Remuneration components and target setting process
The base salary, which is not performance-related, is paid in twelve equal monthly installments. It constitutes 30% of the target compensation.
Variable remuneration includes the annual bonus and a long-term incentive (LTI).
The annual bonus, which amounts to 25% of the target compensation, is based on the achievement of Group financial targets of the respective financial year for which the annual bonus is granted. It is adjusted by an individual contribution factor (ICF) which takes into account individual and business division performance.
Group financial targets
The Group financial targets are based on equally weighted targets for Group operating profit and Group net income attributable to shareholders. Both key performance indicators (KPI) are important steering parameters for the Allianz Group. Operating profit highlights the underlying performance of ongoing core operations of the Allianz Group. Net income attributable to shareholders represents the profit after taxes and non-controlling interests (minorities). Furthermore, the net income forms the basis for the dividend payout and for the return on equity calculation. The Group financial target achievement is determined on the basis of bonus curves which are published in the remuneration report of the following year. The Group financial targets also reflect the level of implementation of the Group’s strategy as set by the Board of Management.
Individual contribution factor (ICF)
For each board member, the Group financial target achievement is multiplied by the ICF. The ICF is based on an overall discretionary assessment by the Allianz SE Supervisory Board and on KPI which take into account the specific area of responsibility of the respective board member and the personal contribution of the board member. It is limited to a range of 0.8 to 1.2. The ICF takes into account the individual contribution of the board members to the implementation of the business strategy.
For board members with business-related division responsibilities, the contribution to the financial performance considers various profitability (e.g. operating profit and net income) and productivity (e.g. expense ratio) indicators for the respective business division. For board members with functional focus, the quantitative division-specific performance targets are determined based on their key responsibilities. The non-financial 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 quality also includes a review of behavioral aspects, such as customer orientation, collaborative leadership, entrepreneurship, and trust (e.g. corporate social responsibility, integrity, diversity as well as sustainability as measured by the reduction of the carbon footprint, the greenhouse gas reduction as well as a step-plan to achieve net-zero compliant asset allocation until 2050, at the latest). To enhance transparency, the ICF-assessment will be disclosed per Board member in the remuneration report.
Payout and annual bonus cap
The annual bonus is calculated by multiplying the result of the Group's financial targets by the ICF. Achievement of the targets is subject to a limit and capped at 150% of the target amount. The annual bonus is paid out in cash after the end of the respective fiscal year.
Long-term incentive (LTI)
The long-term share-based compensation accounts for 45% of the target compensation and represents the largest component 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 sustainability assessment at the end of the vesting period.
Allianz share performance
The LTI is granted annually in the form of virtual Allianz shares, so-called restricted stock units (RSUs), with a contractual four-year vesting period. The LTI allocation amount is derived by multiplying the LTI target amount with the achievement factor of the annual bonus, and is capped at 150% of the LTI target amount. 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 SE share following the annual financial media conference. 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 four-year vesting period.
Relative performance versus peers
The LTI takes into account the relative performance of Allianz against peers:
- The total shareholder return (TSR) of Allianz SE is benchmarked against the TSR of the STOXX Europe 600 Insurance Performance 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 vesting period in a TSR-Performance-Factor.
- The relative TSR-Performance-Factor is calculated as follows: Allianz TSR at the end of the four-year vesting period in %-p minus Index TSR at the end of the four-year vesting period in %-p, the result times two, plus 100%.
- 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%-p or higher) and 200% (for outperformance of the index by 50%-p or higher).
- Example: 5%-p outperformance result in a relative TSR-Performance-Factor of 110%, 5%-p underperformance result in a relative TSR-Performance-Factor of 90%.
As a result of a sustainability assessment at the end of the four-year vesting period, the LTI payout amount may be reduced to zero if the performance of a board member has not proven to be sustainable. The sustainability assessment compares the development of the annual bonus KPIs in the grant year with the pay-out year of the LTI, and also takes into account extraordinary events, the Solvency II-Ratio as well as balance sheet strength.
LTI Payout and Caps
Following the end of the four-year contractual vesting period, the granted RSUs 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 (capped at twice the share price at grant), multiplied by the relative TSR-Performance-Factor and adjusted by the sustainability assessment as described above.
Taking into account the overall compensation cap, the LTI payout, relative to the LTI target amount, is limited to a maximum of 255% for the Chairman of the Board of Management and a maximum of 272% for a regular board member.
Malus and clawback
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 components may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers.
Pension contribution and similar benefits
To provide competitive and cost-effective retirement and disability benefits, Allianz in 2015 established the defined-contribution pension plan “My Allianz Pension”. Company contributions are invested in a fund with a guarantee for the contributions paid, but no further interest guarantee. Each year, the Supervisory Board decides whether and to what extent a budget is provided, also taking into account the target pension level. The current pension contribution generally represents 15% of the total target compensation of the board members.
Apart from disability pensions, the earliest age a pension can be drawn under the pension plan “My Allianz Pension” is the age of 62. Should board membership cease before the retirement age is reached, accrued pension rights are maintained if vesting requirements are met.
Members of the Board of Management may have pension entitlements resulting from previous positions in the Allianz Group or due to a membership in the Board of Management before 2015 based on then existing pension plans.
Perquisites mainly consist of contributions to accident and liability insurances, tax consultant fees if in the interest of Allianz 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. Contractual caps apply to perquisites and the Supervisory Board regularly reviews the level of perquisites.
Maximum total compensation (overall cap)
The compensation relating to the relevant performance year (sum of base salary, variable compensation and pension contributions) is capped at a maximum amount of EUR 6 million for a regular member of the Board of Management and at EUR 10 million for the Chairman of the Board of Management.
Members of the Board of Management are obliged to build up share ownership within three years as follows:
- Chairman of the Board of Management: two times base salary,
- Regular member of the Board of Management: one time base salary.
Holding is required for the entire term of service on the Board of Management. Shares will be acquired through mandatory pay component conversion. The holding obligation ceases with the end of the mandate.
In combination with the virtual shares accumulated through the LTI plan, the Allianz SE Board of Management will have a significant economic exposure to Allianz shares (240% of the total target direct compensation for the Chairman of the Board of Management and 210% of total target direct compensation for a regular member of the Board of Management).
Termination of service
Board of Management contracts are limited to a period of five years. In accordance with the recommendation by the new German Corporate Governance Code in its version dated December 16, 2019, for new appointments a maximum period of up to three years will be applied.
Severance payments made to board members in case of early termination are restricted in alignment with the recommendations of the German Corporate Governance Code. Payments for early termination to board members with a remaining term of contract of more than two years are capped at twice the annual compensation, consisting of last year’s base salary and 100% of the variable target compensation. If the remaining term of contract is less than two years, the payment is pro-rated for the remaining term of the contract. Contracts do not contain provisions for any other cases of early termination of Board of Management services. In particular, to comply with the recommendation of the new German Corporate Governance Code in its version dated December 16, 2019, upon its effectiveness severance payments in case of a change of control are discontinued even in the currently existing service contracts.
Board members appointed before January 1, 2010, are eligible for a transition payment when leaving the Board of Management. The transition payment comprises an amount corresponding to the most recent base salary (paid for a period of six months), plus a one-off payment of 25% of the target variable remuneration at the notice date. Where an Allianz pension is immediately payable, such pension is deducted from the monthly transition payments.
Internal and external board appointments
When a member of the Board of Management simultaneously holds an appointment at another company within the Allianz Group or their joint ventures with outside partners, the full amount of the respective remuneration is transferred to Allianz SE. In recognition of related benefits to the organization and subject to approval by the Supervisory Board of Allianz SE, board members are also allowed to accept a limited number of non-executive supervisory roles at appropriate external organizations. In these cases, 50% of the remuneration received is paid to Allianz SE. Only if the Allianz SE Supervisory Board classifies the appointment as a personal one (ad personam), the respective board member will retain the full remuneration for that position. Any remuneration paid by external organizations will be itemized in those organizations’ annual reports; its level will be determined by the governing body of the relevant organization.