Employee remuneration

Performance management is embedded into the Performance Excellence process at Hannover Re. Departmental and individual goals are derived from the strategic corporate objectives. By linking agreements on objectives and Performance Excellence criteria we ensure that the efforts of our staff contribute directly to the success of the business strategy. We are convinced that performance-based remuneration components foster individual initiative. The variable portion for the managerial group is dependent upon hierarchical level. On the first management level (Managing Director) the remuneration breaks down into 60% fixed annual salary and 40% variable component. The remuneration of Associate Directors (second management level) is based on a split into 70% fixed and 30% variable components. The variable remuneration components are linked to agreements on targets, which for Managing Directors in the treaty departments are split equally into economic targets (Group result, operating profit (EBIT), earnings per share, xRoCA target, combined ratio and contribution margin (DB) level 5 as well as individual targets. In the service departments the agreements on targets are linked to internal customer surveys (25%), appraisal of managers by staff (10% to 30%) and individual targets (35% to 65%). The individual targets are in turn derived from the Performance Excellence process (leadership, business policy, advancement and skills enhancement, resources management, processes, employee motivation, customer satisfaction, business results). The target agreement process is directed by Human Resources Management and Group Controlling Services. Goal accomplishment is subject to the approval of the full Executive Board, which means that a correction is possible. While the MbO (Management-by-Objectives) process accommodates short-term goals, the long-term success of the company is reflected in our virtual stock option plan (cf. Section 8.2 of the Notes). For staff on the level of Manager or higher we introduced a remuneration model linked to the company's success in 2004, namely the Group Performance Bonus (GPB). This tool is geared to the minimum return on equity of 750 basis points above the risk-free interest rate and the return on equity actually generated. In the year under review the targets were surpassed, and the maximum amount of the GPB can therefore be paid out for the third time since its implementation.