Electrolux 2004 Annual Report Download - page 69

Electrolux Annual Report 2004 65
Notes
The company will finalize outstanding payments to the Alternative
ITP-plan and one of the supplementary plans, provided that the
President retains his position until age 60.
In addition to the retirement contribution, Electrolux provides disability
benefits equal to 70% of pensionable salary, including credit for other
disability benefits, plus survivor benefits maximized to 250 (150)
Swedish base amounts, as defined by the Swedish National Insurance
Act. The survivor benefit is payable over a minimum five-year period.
The capital value of pension commitments for the current President,
prior Presidents and survivors is SEK 122m (127). In addition there are
commitments regarding death and disability benefit of SEK 3m (3).
Compensation for other members of Group Management
Like the President, other members of Group Management receive a
compensation package that comprises fixed salary, variable salary
based on annual targets, long-term incentive programs and other
benefits such as pensions and insurance.
Base salary is revised annually per January 1. The average base
salary increase in 2004 was 5.7%, and 11.0%, with promotions included.
Variable salary for sector heads in 2004 is based on both financial and
non-financial targets. The financial targets comprise the value created on
sector and Group level. The non-financial target is focused on product
innovation.
The target for variable salary for European-based sector heads is
45–50% of annual base salary, maximized to 90–100%. Corresponding
figures for the US-based sector head are 100% and 150%.
Group staff heads receive variable salary based on value created for
the Group and on performance objectives within their functions. The
target variable salary is 30% of annual base salary, maximized to 55%.
The members of Group Management participate in the Group’s long-
term incentive programs. These programs comprise the new perfor-
mance-based long-term share program introduced in 2004 as well as
previous option programs. For more information on these programs,
see below.
There is no agreement for special severance compensation.
The Swedish members of Group Management are not eligible for
fringe benefits such as company cars or housing. For members of
Group Management employed outside of Sweden, varying fringe
benefits and conditions may apply, depending upon the country of
employment.
Pensions for other members of Group Management
The members of Group Management are covered by the Group’s
pension policy.
The retirement age is 65 for one Swedish member of Group Manage-
ment, and 60 for the others. Swedish members of Group Management
are covered by the ITP-plan or the Alternative ITP-plan, as well as a
supplementary plan.
The retirement benefit is payable for life or a shorter period of not
less than 5 years. The participant determines the payment period at the
time of retirement.
For members of Group Management employed outside of Sweden,
varying pension terms and conditions apply, depending upon the country
of employment. The earliest retirement age for a full pension is 62.
The Swedish members of Group Management are covered by an
alternative ITP-plan that is a defined contribution plan where the contri-
bution increases with age. The contribution is between 20% and 35% of
pensionable salary, between 7.5 and 30 base amounts. The pensionable
salary is calculated as the current fixed salary, plus the average variable
salary for the last three years.
The Swedish members are also covered by a supplementary defined
contribution plan. In 2004, the plan was revised retroactively from 2002.
Following the revision, the premiums amount to 35% of the pension-
able salary. In addition, four members are covered by individual addi-
tional contributions as a consequence of the switch of plans in 2001.
In addition to the retirement contribution, Electrolux provides disability
benefits equal to 70% of pensionable salary including credit for other
disability benefits, plus survivor benefits maximized to 250 (150) base
amounts. The survivor benefit is payable over a minimum five-year
period.
One Swedish member of Group Management has chosen to retain a
defined benefit pension plan on top of the ITP-plan. The retirement age
for this member is 65 and the benefits are payable for life.
These benefits equal 32.5% of the portion of pensionable salary
corresponding to 20–30 base amounts as defined by the Swedish
National Insurance Act, 50% of the portion corresponding to 30–100
base amounts, and 32.5% of the portion exceeding 100 base amounts.
In addition, Electrolux provides disability and survivor benefits.
Long-term incentive programs
Over the years, Electrolux has implemented several long-term incentive
programs (LTI) for senior managers. These programs are intended to
attract, retain and motivate the participating managers by providing
long-term incentives through benefits linked to the company’s share
price. They have been designed to align management incentives with
shareholder interests. A detailed presentation of the different programs
is given below.
1998, 1999 and 2000 option programs
In 1998, an annual program for employee stock options was introduced
for approximately 100 senior managers. Options were allotted on the
basis of value created according to the Group’s model for value creation.
If no value was created, no options were issued. The options can be
used to purchase Electrolux B-shares at a strike price that is 15% higher
than the average closing price of the Electrolux B-shares on the
Stockholm Stock Exchange during a limited period prior to allotment.
The options were granted also free of consideration. Annual programs
with the same conditions were also launched in 1999 and 2000. The
1998 program expired on February 25, 2004.
2001, 2002 and 2003 option programs
In 2001, a new program for employee stock options was introduced
for less than 200 senior managers. The options can be used to pur-
chase Electrolux B-shares at a strike price that is 10% above the
average closing price of the Electrolux B-shares on the Stockholm
Stock Exchange during a limited period prior to allotment. The options
were granted free of consideration. Annual programs with the same
conditions were also launched in 2002 and 2003.
Recalculation of option exercise price 2004
In light of the redemption of shares in Electrolux in 2004, option exer-
cise prices were recalculated in accordance with standard terms that
are generally applied in Sweden for options and similar instruments.
These terms were included in the option agreements.
Note 28 continued