Volvo 2015 Annual Report Download - page 153

GROUP PERFORMANCE 2015 NOTES
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the pensionable salary over 30 income base amounts and the premium for
VEP is 10 percent of pensionable salary. There are no commitments other than
the payment of the premiums. In addition to the collective bargain agreement
the disability pension is 40% of pensionable salary between 30–50 income
base amounts. 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 2015 the premium amounted to SEK 571 a month.
Total pension premiums 2015 amounted to SEK 1,587,189 for Olof Persson
for the period until April 21st, and amounted to SEK 722,287 for Martin Lund-
stedt for the period from October 22nd.
Severance payments
Olof Persson was President and CEO of the Volvo group until April 21st, 2015.
He has been entitled to twelve months’ notice of termination from AB Volvo
and receives under this period a total salary of SEK 12,613,200. Olof Persson
is finally entitled to pension benefits during his notice period Total pension
premium during the notice period will amount to approximately SEK 4,761,567.
Olof Persson has also been entitled to a severance payment equivalent to
twelve months’ salary amounting to SEK 12,613,200 that will be paid from the
end of his notice period. In the event he gains employment during the sever-
ance period, severance pay is reduced with an amount equal to 100 percent of
the income from the new employment.
Martin Lundstedt has a 6 months notice of termination on his own initiative
and 12 months’ notice of termination from AB Volvo. If terminated by the com-
pany, Martin Lundstedt is entitled to a severance payment equivalent to 12
months’ salary. In the event he gains employment during the severance period,
severance pay is reduced with an amount equal to 100 percent of the income
from the new employment.
Remuneration to the Group Executive Team
Fixed and variable salaries
Members of Group Executive Team receive variable salaries in addition to fixed
salaries. Variable salaries are based on the fulfilment 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. During 2015, a variable salary, for Group Executive Team
members excluding CEO, could amount to a maximum of 60 percent of the
fixed annual salary.
For the financial year 2015, fixed salaries amounted to SEK 37,890,560
and variable salaries amounted to SEK 16,530,086 for Group Executive Team
members excluding the CEO. Group Executive Team comprised, excluding the
CEO, of 9 members at the beginning and at the end of the year. Other benefits,
mainly pertaining to car and housing, amounted to SEK 783,478 in 2015.
Group Executive Team members, excluding the CEO, also participate in the
long-term share-based incentive programs decided by the Annual General
Meetings 2011 and 2014. Return on equity for 2015 amounted to 18.4 per-
cent, which result in an allotment of approximately 240,086 shares that they
will receive during 2018/2019 related to 2015 if all other program conditions
are met (see further information under Long-term incentive program below).
During 2015, 110,224 shares granted under the 2011 and 2012 programs
corresponding to a taxable value of SEK 10,656,884 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 employ-
ment. During the financial year 2015 the members of the Group Executive
Team were all domiciled in Sweden. The termination period from the company
is 12 months and 6 months at the initiative of the Group Executive Team mem-
bers. 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.
Pensions
Group Executive Team members are covered by a defined-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 occupa-
tional pension employees born before 1979 are covered by a defined contribu-
tion 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 five years. Pen-
sion premiums for the Group Executive Team excluding CEO amounted to SEK
14,103,790 in 2015.
Volvo Group’s total costs for remuneration and benefits to the
Group Executive Team
The total costs for remuneration and benefits to the Group Executive Team
amounted to SEK 159 M (191) and pertained to fixed salary, variable salary,
other benefits, pensions and severance compensations. It also included social
fees on salaries and benefits, special pension tax and additional costs for
other benefits. The cost related to the long-term share-based incentive pro-
gram is reflected over the vesting period and amounted to SEK 14 M (21) for
2015. 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 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 2015, a part of the shares granted under the
programs during 2011 and 2012 have been allotted to the participants (see
further information in the table Long term incentive program on the next page).
Long-term share-based incentive program 2014–2016
The Annual General Meeting held in 2014 approved a long-term share-based
incentive program for up to 300 Group and senior executives and comprising
the years 2014 to 2016. The LTI-program is proposed to be replaced by a new
program as from 2016 with the effect of terminating the program approved by
the Annual General Meeting in 2014 one year in advance (read more in “Pro-
posed Remuneration Policy”).
The 2014 LTI-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 with a maximum of 15% of their salary for the Group
Executive Team members and a maximum of 10% of their salary for the other
participants 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 allot-
ment 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 return on equity for the particular financial 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 five shares for other participants in the program for each invested
share, subject to return on equity reaching 25 percent in 2014, 26 percent in
2015 and 27 percent in 2016. Return on equity for 2015 amounted to 18.4
percent, which means that the number of performance shares reached about
59% of the maximum grant. Return on equity for 2014 amounted to 2.8 per-
cent, i.e. no performance shares have been allotted for 2014. Allotments of
shares are made through Volvo owned, earlier re-purchased, Volvo shares.
Participants in certain countries are offered a cash-settled version of the
incentive program. 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.