Munich Re Group Annual Report 2006 (PDF, 1.8

Munich Re Group Annual Report 2006 Management report_Corporate governance report
tially controversial aspects are rendered transparent for
the Supervisory Board’s Personnel Committee.
Medium- and long-term compensation component –
Medium-term bonus
The medium-term bonus is based on performance over a
three-year period. It is measured on the basis of the Group
result category from the short-term compensation component.
Payments are made only if the achievement rate is
at least 50% on average for the three-year period.
Share-price-based compensation component –
Long-term incentive plan
This remuneration component, with a long-term perspective,
is linked to the sustained appreciation of Munich Re’s
share price. The long-term incentive plan is set up each
year, and the participants receive a certain number of stock
appreciation rights. These can only be exercised if, after a
two-year vesting period, Munich Re’s share price has risen
by at least 20% since inception of the plan and the shares
have outperformed the EURO STOXX 50 at least twice at
the end of a three-month period during the term of the
plan. The exercise hurdles are exacting and in keeping with
the German Corporate Governance Code.
Whether the stock appreciation rights can be exercised
and, if so, when, is not certain at the time they are granted.
The exercising and proceeds depend on the development
of the share price and the exercise price and date. The
amount of income is limited. Up to now, it has only been
possible to exercise stock appreciation rights under the
plans set up in 1999, 2003 and 2004. Further information on
the long-term incentive plans can be found on pages 207 to
209 of the notes to the financial statements.
In the case of 100% achievement of objectives (annual
bonus, medium-term bonus) and based on the imputed
value of the share-price-linked compensation (long-term
incentive plan) at the granting date, the weightings of the
individual components in terms of total remuneration are
as follows: basic remuneration approximately 25%, annual
bonus approximately 35%, medium-term bonus approximately
20%, and long-term incentive plan approximately
20%. Annual bonus, medium-term bonus and long-term
incentive plan together form a well-balanced incentive
system.
In accordance with the recommendations of the
German Corporate Governance Code, the monetary
remuneration of the Board members thus comprises fixed
and variable components, all of which are appropriate in
themselves and as a whole. Criteria for this are in particular
the respective Board member’s duties, the Board member’s
personal performance, the performance of the Board as a
whole and the financial situation, performance and future
prospects of Munich Re, taking into account the relevant
benchmarks.
A different arrangement applies to the remuneration
structure of Mr. Phelan, who is not only a member of the
Board of Management but also the President, Chief Executive
Officer and Chairman of the Board of Munich Re America
Corporation. He therefore has special remuneration
agreements, with the major portion of his income derived
from the USA.
Other remuneration
In the case of seats held on other boards, remuneration for
board memberships must be paid over to the Company or
is deducted in the course of regular compensation computation.
Excepted from this is remuneration for personal
memberships, which do not exist at present. In the event
of a change of control, the members of the Board of Management
have no contractual entitlement to payments. As
far as the share-price-based remuneration is concerned,
the conditions provide for special exercise options in the
case of a change of control. Details of this are provided
in the notes to the consolidated financial statements on
page 209.
Pension entitlement
In addition to the regular remuneration, the members
of the Board of Management are members of a defined
benefit plan under which they will receive a fixed pension
whose amount depends on their basic remuneration and
their years of service on the Board. The pension level starts
at 30% and can reach a maximum of 60% of annual basic
remuneration. Members of the Board of Management are
entitled to an occupational pension from age 60 if they
leave the active service of the Company, or if their contract
of employment is terminated prematurely or not extended
due to incapacity for work or under certain other conditions.
Total remuneration of the Board of Management
In the year under review, after allocation to the appropriate
periods, the remuneration of Munich Reinsurance Company’s
Board of Management for the performance of its
duties in respect of the parent and subsidiaries showed an
overall rise of €4.4m or 20.8% from €21.2m to €25.6m. The
115