To foster shareholder alignment, the proportion of the equity-related compensation component within the total target compensation is significantly increased to 45%. Also, annual target amounts are increased to 2,559 thou euros for the Chairman of the Allianz SE Board of Management and 1,463 thou euros for a regular board member. The proportion and the respective target amounts are based on target allocation values as described below in the section “Allianz share price performance”.
The equity-related LTI introduces a new performance measurement for relative total shareholder return (relative TSR) which is objective and transparent and permits multi-year assessment of performance amongst peers. A sustainability review at the end of the performance period allows for a potential downward adjustment with the risk of no payout. The Allianz share price performance, the relative TSR, and the sustainability check adjustments are multiplicatively linked.
Allianz share price performance
Through the grant of restricted stock units (RSU), the LTI continues to be equity-related and linked to the absolute share price development. The LTI allocation amount for the grant of RSU is derived by multiplying the annual bonus target achievement factor with the LTI target amount. The LTI allocation amount is capped at 150% of the respective LTI target level. The number of RSU allocated is derived by dividing the LTI allocation amount by the RSU allocation value at the time of grant. The RSU allocation value is calculated as the reference share price at grant minus the net present value of the dividends during the vesting period. The IFRS accounting value of the RSUs, however, deviates from the allocation value, as it is based on the fair value concept, which is more complex, since it is based on an option pricing model and additional market parameters1 . The proposed simplified allocation value concept aims to increase transparency and traceability of the number of RSU allocated to the beneficiaries.
The allocation value and the fair value of the RSUs at grant will be disclosed in the annual remuneration report.
1 The fair value of the index-linked-RSUs is calculated as the present value of the expected future payout, taking into account the link between share performance and relative performance compared to the index as well as the relevant caps and thresholds as defined in the payout formula. The expected future payout is determined on the basis of observable market data as of the valuation day, and market standard simulation techniques. The most relevant market parameters for this estimation are the assumptions for the volatility of the Allianz stock, for the volatility of the index, for their correlation, the term structure of interest rates, and the expected dividends.
Relative TSR performance measurement (NEW)
To foster relative performance against peers, a relative performance measure, TSR, was introduced:
- The Allianz TSR will be benchmarked to the TSR of the STOXX Europe 600 insurance performance index, which represents a relevant peer group in the insurance industry.
- The relative TSR performance factor is determined using the outperformance methodology, and calculated as follows: The TSR of the index is deducted from the TSR of the Allianz share; the result is multiplied by the factor 2 and, for calculation of the payout, applied as a factor to the RSU share price at vesting, e.g. 1 percentage point outperformance results in a relative TSR performance factor of 102%.
- In order to avoid incentivizing excessive risk taking, the relative TSR performance factor is capped at 200% which reflects 50% outperformance. In addition, the payout of the RSU is set to zero if the relative TSR underperformance is below 50% after four years.
Sustainability check (downward adjustment) (NEW)
The payout of the LTI will be subjected to a sustainability check which may result in a LTI payout between 0% and 100%. It compares the development of the annual bonus KPIs in the grant year with the payout year of the LTI, taking into account extraordinary events and balance sheet strength.
Following the end of the four-year vesting period, the company makes a cash payment based on the relevant share price of the RSUs at vesting, as adjusted by the relative TSR measure and sustainability check as described above. The relevant share price, which is capped at twice the share price at grant, is calculated based on the ten-day average Xetra closing price of the Allianz stock following the annual financial media conference in the year of expiry of the respective RSU plan.
Overall LTI cap
The LTI payout is subject to a limit and capped at 600% of the target amount based on the allocation value as described at the top of the page under "Allianz share price performance”.