Volvo 2004 Annual Report Download - page 82

80 The Volvo Group
Notes to consolidated financial statements
Note 30 Government grants
During 2004, government grants amounting to 165 (121) have been
received, of which 137 (77) has been accounted for in the income
Note 31Personnel
In accordance with a resolution adopted at the Annual General
Meeting 2004, the fee paid to the Board of Directors is a fixed
amount of SEK 4,800,000, to be distributed as decided by the
Board. The Chairman of the Board, Finn Johnsson, received a fee of
SEK 1,200,000. Fixed and variable salaries and other benefits for
the Chief Executive Officer and Executive Vice Presidents are decid-
ed by the Board of Directors after recommendation by the
Remuneration Committee of the Board. The Remuneration
Committee furthermore reviews and recommends for resolution by
the Board principles for remuneration, including pensions and sever-
ance payment for the Group Executive Committee as well as prin-
ciples for variable salary systems, share-based incentive programmes,
pension schemes and severance payment for senior executives. In
addition, the Remuneration Committee approves remuneration of the
members of the Group Executive Committee. Fixed and variable
salaries for other senior executives are prepared and decided by the
executive's superior, in consultation with his or her superior, and in
accordande with the principles decided by the Board.
Fixed Variable Other Pension
Remuneration to senior executives, SEK salary salary benefits costs 3Total
Board Chairman 1,200,000 – – – 1,200,000
CEO210,511,781 5,280,000 2,037,249 14.076.717 31.905.747
GEC149,034,000 22,481,000 7,119,000 31.004.311 109.638.311
Total 60,745,781 27,761,000 9,156,249 45.081.028 142.744.058
Terms of employment of the CEO
The President and Chief Executive Officer, Leif Johansson, is entitled
to a fixed annual salary. In addition, he may receive a variable salary
based on operating income and cash flow up to a maximum of 50%
of his fixed annual salary. In 2004, the variable salary corresponded
to 50% of the fixed annual salary. Leif Johansson is also participat-
ing in the Volvo Group long-term incentive program. There was how-
ever no allotment in 2004, as the financial targets for year 2003
were not met.
Leif Johansson’s pension benefits has been renegotiated during
the fourth quarter 2004, resulting in him no longer being eligible to
take retirement with pension at age 55. Instead, only a twelve-month
notice of termination is applicable from AB Volvo and six months on
his own initiative. At the same time, the possibility of 2 years of sev-
erance pay was removed. Leif Johansson will from now on receive a
defined contribution based pension, meaning that Leif Johansson’s
pension will equal the sum of all paid premiums with the addition of
possible yields instead of the former system with a guaranteed per-
centage of the pensionable salary. The pensionable salary consists of
the current monthly salary times twelve, Volvo's internal value for
company car, together with the average of the outcome of the vari-
able salary for the previous five years. The corresponding agreement
has been offered to all senior executives currently participating in the
defined benefits pension plan.
In conjunction with the transition to a defined-contribution pension
plan for Leif Johansson, AB Volvo pays 34 MSEK to an insurance
policy in the first quarter 2005. At the same time, Volvo transfers to
this insurance policy 76 MSEK already reserved in the defined-
benefit system. If Leif Johansson leaves his position before the age
of 55 he has an obligation to repay part of the pension premiums.
Variable salaries
In addition to Leif Johansson, the members of the Group Executive
Committee and a number of senior executives in Group Companies
receive variable salaries in addition to fixed salaries. Variable salaries
are in most cases based on operating income and cash flow of the
Volvo Group and/or the senior executive's company. A variable salary
may amount to a maximum of 50% of the fixed annual salary.
Severance payments
The employment contracts of the Group Executive Committee and
certain other senior executives contain rules governing severance
payments when the Company terminates employment. The rules pro-
vide that, when the Company terminates employment, an employee
is entitled to severance pay equal to the employee’s monthly salary
for a period of 12 or 24 month, depending on age at date of severance.
In agreements concluded after the spring of 1993, severance pay
is reduced, in the event the employee gains employment during the
severance period, in an amount equal to 75% of income from new
employment. In agreements concluded after the spring of 2004,
severance pay is reduced by the full income from new employment.
Furthermore, age limit at date of notice of termination has been
removed and an employee is, with few exceptions, entitled to sever-
ance pay for a period of twelve months.
statement. The grants were mainly received from the European
Commission and the Swedish government.
1Group Executive Committee, consists of 16 members, in addition to Leif
Johansson, at the end of the year.
2Other benefits (1,485,800) relates to excercised options during 2004.
3Pension costs are calculated according to FAR’s Recommendation 4,
“Accounting of pensions liabilities and pension cost” which is the accounting
principle used in the Parent Company and includes social cost. The Volvo
Group principle RR 29 “Employee Benefits”, is not suitable for calculations
on an individual basis, due to the handling of actuarial gains and losses and
certain amortizations rules.