Volvo 2014 Annual Report Download - page 162

158
Share-based payments
The Volvo Group applies IFRS 2, Share-based payments for share-based
incentive programs. IFRS 2 distinguishes between cash-settled and equity-
settled payments. The Volvo Group program includes both a cash-settled
and an equity-settled part. The fair value of the equity-settled payments is
determined at the grant date, recognized as an expense during the vest-
ing period and offset in equity. The fair value is based on the share price
reduced by dividends connected with the share during the vesting period.
Additional social costs are reported as a liability, revalued at each bal-
ance sheet date in accordance with UFR 7, issued by the Swedish Finan-
cial Reporting Board. The cash-settled payment is revalued at each balance
sheet date and is recognized as an expense during the vesting period and
as a short term liability. An assessment whether the terms for allotment
will be fulfi lled is made continuously. Based on such assessment, expense
might be adjusted.
Remuneration policy decided at the Annual General
Meeting in 2014
The Annual General Meeting of 2014 decided upon a policy on remuner-
ation and other employment terms for the members of the Volvo Group
Executive Team. The decided principles can be summarized as follows:
The guiding principle is that remuneration and other employment terms
for the Group Executive Team, shall be competitive to ensure that the
Volvo Group can attract and retain skilled persons to the Group Executive
Team. The fi xed salary shall be competitive and shall refl ect the individu-
al’s area of responsibility and performance. In addition to the fi xed salary
a variable salary may be paid. The variable salary may for the CEO amount
to a maximum of 75 percent of the fi xed salary and for the other members
of the Group Executive Team, a maximum of 60 percent of the fi xed salary.
The variable salary shall be based on the fulfi llment of improvement
targets or certain fi nancial targets for the Volvo Group and/or the organi-
zational unit where the member of Group Executive Team is employed.
These targets are decided by the Board of AB Volvo and can be related,
for example, to operating income, operating margin and/or cash fl ow. The
Board may under certain conditions decide to reclaim variable salary
already paid or to cancel or limit variable salary to be paid.
The Annual General Meeting can also decide on a share, or share-
based, incentive program. At the Annual General Meeting 2011, as pro-
posed by the Board of AB Volvo, it was decided to implement a long-term
share-based incentive program for Group Executive Team members and
other senior executives in the Volvo Group consisting of three annual pro-
grams covering each of the fi nancial years 2011, 2012 and 2013. During
2014, a part of the shares granted under the program during 2011 have
been allotted to the participants. At the Annual General Meeting 2014, as
proposed by the Board of AB Volvo, it was decided to implement a new
long-term share-based incentive program for Group Executive Team
members and other senior executives in the Volvo Group consisting of
three annual programs covering each of the fi nancial years 2014, 2015
and 2016.
In addition to fi xed and variable salary, normally other customary bene-
fi ts, such as company car and company healthcare are provided. In individ-
ual cases, accommodation benefi ts and other benefi ts may be provided.
In addition to pension benefi ts provided by law and collective bargain
agreements, members of the Group Executive Team domiciled in Sweden
can be offered two different defi ned-contribution plans with annual
premiums whereby the amount of the individual’s pensions comprises the
premium paid and any return, without any guaranteed level of pension. No
defi ned retirement date is set in the two plans but premiums will be paid
for the employee until his or her 65th birthday. Members of the Group
Executive Team resident outside Sweden, or resident in Sweden but
having a material connection to or having been resident in a country other
than Sweden, can be offered pension solutions that are competitive in the
country where the members are, or have been, resident or to which the
members have a material connection, however primarily defi ned-contribu-
tion pension solutions.
With regard to notice of termination of employment for Group Executive
Team members domiciled in Sweden, the notifi cation period is 12 months
if the company terminates the employment and six months if the individual
terminates the employment. In addition, the employee is entitled to a sev-
erance pay of 12 months’ salary if the employment is terminated by the
company. Group Executive Team members resident outside Sweden or
resident in Sweden but having a material connection to or having been
resident in a country other than Sweden can be offered notice periods for
termination and severance payments that are competitive in the country
where the Group Executive Team members are or have been resident or
to which the member of Group Executives have a material connection,
however primarily arrangements that are similar to what is valid for mem-
bers domiciled in Sweden.
The Board of Directors was authorized to deviate from the Policy on
Remuneration for the members of the Volvo Group Executive Team adopted
by the Annual General Meeting of AB Volvo held in 2014. The Board has
resolved on such a deviation by, under separation arrangements with two
Executives, approving payment to those Executives of pension premiums
corresponding to the period from the termination of the employment,
however from the age of 60 at the earliest, until the age of 65, in addition
to 12 months’ severance pay. The premium payments correspond to about
one annual salary for each Executive. The reason for the deviation is a
reorganization within the Group entailing among other things that the
number of Group Executive Team members has decreased from 16 to 10
and that the two Executives’ respective positions do not remain.
Fee paid to the Board of Directors
According to a resolution adopted at the Annual General Meeting 2014,
the fee to the Board of Directors appointed at the Annual General Meet-
ing for the period until the close of the Annual General Meeting 2015 shall
be paid as follows: The Chairman of the Board should be awarded SEK
3,250,000 and each of the other members SEK 950,000 with exception
of the President and Chief Executive Offi cer of AB Volvo. In addition, SEK
300,000 should be awarded to the chairman of the audit committee and
SEK 150,000 to each of the other members of the audit committee, and
SEK 125,000 to the chairman of the remuneration committee and SEK
100,000 to each of the members of the remuneration committee.
Terms of employment and remuneration to the CEO
Fixed and variable salaries
The President and CEO is entitled to a remuneration consisting of a fi xed
annual salary and a variable salary. The variable salary is based on oper-
ating margin and six months moving cash fl ow. The variable salary
amounts to a maximum of 75 percent of the fi xed annual salary. For the
fi nancial year 2014, Olof Persson received a fi xed salary of SEK
12,245,400 and a variable salary of SEK 3,979,755. The variable salary
corresponded to 32.5 percent of the fi xed salary. Other benefi ts, mainly
pertaining to car and housing, amounted to SEK 1,059,612 in 2014. Olof
Persson is also participating in the long-term share-based incentive pro-
grams decided by the Annual General Meetings 2011 and 2014. Return
on equity for 2014 amounted to 2.8 percent, i.e no performance shares
will be allotted for 2014 and Olof Persson will receive 18,312 matching
shares during 2017/2018 related to 2014 if all other program conditions
are met (see further information under Long-term incentive program
below). The amount of taxable benefi t related to these shares is deter-
mined at the time of allotment. During 2014, 53,575 shares granted
under the 2011 program corresponding to a taxable value SEK 4,519,859
have been allotted to Olof Persson.
ACCOUNTING POLICY
NOTE 27 PERSONNEL
FINANCIAL INFORMATION 2014