Volvo 2011 Annual Report Download - page 123

able salary corresponded to 50% of the fixed salary. For this period, other
benefits, mainly pertaining to car and housing, amounted to SEK 60,830.
Leif Johansson was covered by the Volvo executive pension plans,
Volvo Management Pension (VMP) and Volvo Executive Pension (VEP).
Olof Persson is covered both by pension benefits provided under collective
bargain agreements and by the VMP and VEP plans. The retirement benefit
under the Volvo executive pension plans is a defined-contribution plan with
refund protection. The disability pension is a defined-benefit plan. Contribu-
tions to VMP and VEP are not tax-deductible, the benefit from the insur-
ance is not taxable to the company, but pension paid will be tax-deductible.
The pensionable salary consists of the annual salary and a calculated vari-
able salary component. The premium for the VMP is SEK 30,000 plus 20%
of the pensionable salary over 30 income base amounts and the premium
for VEP is 10% of pensionable salary. There are no commitments other
than the payment of the premiums. The disability pension for Olof Persson
amounts to 50% of pensionable salary. The right to disability pension is
conditional to employment and will cease upon termination of duty.
The President and CEO of AB Volvo is also covered by Volvo Företags-
pension, a defined contribution plan for additional retirement benefit. The
premium is negotiated each year. For 2011 the premium amounted to
SEK 512 a month.
Pension premiums 2011 for Leif Johansson amounted to SEK 3,317,621
and for Olof Persson, for the period as President and CEO and for the
period as Executive Vice President and Deputy CEO, to SEK 1,943,988
and 559,811 respectively.
Olof Persson is also participating in the long-term share-based incentive
program decided by the Annual General Meeting 2011. Based on ROE for
2011, Olof Persson will receive 97,109 shares during 2014/2015 related
to 2011 if all program conditions are met (see further information under
Long-term incentive program below). The amount of taxable benefit
related to these shares is determined at the time of allotment.
Olof Persson has a six-month notice of termination on his own initiative
and twelve months’ notice of termination from AB Volvo. If terminated by the
company within three years from entering the position as President and
CEO, Olof Persson is entitled to a severance payment equivalent to twelve
months’ salary. Thereafter, he is not entitled to severance payments.
Remuneration to other senior executives
Fixed and variable salaries
Members of group management and a number of senior executives
receive variable salaries in addition to fixed salaries. Variable salaries are
in most cases based on the fulfillment of certain improvement targets or
financial targets. The targets are decided by the Board of Directors in AB
Volvo and can, for example, relate to operating income in relation to cor-
responding period previous year and/or cash flow for a six month rolling
period. During 2011, a variable salary could amount to a maximum of 60%
of the fixed annual salary.
For the financial year 2011, fixed salaries amounted to SEK 58,225,074
and variable salaries amounted to SEK 23,875,016 for members of group
management excluding the CEO and the Deputy CEO. Group management
comprised, in addition to the CEO and Deputy CEO, 16 members at the
beginning of the year and 16 members at the end of the year. Other benefits,
mainly pertaining to car and housing, amounted to SEK 7,243,479 in
2011. Group management, excluding the CEO and the Deputy CEO, will
receive 576,965 shares during 2014/2015 related to 2011 under the
long-term share-based incentive program if all program conditions are
met (see further information under Long-term incentive program below).
Severance payments
The employment contracts for members of group management and certain
other senior executives contain rules governing severance payments
when the company terminates the employment. For members domiciled in
Sweden, the rules provide that, when the company terminates the employ-
ment, an employee is entitled to severance payment equivalent to twelve
months’ salary. In certain older contracts, the payment could equal 24
months’ salary 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, with an
amount equal to 75% of the income from the new employment. In agree-
ments concluded after the spring of 2004, severance pay is reduced by
the full income from the new employment. With few exceptions, the sever-
ance payment is equal to twelve months’ salary.
Members having a material connection to a country other than Sweden can
be offered notice periods for termination and severance payments that are
competitive in the country to which the members have a material connection.
Pensions
Members of group management and certain other senior executives are
offered pensions that are competitive in the country in which the person
is or have been domiciled or in the country to which the person is essentially
connected.
Previous pension agreements for certain senior executives stipulated
that early retirement could be obtained from the age of 60. Agreements for
retirement at age 60 are no longer signed, and are instead replaced by a
defined-contribution plan with pension premium payments at the longest to
the age of 65 years. The premium constitutes 10% of the pensionable salary.
Earlier defined-benefit pension plans, which entitled the employee to
50% of the pensionable salary after normal retirement age, have in Sweden
been replaced by a defined-contribution plan. The pension plan includes
employees born before 1979 and is a complement to the collective agreement
regarding occupational pension. The premium constitutes of SEK 30,000
plus 20% of the pensionable salary over 30 income base amounts. The
pensionable salary consists of the twelve times the current monthly salary
and the average of the variable salary for the previous five years. Pension
premiums amounted to SEK 29,143,321 for other members of group
management in 2011.
Volvo Group’s total costs for remuneration and benefits to
senior executives
Costs for total remuneration and benefits to the members of group manage-
ment in 2011 are pertaining to the following: fixed salary SEK 110 million
(89); variable salary SEK 43 million (39); other benefits SEK 12 million
(10) and pensions SEK 46 million (51). The cost related to the long-term
share-based incentive program is reflected over the vesting period and
amounted to SEK 26 million (0) for 2011. Total costs for members of
group management include social fees on salaries and benefits, special
pension tax and additional costs for other benefits. The remuneration
model of the Volvo Group is to a main part designed to follow changes in
the profitability of the Group.
Long-term incentive program
The Annual General Meeting held in 2011 approved a long-term share-
based incentive program for up to 300 participants and comprising the
years 2011 to 2013. The program consists of three annual programs for
which the measurement periods are each of the respective financial
years. A prerequisite for participation in the program is that the partici-
pants invest a portion of their salary in Volvo shares and retain these
shares and continue to be employed by the Volvo Group for at least three
years after the investment has been made. Under special circumstances,
it is possible to make exceptions to the requirement of continued employ-
ment (so called “good leaver” situations).
The AB Volvo Board is, in the event of exceptional conditions, entitled
to limit or omit allotment of performance shares. In addition, if the Annual
General meeting of AB Volvo resolves that no dividend shall be paid to the
shareholders for a specific financial year, no matching shares are alloted
for the year in question. Shares are granted under the program during the
respective financial year. At the end of the vesting period, the main rule is
that the participants will be allotted one matching share per invested
share and, assuming that the Volvo Group’s ROE (return on equity) for the
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