Remuneration of the Board of Management

  • Changes 2018 to 2019
  • Remuneration structure
  • Variable compensation components
  • Other benefits
  • Remuneration 2018

Remuneration 2019

In anticipation of the upcoming new legislation resulting from Directive (EU) 2017/828 (Shareholder Rights Directive II), the Supervisory Board of Allianz SE conducted a comprehensive review and comparison against compensation-related market trends. Based on this review, the Supervisory Board of Allianz SE decided to implement structural changes to the remuneration system of the Board of Management of Allianz SE. The new structure became effective on January 1, 2019 and was approved by the Annual General Meeting of Allianz SE on May 8, 2019 with a majority of 92.11%.

The previous remuneration system supported sustainable performance and was aligned with the business strategy as well as shareholders’ interests and applicable laws. The new structure continues to follow these principles and additionally integrates further stakeholder demands which have emerged over time, such as reduced complexity, as well as increased shareholder alignment and pay for performance.

Significant changes from 2018 to 2019

Significant changes from 2018 to 2019
1 The allocation value is used to determine the number of restricted stock units (RSU) and is described in detail in the section “Long-term incentive (LTI)" under "Allianz share price performance”.

Remuneration structure

New total target direct compensation and remuneration structure

In order to foster market alignment and to simplify the remuneration structure, the mid-term bonus (MTB) is discontinued and variable compensation now consists of only two components. The weighting of the compensation components is therefore adjusted in order to allocate the discontinued MTB target amount, which had a weighting of 25% of total target compensation (without pension) and in line with regulatory requirements for deferred variable compensation:

  • Base salary: increase by 5 percentage points from 25% to 30%
  • Annual bonus: stable at 25%
  • Long-term incentive (LTI): increase of equity component by 20 percentage points from 25% to 45% based on target allocation value.

The LTI percentage of the total target compensation for 2019 as well as the target amount of 2,559 thou euros for the Chairman of the Allianz SE Board of Management (CEO) and of 1,463 thou euros for a regular board member (RBM) are based on the target allocation value (as described in detail in the section “Long-term incentive (LTI)" under "Allianz share price performance”). This differs from the percentages based on IFRS fair value. Based on IFRS fair values, the equity-related compensation (which is allocated in the form of Restricted Stock Performance Units, “RSU”) would be higher (assuming that the fair value is higher than the allocation value).

Base salary

Starting in 2019, the non-performance-related base salary amounts to 1,706 thou euros for the Chairman of the Allianz SE Board of Management and 975 thou euros for a regular board member and is paid in twelve equal monthly installments.

Variable compensation components

Annual Bonus

With the new annual bonus structure, the number of parameters driving the annual bonus have been reduced significantly, which supports simplicity and transparency. From 2019 onwards, the annual bonus is based on the achievement of Group financial targets, adjusted by the individual contribution factor, which takes into account business division and individual performance. The 2019 remuneration report will show the performance corridor for the Group financial target achievement as well as the overall individual target achievement per board member.

Group financial targets

Group financial performance targets are comprised of IFRS operating profit and IFRS net income attributable to shareholders, equally weighted. Operating profit and net income are the key performance indicators and steering parameters for the Allianz Group and of high relevance to investors and analysts. Operating profit is used to evaluate the performance of the reportable segments as well as of the Allianz Group as a whole. It highlights the portion of income before income taxes that is attributable to the ongoing core operations of the Allianz Group. As net income is the basis of the dividend and return on equity, the two indicators reflect the overall financial performance appropriately.

Individual contribution factor (ICF) (NEW)

The Group financial target achievement may be adjusted by the individual contribution factor (ICF). The ICF has a limited range of 0.8 to 1.2 and will be multiplied with the Group financial target achievement. It is an overall discretionary assessment by the Allianz SE Supervisory Board and takes into account the results of the business division and the individual contribution. Thereby the ICF assessment balances between the financial performance and the health targets (i.e. non-financial targets). For board members with business-related division responsibilities, the financial performance considers various profitability (e.g. operating profit and net income) and productivity (e.g. expense ratio) indicators for the business division. For board members with functional focus, division-specific performance targets are determined based on their key responsibilities. Health targets take into account customer satisfaction (e.g. NPS), employee engagement (e.g. Allianz Engagement Survey) and leadership quality, including strategic priorities. The assessment of the individual leadership contributions also includes a review of behavioral aspects, comprising customer orientation, collaborative leadership, entrepreneurship, and trust (e.g. with regard to sustainability, corporate social responsibility, and diversity as well as integrity). To enhance transparency, the individual contribution factor assessment will be disclosed per board member.

Annual bonus cap

The annual bonus is subject to a limit and capped at 150% of the target amount.

Long-term incentive (LTI)

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.

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”.

Pensions and similar benefits

Pension contribution remains unchanged at 50% of annual base salary. For further information regarding “Pensions and similar benefits”, please refer to the Annual Report (p. 25).

Perquisites

Perquisites mainly consist of contributions to accident and liability insurances and the provision of a company car. Perquisites are not linked to performance. Each member of the Board of Management is responsible for paying the income tax due on these perquisites. The Supervisory Board regularly reviews the level of perquisites.

Termination of service - details of payment arrangements

In the future, severance payments to Board members in case of early termination, including the case of a change of control, will be limited uniformly to twice the annual compensation (consisting of base salary and 100% of the variable target compensation).

Shareholding requirements (NEW)

The members of the Board of Management are obliged to build up share ownership within three years:

  • Chairman of the Board: two times base salary, i.e. 3,412 thou euros. 
  • Regular board member: one time base salary, i.e. 975 thou euros.

Holding is required for the entire term of service on the Board of Management.

Shares will be acquired through mandatory pay component conversion to avoid insider trading.

The holding obligation ceases with the end of the mandate.

Malus / Clawback (NEW)

Variable remuneration components may not be paid, or payment may be restricted, in the case of a significant breach of the Allianz Code of Conduct or regulatory Solvency II policies or standards, including risk limits. In the same way, for three years after payout, variable remuneration components already paid may be subject to a clawback.

Additionally, a reduction or cancellation of variable remuneration may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers.

Total target compensation and overall cap (NEW)

The review of the current remuneration system also revealed the need to adapt the compensation levels for the Board of Management of Allianz SE. The horizontal benchmark, with the relevant peer group consisting of DAX companies and international competitors, demonstrated that the compensation levels for both regular board members and the Chairman of the Board no longer reflect Allianz’s overall position, given relative size, complexity, and sustained performance. Moreover, the remuneration levels for regular board members have remained unchanged since their last adjustment in 2014. Therefore, the Supervisory Board deemed an increase of the total target compensation (without pension) necessary to maintain its attractiveness to talents. Specifically, the amount  for regular board members increased from 3,000 thou euros to 3,251 thou euros; the amount1 for the Chairman of the Board increased from 5,250 thou euros to 5,687 thou euros. The ratio of the Chairman of the Board’s compensation against regular board members’ compensation remained at 1.75.

In return to the increase, an overall cap was introduced which will limit the total payout significantly: The compensation relating to the relevant performance year, including pension contributions, will be capped at 10,000 thou euros for the Chairman of the Board of Management and 6,000 thou euros for a regular member of the Board of Management. The previous system did not include explicit overall payout caps. The calculatory overall payout caps that resulted from the individual caps of the compensations components amounted to 11,800 thou euros for the Chairman of the Board of Management and 6,750 thou euros for a regular member of the Board of Management.

Based on the allocation value as described in detail in the section “Long-term incentive (LTI)" under "Allianz share price performance”

Remuneration 2018

The Remuneration Report is part of the management report of Allianz SE and the group management report, which are published in the respective annual reports of Allianz SE and the Allianz Group.