the variable remuneration reflect longerterm performance. One third is a deferred payout after three years based on a sus tainability assessment covering the threeyear period. The other third rewards sustained performance through share price devel opment with a deferred payout after five years.
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Alignment with shareholder interests: One third of the variable remuneration is dependent upon share price performance. The structure, weighting and level of remuneration is decided by the Supervisory Board. Remuneration survey data is provided by external consultants. The peer group consists primarily of other DAX 30 com panies. Compensation levels are usually around the third quartile of this group. The structure of the Allianz Group’s total remuneration is more strongly weighted to variable, longerterm components than in other DAX 30 companies. Remuneration and benefit arrangements are also periodically compared with best practices. The Supervisory Board takes remuneration levels within the Group into account when assessing the appropriateness of the remuneration of the Board of Management.REMUNERATION STRUCTURE,
COMPONENTS AND TARGET SETTING PROCESS
There are four main remuneration components. Each has the same weighting within annual target remuneration: base salary, annual bonus, annualized midterm bonus (MTB) and equityrelated remu neration. The target compensation of each variable component does not exceed the base salary, with the total target variable compensa tion not exceeding three times the base salary. In addition, Allianz offers pensions and similar benefits and perquisites.
Base salary
Base salary is the fixed remuneration component, expressed as an annual cash sum and paid in twelve monthly installments. It has been harmonized for 2014 for all regular members of the Board of Management. Those base salaries at € 700 THOU for 2013 were adjusted to € 750 THOU.
Variable remuneration
Variable remuneration aims to balance shortterm performance, longerterm success and sustained value creation.
Each year, the Supervisory Board agrees on performance targets for the variable remuneration with the members of the Board of Man agement. These are documented for the upcoming financial year. Every three years, the MTB sustainability criteria are set for the follow ing midterm period.
All variable awards are made under the rules and conditions of the “Allianz Sustained Performance Plan” (ASPP). The grant of vari able remuneration components is related to performance and can vary between 0 % and 150 % of the respective target values with the cap having been reduced from 165 % to 150 % from 2014 onwards. If perfor mance was rated with 0 % no variable component is granted. Conse quently, the minimum total direct compensation for a regular
member of the Board of Management equals the base salary of € 750 THOU (excluding perquisites). The maximum total direct com pensation (excluding perquisites) is € 4,125 THOU: base salary € 750 THOU + € 3,375 THOU (150 % of the sum of all three variable com pensation components at target).
Details on the variable compensation components:
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Annual bonus (shortterm): A cash payment which rewards the achievement of quantitative and qualitative targets for the respective financial year and is paid the year following the per formance year. Quantitative targets represent 75 % and consist of 50 % Group targets (equally divided between annual operating profit and annual net income) and 25 % divisional targets. For members of the Board of Management with business division responsibilities, divisional targets are set with the application of the following split: 10 % annual operating profit, 10 % annual net income before minorities and 5 % dividend. For members of the Board of Management with a functional focus the divisional quantitative targets are determined based on their key respon sibilities. Qualitative targets represent 25 % and reflect the spe cific individual priorities for 2014 per member of the Board of Management.ILLUSTRATION Of THE PROCESS AND THE UNDERLYING TIMELINE Of THE MTB CYCLE, fROM TARGET SETTING TO fINAL PERfORMANCE ASSESSMENT1 € THOU 20132 20142 20152 20163 Dec 2012 Accrual 930 Sustainability criteria setting for the three-year performance period Initial accrued amounts ± Sustainability assessment = Final payout Total 2,200 Accrual 620 Accrual 650 Accrual 930 Accrual 620 Accrual 650 Notional accruals 0 % 150 % Min: 0 Max: 3,300 Target: 2,200
Sustainability criteria setting Performance period Sustainability assessment & payout
Year 1 Year 2 Year 3
1 Example based on target values of a regular member of the Board of Management with an annual target of € 700 THOU for 2013 and € 750 THOU for the MTB in 2014 and 2015. Accrual is only a notional indication. 2 Actual accrual for the MTB (mid-term) usually equals the annual bonus payout of the respective financial
year. Since the performance assessment and the final payout occur after completion of the performance cycle, this value is only a notional indication.
3 Final payout is subject to the sustainability assessment of the Supervisory Board and may vary between 0 % and 150 % of the cumulative target values independent of the notional accruals.
Based on the 2014 target achievement for the Group, the business division/corporate functions and the qualitative per formance, the total annual bonus awards ranged between 96 % and 138 % of the target with an average bonus award of 121 % of the target.
The performance of the Chairman of the Allianz SE Board of Management is determined by the average target achievement of the other Board of Management members and can be adjusted by the Supervisory Board based on the Chairman’s personal per formance.
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MTB (midterm): A deferred award which reflects the achieve ment of the annual targets by accruing an amount identical to the annual bonus. The payout of the award at the end of a three year cycle is subject to a sustainability assessment for these three years. The following criteria are considered:−
adjusted capital growth vs. planned development in light of risk capital employed (adjusted capital essentially represents the fair value of the shareholders’ equity),−
balance sheet strength,−
comparison with peers,−
“partner of choice” for stakeholders,−
Equityrelated remuneration (longterm): A virtual share award, known as “Restricted Stock Units” (RSUs). The grant value of the RSUs allocated equals the annual bonus of the performance year. The number of RSUs allocated is derived from dividing the grant value by the fair market value of an RSU at the time of grant.The fair market value is calculated based on the tenday average Xetra closing price of the Allianz stock following the financial press conference on the annual results. As RSUs are virtual stocks without dividend payments, the average Xetra closing price is reduced1 by the net present value of the expected future dividend payments during the vesting period. The expected dividend stream is discounted with the respective swap rates as of the valuation day.
Following the end of the four year vesting period, the com pany makes a cash payment based on the number of RSUs granted and the tenday average Xetra closing price of the Allianz stock following the annual financial press conference in the year of expiry of the respective RSU plan. The RSU payout is capped at 200 % above grant price to avoid extreme payouts2. Outstanding RSU holdings are forfeited should a Board member leave at his/ her own request or be terminated for cause.
Variable remuneration components may not be paid, or payment may be restricted in the case of a breach of the Allianz Code of Conduct, risk limits or compliance requirements. Additionally, a reduction or cancellation of variable remuneration may occur if the supervisory authority (BaFin) requires this in accordance with its statutory powers.
1 The fair market value of the RSUs is further subject to a small reduction of a few Euro cents due to the 200 % cap on the RSU payout. This reduction is calculated based on a standard option price formula. 2 The relevant share price used to determine the final number of RSUs granted and the 200 % cap is only
available after sign-off by the external auditors.