Remuneration of the Executive Board
Responsibility
The Supervisory Board has delegated responsibility for determination of the amount of the remuneration paid to Hannover Re's Executive Board to the Standing Committee.
Objective
The purpose of the remuneration system for the Executive Board is to appropriately recompense the members of the Executive Board according to their scope of activity and responsibility. In this context, a large variable portion of the total remuneration makes direct allowance for the joint and individual performance of the Executive Board as well as for the performance of the company.
Structure of the remuneration received by the Executive Board
With this objective in mind, the remuneration system consists of three components: fixed emoluments, a variable bonus as well as a share-based remuneration component based on a virtual stock option plan with a long-term incentive effect and risk elements.
The fixed emoluments, paid in twelve monthly instalments, are guided by the professional experience and area of responsibility of the Board member in question.
The variable bonus is cash compensation measured by the performance in the financial year; half is based on the individual Board member's profit contribution and half on the net income generated by the Group as a whole.
The members of the Executive Board are entitled to receive stock appreciation rights under the virtual stock option plan implemented in 2000 for certain members of the Group's management.
The content of the stock option plan is based solely on the Conditions for the Granting of Stock Appreciation Rights. Under these conditions, stock appreciation rights are awarded separately for each financial year provided the internal and external performance criteria defined in advance by the Supervisory Board are met.
The internal performance criterion is satisfied upon achievement of the target diluted earnings per share (EPS) calculated in accordance with IAS 33 "Earnings Per Share". The external performance criterion is the increase in the value of the Hannover Re share. The benchmark used to measure this increase in value is the weighted ABN Amro Global Reinsurance Index. The benchmarks cannot be retrospectively altered.
Exercise of the stock appreciation rights does not give rise to any entitlement to the delivery of Hannover Re stock, but merely to payment of a cash amount linked to the performance of the Hannover Re share. The amount paid out is limited to a maximum calculated as a quotient of the total volume of compensation to be granted in the allocation year and the total number of stock appreciation rights awarded in the year in question.
For further details of the virtual stock option plan please see the explanations provided in the notes to this Group Annual Report, Section 8.3 "Share-Based Payment".
Amount of remuneration received by the Executive Board
The total remuneration received by the Executive Board of Hannover Re on the basis of its work for Hannover Re and its affiliated companies is calculated from the sum of all compensation accruing in cash as well as in pecuniary advantages from non-cash compensation. It can be broken down as follows in the year under review:
Excel download (20 KB)Total remuneration received by the Executive Board
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Compensation in cash | ||
| Fixed emoluments | 1,909.2 | 1,782.1 |
| Variable bonuses for the previous year | 2,689.2 | 2,228.7 |
| Remuneration from Group companies netted with the bonus | 145.3 | 145.7 |
| (Stock appreciation rights awarded | 527.3 | 1,197.9) |
| Stock appreciation rights executed | 449.7 | 433.8 |
| 5,193.4 | 4,590.3 | |
| Taxable amount from non-cash compensation | 91.1 | 84.9 |
| Total | 5,284.5 | 4,675.2 |
In the 2008 financial year 215,280 stock appreciation rights totalling EUR 0.5 million (EUR 1.2 million) were granted for the 2007 allocation year; stock appreciation rights granted in previous years were exercised in an amount of EUR 0.4 million (EUR 0.4 million).
As at 31 December 2008 the members of the Executive Board had at their disposal a total of 484,232 (319,444) granted, but not yet exercised stock appreciation rights with a fair value of EUR 1.4 million (EUR 2.2 million).
The Annual General Meeting of Hannover Re held on 12 May 2006 resolved by a voting majority of 85.5% to avail itself until 31 December 2010 of the option contained in the Act on the Disclosure of Management Remuneration (VorstOG) not to specify the remuneration of the Executive Board on an individualised basis by name for a period of at most five years from the date when the resolution is adopted.
Retirement provision
The pension agreements of the members of the Executive Board with Hannover Re contain commitments to an annual retirement pension calculated as a percentage of the fixed annual emoluments. There were seven individual commitments to the active Board members in the year under review. An amount of EUR 1.5 million (EUR 2.0 million) was allocated to the provision for pensions in the year under review. This includes the allocation to the employee-funded provision constituted from deferred compensation – an allocation that was made from the variable bonus for the previous year. The provision for pensions stood at EUR 9.9 million (EUR 8.4 million) as at 31 December 2008.
The remuneration paid to former members of the Executive Board and their surviving dependants, for whom eleven pension commitments existed, totalled EUR 1.3 million (EUR 0.9 million) in the year under review. Altogether, an amount of EUR 10.7 million (EUR 9.8 million) has been set aside for these commitments.
Sideline activities of the members of the Executive Board
The members of the Executive Board require the approval of the Supervisory Board to take on sideline activities. This ensures that neither the remuneration granted nor the time required for this activity can create a conflict with their responsibilities on the Executive Board. If the sideline activities involve seats on supervisory boards or comparable control boards, these are listed and published in the Annual Report of Hannover Re. The remuneration received for supervisory board seats at Group companies is deducted when calculating the variable bonus and shown separately in the above table.