. The peer group, which is set at the beginning of the plan period, 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 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 as defined in the LPP plan rules, enabling Swiss Re to seek repayment where appropriate (please see Long-term compensation termination and clawback provisions in this Financial Report for termination and clawback provisions in long-term plans).
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 2019.
Outlook for 2020
In 2019, the Board of Directors has approved changes to the LPP plan design in order to strengthen the focus on growth in terms of operating value creation as an incentive driver. At the same time, it is important that any growth is shareholder value accretive, ie returns exceed cost of capital. In view of this, absolute ENW growth is introduced as a new performance metric.
Any new LPP grants as of 2020 consider relative TSR, ROE and absolute ENW growth. At grant, the award is split in three components with equal value whereby each component is linked to one performance metric. These components have vesting multiples set between 0% to 100% for ROE and absolute ENW growth, and between 0% and 200% for relative TSR.
More details on the plan, structure and performance measurement will be included in the 2020 Compensation Report. Current outstanding LPP awards (grants prior to 2020) are unaffected by the change.
* 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.