Long-Term Incentive (LTI)
The long-term share-based compensation component takes the highest share within the variable compensation. It fosters shareholder alignment and takes the implementation of the long-term strategy into account. Furthermore, the company’s long-term development is reflected by the deferred sustainability assessment.
Allianz share performance
The LTI is granted annually in the form of virtual Allianz shares, so-called restricted stock units (RSUs), with a four-year contractual vesting period. The LTI allocation amount is derived by multiplying the LTI target amount by the annual bonus achievement factor, and capped at 150% of the LTI target level. To determine the number of RSUs to be granted, the LTI allocation amount is divided by the allocation value of an RSU at grant. The RSU allocation value is based on the ten-day-average Xetra closing price of the Allianz stock following the annual financial media conference.1 As RSUs are virtual stock without dividend payments, the relevant share price is reduced by the net present value of the expected future dividend payments during the contractual vesting period.
1 For accounting purposes, the determination of the fair value of RSUs is based on an option pricing model taking into account additional input parameters, including the term structure of interest rates and the expected relative performance of the Allianz share price compared to the peer index. For the latter, simulation techniques are applied at the valuation date to determine the volatility of the Allianz stock, the volatility of the peer index, their correlation, and the expected dividends. The value of the RSUs used for the board members compensation may deviate from this IFRS value, as a simplified calculation method was applied to increase transparency and traceability.
Relative performance versus peers
The LTI payout takes Allianz’s relative performance into account:
- The Allianz SE total shareholder return (TSR) is benchmarked against the TSR of the STOXX Europe 600 insurance index by reflecting the relation of the total performance of the Allianz share (“Allianz TSR”) and the total performance of the STOXX Europe 600 Insurance Performance Index (“Index TSR”) between start and end of the four-year contractual vesting period.
- In order to avoid incentivizing excessive risk taking, the relative TSR performance factor is limited: It can vary between zero (for underperformance of the index by - 50%-points or lower) and 200% (for outperformance of the index by + 50%-points or higher).
- The relative TSR performance factor is calculated as follows: Allianz TSR at the end of the contractual vesting period in %-points minus index TSR at the end of the contractual vesting period in %-points, the result times two, plus 100%.
- Example: 5 %-points outperformance results in a relative performance factor of 110%, 5%-points underperformance results in a relative performance factor of 90%.
Following the sustainability assessment, the LTI payout amount may be reduced to zero, if the performance of a board member was not deemed sustainable. It compares the development of the annual bonus KPIs in the grant year with the payout year of the LTI, additionally taking into account extraordinary events, the Solvency II ratio, and balance sheet strength.
LTI payout and cap
Following the end of the four-year contractual vesting period, the RSUs granted are settled in cash based on the ten-day average Xetra closing price of the Allianz SE share following the annual financial media conference in the year the respective RSU plan vests, multiplied by the relative TSR performance factor and adjusted by the sustainability assessment as described above. The payout per RSU is capped at twice the share price at grant. Taking into account the overall compensation cap, the LTI payout, relative to the LTI target, is limited to 255% for the Chairman of the Board of Management and 272% for a regular board member.