Volvo 2014 Annual Report Download - page 163

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Pensions
Olof Persson is covered both by pension benefi ts provided under collec-
tive bargain agreements and by the Volvo Management Pension (VMP)
and Volvo Executive Pension (VEP) plans. The retirement benefi t under
the Volvo executive pension plans is a defi ned-contribution plan. The pen-
sionable salary consists of the annual salary and a calculated variable
salary component. The premium for the VMP is SEK 30,000 plus 20 per-
cent of the pensionable salary over 30 income base amounts and the
premium for VEP is 10 percent of pensionable salary. There are no com-
mitments other than the payment of the premiums. The disability pension
for Olof Persson is a defi ned benefi t plan and amounts to 50 percent of
fi xed 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 defi ned contribution plan for additional retirement benefi t. The
premium is negotiated each year. For 2014 the premium amounted to
SEK 558 a month. Total pension premiums 2014 for Olof Persson
amounted to SEK 4,514,643.
Severance payments
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, Olof Persson is entitled to a severance payment equivalent
to twelve months’ salary.
Remuneration to the Group Executive Team
Fixed and variable salaries
Members of Group Executive Team receive variable salaries in addition to
fi xed salaries. Variable salaries are based on the fulfi llment of certain
improvement targets or fi nancial 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 fl ow. During 2014, a variable sal-
ary, for Group Executive Team members excluding CEO, could amount to
a maximum of 60 percent of the fi xed annual salary.
For the fi nancial year 2014, fi xed salaries amounted to SEK 55,074,333
and variable salaries amounted to SEK 14,784,830 for Group Executive
Team members excluding the CEO. Group Executive Team comprised,
excluding the CEO, of 15 members at the beginning and at the end of the
year. Other benefi ts, mainly pertaining to car and housing, amounted to
SEK 5,728,723 in 2014. Group Executive Team members, excluding the
CEO, also participate to the long-term share-based incentive programs
decided by the Annual General Meetings 2011 and 2014. Return on
equity for 2014 amounted to 2.8 percent, i.e no performances shares will
be allotted for 2014, they will during 2017/2018 receive 89,950 matching
shares related to 2014 if all other program conditions are met (see further
information under Long-term incentive program below). During 2014
193,355 shares granted under the 2011 program corresponding to a tax-
able value of SEK 15,333,259 have been allotted to Group Executive
team members.
Severance payments
The employment contracts for Group Executive Team members 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 the event the
employee gains employment during the severance period, severance pay
is reduced with an amount equal to 100 percent of the income from the
new employment.
During 2014 the Volvo Group made severance agreements, including
pension, with two members of the Group Executive Team in connection to
the re-organization of the Volvo Group as announced in the fourth quarter.
Pensions
Group Executive Team members are covered by a defi ned-contribution
plan, Volvo Executive Pension plan with pension premium payments at the
longest to the age of 65 years. The premium constitutes 10 percent of the
pensionable salary. As complement to the collective bargain agreement
regarding occupational pension employees born before 1979 are covered
by a defi ned contribution pension plan, Volvo Management Pension. The
premium constitutes of SEK 30,000 plus 20 percent of the pensionable
salary over 30 income base amounts. The pensionable salary consists of
twelve times the current monthly salary and the average of the variable
salary for the previous fi ve years. Pension premiums for the Group Execu-
tive Team excluding CEO amounted to SEK 32,205,461 in 2014.
Volvo Group’s total costs for remuneration and benefi ts to the
Group Executive Team
Costs for total remuneration and benefi ts to the Group Executive Team in
2014 pertaining to the following: fi xed salary SEK 88 M (85); variable
salary SEK 23 M (7); other benefi ts SEK 14 M (13); pensions SEK 41 M
(44) and severance compensations SEK 25 M including pension contribu-
tion for SEK 14 M. The cost related to the long-term share-based incen-
tive program is refl ected over the vesting period and amounted to SEK 21
M (11) for 2014. Total costs for the Group Executive Team include social
fees on salaries and benefi ts, special pension tax and additional costs for
other benefi ts. The remuneration model of the Volvo Group is to a main
part designed to follow changes in the profi tability of the Group.
Long-term incentive programs
Long-term share-based incentive program 2011–2013
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. During 2014, a part of the shares
granted under the program during 2011 have been allotted to the partici-
pants (see further information in the table Long term program on the next
page).
Long-term share-based incentive program 2014–2016
The Annual General Meeting held in 2014 approved a new long-term
share-based incentive program for up to 300 Group and senior executives
and comprising the years 2014 to 2016. The new program consists of
three annual programs for which the measurement periods are each of
the respective fi nancial years. A prerequisite for participation in the pro-
gram 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 meet-
ing of AB Volvo resolves that no dividend shall be paid to the shareholders
for a specifi c fi nancial year, no matching shares are allotted for the year in
question.
Shares are granted under the program during the respective fi nancial
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 return on equity for the particular fi nancial year amounts
to at least 10 percent in 2014, 11 percent in 2015 and 12 percent in 2016,
a number of performance shares. Maximum allotment of performance
shares corresponds to seven shares for the CEO, six shares for other
members of Group Executive Team and fi ve shares for other participants
in the program for each invested share, subject to return on equity reach-
ing 25 percent in 2014, 26 percent in 2015 and 27 percent in 2016.
Return on equity for 2014 amounted to 2.8 percent, i.e. no performance
shares are allotted for 2014. Allotment of shares are made through Volvo
owned, earlier re-purchased, Volvo shares. Participants in certain coun-
tries are offered a cash-settled version of the incentive program. For par-
ticipants 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.
FINANCIAL INFORMATION 2014