Volvo 2004 Annual Report Download - page 83

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Pensions
Previous pension agreements for certain senior executives stipulated
that early retirement can be obtained from the age of 60. The
defined pension benefits are vested and earned gradually over the
years up to the employee’s retirement age and are fully earned at
age 60. During the period between ages of 60 and 65 the employee
receives a pension equal to 70% of the pensionable salary.
Agreements of retirement at an age of 60 are no longer signed,
and are instead replaced by a defined contribution plan without a
definite time for retirement. The premium constitutes 10% of the
pensionable salary.
The previous agreement, which entitled the employee 50% of the
pensionable salary after normal retirement age, has also been
replaced by a defined contribution plan. The premium constitutes of
30,000 SEK plus 20% of the pensionable salary over 30 income
base amounts.
Renegotiation, on a voluntary basis, is in progress with those
executives currently covered by the defined-benefit pension plan.
Incentive programs
Volvo currently has two different types of option programs for certain
senior executives outstanding, one call option program (expires dur-
ing 2005) and one program for employee stock options (expires
2006/2008). The employee stock options may only be exercised if
the holder is employed by Volvo at the end of the vesting period.
However, if the holder’s employment with Volvo is terminated for any
reason other than dismissal or the holder’s resignation, the options
may be exercised in part, in relation to how large part of the vesting
period the holder has been employed. If the holder retires during the
vesting period, he or she may exercise the full number of options.
Stock-based incentive program
In 2004 the Annual General Meeting approved a stock based incen-
tive program for certain senior executives within the Volvo Group.
Allotment in the program will be executed in April 2005, and is
based on the fulfilment of certain financial goals for 2004. The
Annual General Meeting decided that Volvo's own shares may be
used for allotment in the stock-based incentive program.
The Board of directors has proposed to the Annual General
Meeting to approve a new stock-based incentive programme similar
to the program approved in 2004. Under the new program, a total of
maximum 185,000 (110,000; –) Volvo shares can be allotted to
approximately 165 (165; –) senior executives. The number of shares
to be allotted is proposed to depend upon the fulfilment of certain
financial goals for 2005. Assuming that the financial goals are ful-
filled in full and that the Volvo share price is SEK 300 at grant date,
Volvo’s cost for the program including social fees will be approxi-
mately SEK 70 M. The Board has furthermore proposed to the
Annual General Meeting that Volvo’s own shares may be used for
allotment in the stock-based incentive program.
Programs from prior years
2003/2008
2000/2005, employee
call options stock options
Financial instruments number number
Board Chairman ––
CEO 8,821 50,000
GEC and other senior executives 93,009 895,000
Total 101,830 945,000
Total number of
outstanding options
Summary of Dec 31, Dec 31, Excercise Term of the Value/ Vesting,
option programs Allotment date 2003 2004 price options option years
May 18, 1999–
1998, call options 1May 5, 1999 46,097 – 290.70 May 4, 2004 68.70 n/a
Apr 28, 2000–
1998, call options 2April 28, 2000 116,929 101,830 302.12 Apr 27, 2005 55.75 n/a
May 4, 2003–
2000, employee stock options 3May 4, 2001 96,245 – 159.00 May 3, 2004 22.00 2
May 2, 2006–
2002, employee stock options 3May 2, 2003 1,050,000 945,000 163.00 May1, 2008 32.00 3
1The call options gave the holder the right to acquire 1.03 Series B Volvo
shares for each option held from a third party. The price of the options is
based on a market valuation by Trygg-Hansa Livförsäkrings AB. The num-
ber of options corresponds to a part of the executive’s variable salary
earned. The options were financed 50% by the Company and 50% from
the option-holder’s variable salary.
2The options gives the holder the right to acquire one Series B Volvo share
for each option held from a third party. The price of the options is based on
market valuation by UBS Warburg. The number of options corresponds to
apart of the executive’s variable salary earned. The options were financed
50% by the Company and 50% from the option holder’s variable salary.
3In January 2000, a decision was made to implement a new incentive pro-
gram for senior executives within the Volvo Group in the form of so-called
employee stock options. The decision covers allotment of options for 2000,
2001 and 2002. The executives have not made any payment for the options.
The employee stock options gives the holders the right to exercise their
options or alternatively receive the difference between the actual price at
that time and the exercise price determined at allotment. The theoretical
value of the options at allotment was set using the Black & Scholes pricing
model for options. For the options allotted in 2001, the committements
related to a future increase in share price (including social costs) were
hedged through a Total Return Swap. The Annual General Meeting has
decided that Volvo’s own shares may be used as a hedge for the options
allotted in 2003.