Volvo 2008 Annual Report Download - page 120

116
THE VOLVO GROUP
Financial information 2008
for allotment in 2009. Allotment was made in 2009 as certain fi nancial
goals determined by the Board for fi scal year 2008 had been fulfi lled
by the company. The cost for Volvo for the incentive program including
social fees was approximately SEK 7 million, since the price of the
Volvo B shares at the grant date, excluding dividend of SEK 5,50 for
2008, was SEK 91.50 and the share price was estimated to be SEK
35.50 at allotment date. The annual General Meeting decided that
Volvo’s own shares could be used for allotment in this program.
The Board of Directors intends to propose that the Annual General
Meeting in 2009 approves a share-based incentive program for sen-
ior executives within the Volvo Group pertaining to the fi nancial year
2009. Under the program, a maximum number of 2,950,000 Volvo
shares type B may be allotted to a maximum number of 275 senior
executives within the Volvo Group, including members of Volvo’s Group
Executive Committee and other executives appointed by the Board of
Directors. The CEO and President may receive a maximum of 40,000
shares and the other participants a maximum of 10,000–20,000
shares each. Participants not resident in Sweden at the time of allot-
ment may, to the extent AB Volvo considers it favourable from a cost
or administrative perspective, instead of shares, receive an amount in
cash corresponding to the market value of the shares at the time of
allotment.
Shares will be allotted provided the Volvo Group’s return on equity
(ROE), calculated on the basis of the Volvo Group’s annual report for
2009 is higher than 12%. Maximum allotment will be effected if ROE
reaches 15% and shares will be allotted proportionally within the
interval in accordance with the Board’s instructions. Allotment will be
made within six months after the end of 2009.
Assuming the maximum allotment of shares is made (2,950,000
shares), Volvo’s costs for implementing the program, including social
fees, will be maximum SEK 123 milion, calculating with a share price
of SEK 35.50. Another element of the proposal is that treasury shares
held by AB Volvo may be used to fulfi l the company’s commitments in
accordance with the program.
Outcome of the sharebased incentive program decided at the Annual General Meeting 2008 Shares1
CEO 1,333
Other members of GEC 10,811
Other senior executives 73,441
Total 85,585
1 Of the total 85,585 shares, 45,022 shares have been allotted and a cash-settlement corresponding to 40,563 shares has been paid at allotment date.
Summary of the option pro- Total number of
outstanding options
gram, 2002, ended in May,
2008 Allotment date Dec 31, 2007 Dec 31, 2008
Excercise
price Excercise period
Value/
options
Vesting,
years
2002, employee stock options1May 2, 2003 137,195 –
May 2, 2006–
May 1, 2008 –3
1 In 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 2003, the Annual General
Meeting has decided that Volvo’s own shares may be used for the program.
Recalculation has taken place of the exercise price and the number of
shares each option entitles the option holder to acquire. The exercise price
was previously SEK 163 per share and each option entitled the option
holder to acquire one share. According to the terms and conditions of the
option program, recalculation shall take place under certain circumstances
such as extra dividends, issues of new shares and dividend of shares. At the
AB Volvo Annual General Meeting in 2004, a decision was taken to distrib-
ute shares in Ainax AB to Volvo’s shareholders. As a consequence hereof, a
recalculation of the exercise price and the number of shares each option
entitles the option holder to acquire has taken place. On April 26, Volvo’s
share split 6:1 with automatic redemption, in which the sixth share was
redeemed by AB Volvo for SEK 25 per share took effect, which meant that
the number of shares were fi vefold. The exercise price is after that is SEK
30 per share and each option entitles the option holder to acquire 5.43041
Volvo B shares.
Cost for incentive programs
Change in obligations related to the employee stock option programs
is recorded in the income statement. The income 2008 for the
employee stock option program amounted to SEK 19 M, the reason
was a share price at SEK 108,50 in December 2007 and lower share
price when the options was exercised during 2008 between SEK 88
to SEK 96. The cost 2008 for the share-based incentive program
2007/2008 was SEK 55 M and SEK 5 M for the share-based incen-
tive program 2008/2009. Total cost for the three programs was for
2008 SEK 41 M (396). The cost for the incentive program includes
both cash payments and costs for remuneration in shares, including
social costs. At December 31, 2008, provisions related to the share-
based incentive program amounted to SEK 5 M (216).
Change in number of options
Number of options
December 31, 2007 137,195
Cancelled –
Exercised (137,195)
December 31, 2008 –
Notes to consolidated fi nancial statements