Report on Compensation

The specifications below follow the directives on information relating to corporate governance issued by the SIX Swiss Exchange and take into consideration the transparency regulations set out in the Swiss Code of Obligations Art. 663bbis and Art. 663c as well as Circular 2010/1 of the Swiss Financial Market Supervisory Authority FINMA on minimum standards for remuneration schemes of financial institutions. Further information on compensation and benefit expenditure for the management and employees of the Swiss Life Group can be found in the Consolidated Financial Statements (Notes 24 and 32) on pages 196 to 200 and 211. Additional details regarding the compensation and remuneration of the members of the Board of Directors and the Corporate Executive Board, and their participation interests, are shown in the Notes to the Swiss Life Holding Financial Statements on pages 233 to 246.

The information in this report is presented in the same way as in previous years. The information on compensation granted to Corporate Executive Board members also includes the variable cash compensation (cash bonus and deferred compensation in cash), which was determined by the Board of Directors at the beginning of 2013 and is published on an accrual basis as compensation for the 2012 financial year. The members of the Board of Directors are granted exclusively fixed compensation, payable 70% in cash and 30% in Swiss Life Holding shares; the allocated shares are subject to a three-year blocking period.

In accordance with the transparency requirements, the compensation received by each member of the Board of Directors and the Chairman of the Corporate Executive Board (Group CEO) is disclosed individually.
COMPENSATION POLICY PRINCIPLES
The Board of Directors as a whole is responsible for establishing the guidelines on the Group’s compensation policy (incl. variable compensation and equity compensation plans) and on employee benefit institutions. The compensation policy underpins the performance culture required by the corporate strategy and is part of the HR policy. The aim is to retain well-qualified employees and gain new, highly skilled staff. The compensation system is in line with the market environment and must be competitive. The individual overall compensation takes into account the employee’s professional skills, engagement and personal performance. It is made up of the basic salary, a variable bonus based on achievement of the annual objectives, which is generally paid in cash and possibly in shares, if applicable deferred compensation in cash and a mid- to long-term equity compensation plan, as well as contributions to occupational provisions and risk insurance.

The salary is determined according to the employee’s function and skill set, and is annually re-assessed and adjusted if appropriate. Salary comparison studies and recognised job evaluation systems are used to check appropriateness and to ensure internal and external comparability.

The variable compensation components are linked to the strategic objectives of the Group and the individual divisions, and the associated financial and HR-related targets. They are based on the achievement of annual objectives defined in advance for a period of three years as part of medium-term planning and determined on the basis of the actual performance of individuals or teams (performance-linked payment) in relation to the objectives set and on the degree of achievement of the Swiss Life Group targets as reflected in its annual result (share in the company’s success). Quantitativeand qualitative performance is assessed also on the basis of the competencies required for the function held, such as professional expertise, entrepreneurship, task fulfilment, cooperation and leadership. The percentage weighting between the individual and/or team performance and the share in the company’s success depends on the position and responsibilities of the function holder.

The share in the company’s success is measured using quantitative Group targets (Key Performance Indicators, KPIs), which are defined in advance for the following three years as part of medium-term planning. The main KPIs, besides the key figures relating to annual profit, costs, business volume, investment return, return on equity and solvency, are the profitability of in-force and new business, margin performance and the share of non-traditional products in new business. In order to avoid conduct aimed at the short-term achievement of key indicators with a higher weighting, the individual KPIs are not mechanistically weighted in advance. Their individual weighting is determined at the end of each financial year by the Board of Directors on the basis of a proposal by the Nomination and Compensation Committee (NCC) taking all developments into account and consideration (discretionary decision).

Personal performance based on the specified quantitative and qualitative objectives is assessed annually in the employee appraisal procedure implemented throughout the Group (Group Performance System, GPS). Two assessment elements/models are used for determining objectives and evaluating performance: The Group Objectives Model (GOM) relating to qualitative and quantitative objectives and the Group Competency Model (GCM) for measuring and assessing individual competencies and behaviour, incl. the compliance regulations.

For persons responsible for risk management and risk control, the quantitative objectives are set in such a way that performance is not linked to the result of the monitored business unit, specific products or transactions.

In order to be eligible for any variable compensation, a GPS target achievement of at least 80% is required.

Permanent employment contracts in Switzerland contain notice periods of between three and twelve months, depending on position and seniority. All current employment contracts with members of the Corporate Executive Board specify a notice period of twelve months.

PRACTICE AND PROCEDURE
Pursuant to the Organisational Regulations, the Board of Directors as a whole is responsible for determining the level and make-up of compensation for its members, whereas the Nomination and Compensation Committee is responsible for putting forward appropriate proposals (for the internal organisation of the Board of Directors see “Internal Organisational Structure”, pages 37 to 40). The Board of Directors as a whole also establishes the guidelines for the company’s compensation policy. In doing so, it takes into consideration the compensation policies of other companies in the financial services industry, drawing its findings from publicly available information and studies by independent external experts. Comparable companies in the insurance sector in Switzerland used for the purposes of providing relevant information for the current compensation policy included Allianz, AXA, Baloise Insurance, Swiss Re and Zurich Insurance Group.

The Board of Directors as a whole sets the level and distribution of the variable compensation pool for all employees on the basis of its compensation policy guidelines upon a proposal by the Nomination and Compensation Committee. When determining the level of the allocation to the compensation pool, it takes into consideration the annual result, as well as the medium-term planning and the degree of target achievement. The Board of Directors as a whole is also responsible for determining the individual compensation of members of the Corporate Executive Board. It carries out an annual performance assessment of all members of the Corporate Executive Board, based on preparatory work by the Nomination and Compensation Committee. In addition, current aspects of HR policy and, in particular, succession planning are regularly discussed at meetings of the Nomination and Compensation Committee and the Board of Directors as a whole.

The Board of Directors may consult independent professionals where deemed appropriate. In the year under review, Swiss Life was advised by PricewaterhouseCoopers (PwC) on the structuring of the equity compensation plan and the wording of the corresponding plan regulations.

Within the framework of the compensation arrangements for members of the Corporate Executive Board, “deferred compensation in cash” was introduced as a new compensation component on 1 January 2012. On the basis of the corresponding regulations, a portion of the variable cash compensation determined by the Board of Directors is not paid immediately but after a period of three years has elapsed and provided that the regulatory requirements are satisfied at that point. The allocated deferred compensation in cash represents an entitlement during the three-year deferral period. The underlying “deferred cash plan” also provides for adjustment and reclaiming mechanisms (clawback). If the employment relationship is terminated by a participant during the three-year deferral period, the entitlements expire worthless.

As a mid- to long-term compensation component linked to the performance of the Swiss Life Holding share price, an equity compensation plan has been in place since 2004 for members of the Corporate Executive Board and other key performers within the Swiss Life Group, who are determined by the Corporate Executive Board with the approval of the Nomination and Compensation Committee. Based on this plan, participants are granted future subscription rights to Swiss Life Holding shares. These subscription rights entitle the participants to receive Swiss Life Holding shares free of charge after a period of three years has elapsed and provided that the requirements under the plan are satisfied at that point.

Pursuant to the regulations of the 2010 equity compensation plan, future subscription rights were allocated in the form of so-called Performance Share Units (PSUs), whereby share allocation after expiry of the three-year period was based on two performance criteria, each weighted at 50%. The allocation mechanism is set out in detail in the 2010 Annual Report in the Notes to the Swiss Life Holding Financial Statements on pages 166 to 167. In 2010, 69 members of Swiss Life Group senior management, including the members of the Corporate Executive Board, took part in the plan, in which a total of 68 510 PSUs were allocated; 24 700 to the Corporate Executive Board, of which 6500 to Bruno Pfister in his capacity as Group CEO.

Since 2011 participants in the equity compensation plan have been allocated Restricted Share Units (RSUs) instead of PSUs. As with PSUs, RSUs grant the holder future subscription rights, entitling them to receive Swiss Life Holding shares free of charge after a three-year period has elapsed, but without any additional leverage effect. The attribution of shares after the expiry of the three-year deferral period is effected on a 1:1 basis (1 RSU = 1 share). The plan is therefore very simple, transparent throughout the whole term and directly linked to the performance of the Swiss Life Holding share price. The value of RSUs during the three-year term develops linear with the Swiss Life Holding share price and thus symmetrically corresponds with shareholder interests. 62 members of Swiss Life Group senior management participated in the 2011 equity compensation plan, in which a total of 68 730 RSUs were allocated; 23 630 in total to the Corporate Executive Board, of which 6350 to Bruno Pfister in his capacity as Group CEO. During the period under review, 55 members of Swiss Life Group senior management participated in the 2012 equity compensation plan. A total of 94 040 RSUs were allocated; 28 460 in total to the members of the Corporate Executive Board, of which 7100 RSUs to Bruno Pfister as Group CEO.

The new equity compensation plan, relating to the effective date of 1 April 2013, is based on the Group-wide programme “Swiss Life 2015”, which was announced at the Swiss Life Group’s Investors’ Day on 28 November 2012 (see www.swisslife.com/investorsday2012). On the basis of the medium-term planning 2013-2015, performance criteria relating to cost efficiency (50% weighting), the risk and fee result (25% weighting) and IFRS profit (25% weighting) have been determined by the Board of Directors. After expiry of the thee-year period of the RSU plan, the target value for each performance criterion according to the medium-term planning 2013-2015 is compared with the actual result achieved. The share allocation corresponds to the number of allocated RSUs (1 RSU = 1 SLHN) if all three performance criteria have been achieved or exceeded after the three-year period has elapsed; overperformance does not lead to a higher share allocation. If the targets are only partly achieved, the share allocation is correspondingly reduced based on the weighting of the performance target concerned or the RSUs expire worthless.

The attribution of mid- to long-term compensation components (RSU plan) is deferred for a period of three years from the date of allocation as is the case with the deferred compensation in cash. Likewise, the RSU plans provide for adjustment and reclaiming mechanisms (clawback). If the employment relationship is terminated by a participant during the three-year term of the RSU plan, the future entitlements expire worthless.

COMPENSATION PAID TO ACTING MEMBERS OF GOVERNING BODIES
The following compensation in cash was received by acting members of the Board of Directors and the Corporate Executive Board during the period under review:

In CHF
2012 2011
Board of Directors
2 073 750 2 091 334
Corporate Executive Board
9 560 2411 9 792 9782
1 Incl. cash bonus of CHF 3 616 400 for the 2012 financial year, determined and paid out at the beginning of 2013.
2 Incl. cash bonus of CHF 4 340 500 for the 2011 financial year, determined and paid out at the beginning of 2012.


Two members of the Board of Directors resigned in the 2011 financial year. After serving for eight years on the Board of Directors of Swiss Life Holding, Paul Embrechts did not stand for re-election at the General Meeting of Shareholders in 2011 and no longer serves on the Board of Directors. Carsten Maschmeyer, who was elected to the Board of Directors of Swiss Life Holding at the 2009 General Meeting of Shareholders, resigned as a member of the Board of Directors on 7 December 2011.

There were no resignations from the Board of Directors in the period under review. On 19 April 2012 Wolf Becke was elected to the Board of Directors of Swiss Life Holding.

There were no personnel changes on the Corporate Executive Board during 2011 and 2012.

The members of the Board of Directors are granted exclusively fixed compensation. This is paid 70% in cash and 30% in Swiss Life Holding shares; the shares are subject to a three-year blocking period.

The compensation takes into account membership of the Board of Directors of Swiss Life Holding and its subsidiary Swiss Life Ltd, as well as membership of the individual Board Committees, and is commensurate with the individual’s function and workload.

The acting members of the Board of Directors of Swiss Life Holding on the balance sheet date received the following compensation for the period under review:

Compensation in cash in CHF Shares with
 three-year
 blocking period
Rolf Dörig
1 008 000 4 443
Gerold Bührer
244 300 1 077
Frank Schnewlin
244 300 1 077
Wolf Becke 1
68 250 237
Volker Bremkamp
129 500 572
Damir Filipovic
91 000 402
Henry Peter
91 000 402
Peter Quadri
91 000 402
Franziska Tschudi
106 400 470
1 Joined 19.04.2012


As Chairman of the Board, Rolf Dörig is affiliated to the employee benefits institutions of Swiss Life for the purpose of occupational provisions. No such affiliation exists for other members of the Board of Directors and no contributions have been made on their behalf.

Compensation remitted to members of the Corporate Executive Board comprises the basic salary, variable compensation in cash and other compensation (child allowances, company cars, premium contributions to 3rd pillar pension plans). The variable compensation in cash is allocated as a bonus and as deferred compensation in cash. The deferred compensation in cash is paid out after a period of three years has elapsed and provided that the regulatory requirements have been satisfied. In addition, a mid- to long-term compensation component is in place in the form of an equity compensation plan linked to the performance of the Swiss Life Holding share price, respectively to medium-term planning and corresponding target achievement. As mentioned above, participants are entitled to Swiss Life Holding shares after a period of three years has elapsed and provided that the relevant requirements are satisfied at the time of allocation.

Salary is determined annually by the Board of Directors, on the basis of a proposal by the Nomination and Compensation Committee, taking into account the individual member’s function-related responsibility and the current market conditions.

The variable compensation components are determined by the Board of Directors in accordance with the described compensation policy principles and based on the company result and the achievement of personal goals assessed in the employee appraisal procedure implemented throughout the Group (Group Performance System, GPS).

The variable compensation in cash (cash bonus and, if applicable, deferred compensation in cash) is set at a maximum of 117% of the fixed basic salary (“bonus cap”) and requires that all objectives have been considerably exceeded. In the case of 100% target achievement, variable compensation in cash of 80% of the fixed basic salary is provided for (“on-target bonus”), which can be reduced by the Board of Directors in consideration of all the circumstances.

In the same way the allocation of future subscription rights to Swiss Life Holding shares (equity compensation plan, RSU plan) is dependent on the respective target achievement. The cash bonus thereby serves as a reference value, whereby the deferred compensation components (RSU plan and deferred compensation in cash) are considered as a whole. The allocation of future subscription rights to Swiss Life Holding shares is also limited in value to 117% of the fixed basic salary or, if deferred compensation in cash is simultaneously allocated, to 64% of the fixed basic salary.

At Corporate Executive Board level, variable compensation depends 60% directly on the company’s success. The Key Performance Indicators (KPIs) used to assess company success include, as mentioned above, key figures relating to annual profit, costs, business volume, investment return, return on equity and solvency, as well as the profitability of in-force and new business, margin performance and the share of non-traditional products in new business.

40% of the variable compensation is based on Corporate Executive Board members’ achievement of specified personal goals. On the one hand, these personal goals are linked back to the company’s success, in that each Corporate Executive Board member has to meet personal quantitative objectives contributing to the company’s success in relation to his division. On the other hand, the personal goals cover qualitative factors, namely project targets, risk management and compliance goals, as well as requirements relating to leadership and to supporting and further developing corporate culture.

COMPENSATION PAID TO FORMER MEMBERS OF GOVERNING BODIES
None.

SHARE ALLOCATION IN THE YEAR UNDER REVIEW
The shares allocated to the members of the Board of Directors in the period under review form part of the compensation, which was granted 70% in cash and 30% in blocked Swiss Life Holding shares.

No variable compensation in shares was granted to the members of the Corporate Executive Board for the 2012 financial year. As described, they are participating in the current equity compensation plan.

For the 2012 financial year, the members of the Board of Directors were allocated the following shares, subject to a three-year blocking period:

Board of Directors
9082 shares,
allocated at values1 of CHF 67.3375 and CHF 103.6931. The shares are subject to a three-year blocking period.
Corporate Executive Board
none
1 Economic value equal to the tax value, taking the blocking period into account. The share prices (closing prices) on the days of allocation of 18.06.2012 and 14.12.2012 were
CHF 80.20 and CHF 123.50.


No shares were allocated to closely linked parties2 within the meaning of the law.

2 “Closely linked parties” are natural persons and legal entities pursuant to Art. 678 of the Swiss Code of Obligations that have close personal, economic, legal or de facto ties with members of the governing body. This typically includes spouses, minor children, companies controlled by members of the governing body, and natural or legal persons serving the members of the governing body in a fiduciary capacity.

SHARE OWNERSHIP
On the balance sheet date of 31 December 2012, acting members of the Board of Directors and the Corporate Executive Board (including closely linked parties) held the following number of Swiss Life Holding registered shares:

SLH shares
31.12.2012
Rolf Dörig, Chairman of the Board of Directors
44 929
Gerold Bührer
5 172
Frank Schnewlin
2 825
Wolf Becke
237
Volker Bremkamp
2 722
Damir Filipovic
700
Henry Peter
4 053
Peter Quadri
2 753
Franziska Tschudi
2 136
Total Board of Directors
65 527


SLH shares
31.12.2012
Bruno Pfister, Group CEO
10 818
Manfred Behrens
900
Thomas Buess
6 900
Patrick Frost
9 200
Ivo Furrer
3 750
Klaus Leyh
1 000
Charles Relecom
1 750
Total Corporate Executive Board
34 318


The number of future subscription rights to Swiss Life Holding shares allocated in the context of the above-mentioned equity compensation plan to members of the Corporate Executive Board is shown in table form in the Notes to the Swiss Life Holding Financial Statements.

OPTIONs
No share options have been granted in the Swiss Life Group since 2003 and no options are outstanding.

ADDITIONAL HONORARIUMS AND REMUNERATIONS
In the period under review no additional honorarium or remuneration payments were made to the members of the Board of Directors or the Corporate Executive Board.

Loans
On the balance sheet date, there were no loans outstanding to members of the Board of Directors or the Corporate Executive Board:

31.12.2012
Board of Directors
none
Corporate Executive Board
none


EXPENDITURE FOR OCCUPATIONAL PROVISIONS
Details on the company’s benefit expenditure can be found in the Consolidated Financial Statements (Notes 24 and 32) and the Notes to the Swiss Life Holding Financial Statements. For reasons of transparency, information on the following benefits is provided here:

As Chairman of the Board of Directors, Rolf Dörig is affiliated to the employee benefits institutions of Swiss Life for the purpose of occupational provisions. The regular annual employer contribution for Rolf Dörig, which compared to the previous year has increased due to his reaching the regulatory next age and contribution level, amounted to CHF 283 968 in the period under review.

No such affiliation to employee benefits institutions of Swiss Life exists for other members of the Board of Directors and no contributions have been made on their behalf.

For Group CEO Bruno Pfister, the regular annual employer contribution in the period under review totalled CHF 225 504.

Expenditure for occupational provisions on behalf of the remaining members of the Corporate Executive Board totalled CHF 1 208 271 during the period under review.

HIGHEST TOTAL COMPENSATION, BOARD OF DIRECTORS
Rolf Dörig, as Chairman of the Board of Directors, received the highest total compensation for a member of the Board of Directors of Swiss Life Holding in 2012.

The members of the Board of Directors are granted exclusively fixed compensation, which is payable 70% in cash and 30% in Swiss Life Holding shares; the allocated shares are subject to a three-year blocking period.

The compensation granted to Rolf Dörig in the period under review in the form of cash, shares and contributions to occupational provisions was as follows:

In CHF
Compensation in cash
1 008 000
Compensation in blocked shares
362 767 4443 SLH shares with three-year blocking period1
Share options
none
Total compensation 2012
in cash and shares
1 370 767
including regular contribution to occupational provisions of CHF 283 968
1 654 735
Total compensation 2011
in cash and shares
1 370 839
including regular contribution to occupational provisions of CHF 225 504
1 596 343
1 Allocation and valuation was effected on 18.06.2012 and 14.12.2012 at an economic value of CHF 67.3375 and CHF 103.6931, which is equal to the tax value, taking into account the blocking period of three years. The share prices on the days of allocation were CHF 80.20 and CHF 123.50 respectively.


HIGHEST TOTAL COMPENSATION, CORPORATE EXECUTIVE BOARD
Bruno Pfister, as Group CEO, received the highest total compensation for a member of the Corporate Executive Board in the period under review.

In the 2012 financial year, Bruno Pfister was allocated the following amounts in the form of salary, cash bonus, contributions to occupational provisions, deferred compensation in cash and deferred compensation in shares (RSU plan):

In CHF
Compensation in cash 1
2 267 745
Shares
none                                                                                 
Share options
none
Total compensation 2012
in cash
2 267 745
including regular contribution to occupational provisions of CHF 225 504
2 493 249
including deferred compensation in cash 2
2 703 249
including deferred compensation in shares 3
3 369 016
Total compensation 2011
in cash
2 685 506
including regular contribution to occupational provisions of CHF 225 504
2 911 010
including deferred compensation in cash 4
3 271 010
including deferred compensation in shares 5
4 160 328
1 Including cash bonus of CHF 700 000 for the 2012 financial year, determined and paid at the beginning of 2013, and other compensation (child allowances, premium contribution) totalling CHF 67 745.
2 Deferred compensation in cash of CHF 210 000; this compensation component will be paid out on 1 April 2016, provided the regulatory requirements are satisfied at that point.
3 7100 future subscription rights in the form of RSUs entitling the holder to receive Swiss Life Holding shares on 1 April 2015, provided the requirements are satisfied at that point. On the allocation date of 1 April 2012 the fair value of an RSU was CHF 93.77.
4 Deferred compensation in cash of CHF 360 000; this compensation component was introduced on 1 January 2012 and will be paid out on 1 April 2015, provided the regulatory requirements are satisfied at that point.
5 6350 future subscription rights in the form of RSUs entitling the holder to receive Swiss Life Holding shares on 1 April 2014, provided the requirements are satisfied at that point. On the allocation date of 1 April 2011 the fair value of an RSU was CHF 140.05.


FURTHER INFORMATION
In the form of an overview, the following additional information is provided on the Swiss Life Group compensation systems for the 2012 financial year:

In CHF (unless otherwise indicated)
Total compensation 1
772 051 739
of which total variable compensation (total pool) 2
113 733 933
Number of persons who received variable compensation
5 688
Total outstanding deferred compensation
9 194 770
of which cash payment
1 159 007
of which shares
0
of which options
0
of which others (Restricted Share Units, RSUs / Performance Share Units, PSUs)
8 035 763
Charges and credits in the financial year from compensation for previous financial years 3
–261 070
Board of Directors, Executive Board and persons whose activities have a significant influence on the risk profile:
Total sign-on payments made in the financial year 4
0
Total severance payments made in the financial year 5
0
1 The totality of any monetary value which the company distributes to a person directly or indirectly for the work performed for the company, e.g. in the form of cash payments, non-cash benefits, expenditure which establishes or increases entitlements to occupational provisions, pensions, shares or other allocation of shareholding rights as well as the forgiving, extinguishing or renunciation of any claims or debts.
2 Part of the total compensation, the granting or the amount of which is at the discretion of the company or which is contingent on fulfilment of predefined conditions. This includes compensation contingent on performance or meeting certain targets. Sign-on payments and severance payments also fall within the scope of the definition of variable compensation.
3 In particular reduction in expenses affecting net income due to the expiration of entitlements under equity compensation plans.
4 Compensation which is agreed on the conclusion of an employment agreement to be paid or be due once. Also deemed to constitute a sign-on payment shall be compensation for benefits foregone vis-à-vis a previous employer.
5 Compensation which is agreed in connection with the termination of an employment relationship.


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