Volvo 2012 Annual Report Download - page 141

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 Företagspen-
sion, a defined contribution plan for additional retirement benefit. The pre-
mium is negotiated each year. For 2012 the premium amounted to SEK 536
a month. Pension premiums 2012 for Olof Persson amounted to SEK
4,970,422. Olof Persson is also participating in the long-term share-based
incentive program decided by the Annual General Meeting 2011. Based on
ROE for 2012, Olof Persson will receive 62,230 shares during 2015/2016
related to 2012 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 Group Executives
Fixed and variable salaries
Members of Group Executive Team 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, operating margin and/or cash flow for a six month rolling period.
During 2012, a variable salary, for Group Executives excluding CEO, could
amount to a maximum of 60% of the fixed annual salary.
For the financial year 2012, fixed salaries amounted to SEK 56,619,640
and variable salaries amounted to SEK 5,787,136 for Group Executives
excluding the CEO. Group Executives comprised, in addition to the CEO,
15 members at the beginning of the year and 14 members at the end of
the year. Other benefits, mainly pertaining to car and housing, amounted
to SEK 6,127,427 in 2012. Group Executives, excluding the CEO, also
participate in the long-term incentive program which was approved by the
Annual General Meeting held in 2011 and is based on ROE outcome. For
2012, they will during 2015/2016 receive 257,942 shares related to 2012
if all program conditions are met (see further information under Long-term
incentive program below).
Severance payments
The employment contracts for Group 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 employment, 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
the event the employee gains employment during the severance period,
severance pay is reduced with an amount equal to 75% of the income from
the new employment. In agreements concluded after the spring of 2004,
severance pay is reduced by the full income from the new employment.
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 con-
nection, preferably solutions corresponding to what is present for in Sweden.
Pensions
Previous pension agreements for certain Group 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 long-
est to the age of 65 years. The premium constitutes 10% of the pension-
able 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 pen-
sion 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 for Group Executives excluding
CEO amounted to SEK 28,018,216 in 2012
Group 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.
Volvo Group’s total costs for remuneration and benefits
to Group Executives
Costs for total remuneration and benefits to Group Executives in 2012 are
pertaining to the following: fixed salary SEK 87 million (110); variable salary
SEK 10 million (43); other benefits SEK 10 million (12) and pensions SEK
38 million (46). The cost related to the long-term share-based incentive pro-
gram is reflected over the vesting period and amounted to SEK 27 million
(26) for 2012. Total costs for Group Executives 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 Group and senior executives 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
participants 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 employment
(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 allotted 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 particular financial year amounts to at
least 10%, a number of performance shares. Maximum allotment of perfor-
mance shares corresponds to seven shares for the CEO, six shares for other
members of Group Executives and five shares for other participants in the
program for each invested share, subject to ROE reaching 25%. ROE for
2012 was 12.9% (23.1), which means that number of performance shares
reached about 35% (90) of the maximum grant. Allotment of shares will be
made through Volvo owned, earlier re-purchased, Volvo shares. Participants
in certain countries will be offered a cash-based version of the incentive pro-
gram. For participants in these countries, no investment is required by the
participant and the program does not comprise an element of matching
shares. Allotment of shares in this version is replaced by a cash allotment at
the end of the vesting period. Other program conditions are similar between
the programs.
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