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Share 2016-09-30 17:29 RATOS B 40.74 SEK

Incentive systems

The guidelines for compensation and incentive systems for key people as set out below were approved by the 2016 Annual General Meeting. The guidelines are unchanged compared with the guidelines resolved at the 2015 Annual General Meeting.

Guidelines and principles for compensation to senior executives

The incentive system for the company’s business organisation is of major strategic importance for Ratos. Against this background, a remuneration and incentive system has been drawn up designed to offer competitive terms at the same time as the company’s employees are motivated to work in the interests of the shareholders.

The incentive system comprises a number of components – basic salary, variable salary, pension provisions, call options and synthetic options – and rests on five basic principles.

  • Ratos’s employees shall be offered competitive terms of employment in an industry where competition for qualified employees is intense and at the same time be encouraged to remain with Ratos.
  • Both individual efforts and group performance must be linked to clear targets set by the Board.
  • Variable salary paid shall be linked to the results development that benefits shareholders. Variable salary to senior executives does not fall due until certain conditions have been met with regard to return on the company’s equity and is paid over a multi-year period. The cost of each year’s variable salary, however, is booked in its entirety in the year the compensation is earned.
  • Each year the Board sets a limit for the total variable salary, which shall amount to a maximum of approximately one per cent of the company’s equity at the start of the financial year.
  • Key people at Ratos shall be encouraged to have the same perspective as the company’s shareholders which will be achieved through reasonably balanced option programmes where employees can share in price rises alternatively realised increases in value, but also take a personal risk by paying a market premium for the options.

With regard to the costs for the proposed option programmes, refer to the Board’s proposal regarding call options (item 17) and synthetic options (item 19). Pension benefits are generally paid in accordance with the ITP Plan. For pension benefits that deviate from the ITP Plan, defined contribution pension benefits apply.

The Board shall be entitled to deviate from these guidelines if special circumstances should prevail in an individual case.

Variable salary

Variable salary is not paid to senior executives until certain conditions regarding return on the company’s equity have been met. The requirement for payment of variable remuneration is that consolidated profit before tax, adjusted for minority effects in minority-owned subsidiaries, shall correspond to at least 5% of opening equity. Should the threshold be reached, the bonus amount is calculated from 0%. A ceiling has been stipulated at a total of SEK 125m in variable remuneration, which falls due in the event of adjusted profit before tax of 25% of opening equity.

An earnings bank for the result that forms the basis for calculation of variable remuneration is applied. This means that earnings which in a certain year exceed the ceiling are transferred to the next year and increase the earnings on which remuneration is calculated. Earnings that are less than the threshold amount are also transferred and charged against earnings on which remuneration is based in the following year. Adjusted profit before tax for 2015, including the earnings bank, provided variable remuneration of SEK 25.2m to be paid in 2016–2018. Payment of variable salary is allocated over three years with 50% in the first year and 25% per year in the remaining two years.

Call option programmes

Annual general meetings from 2001 onwards have decided on call option programmes directed to senior executives and other key people within Ratos. All call options have a maturity of 4-5 years. Employees have paid a market premium for the call options in all programmes. Acquisition of call options is subsidised by the purchaser receiving an extra cash compensation corresponding to a maximum of 50% of the option premium after deduction for 55% standard tax, whereby the compensation is divided into equal parts for five years and normally provided the person remains active within the Ratos Group and still holds options acquired from Ratos or shares acquired through the options. Call options are issued on treasury shares.

Terms for options outstanding at 26 May 2016

Maturity date Price/ option, SEK Right to purchase no. of shares Exercise price, SEK/share Number of options Corresponding number of shares
2012 - 20 March 2017 4.70 1.03 72.00 1,149,200 1,183,676
2013 - 20 March 2018 11.50 1 63.50 585,900 585,900
2014 - 20 March 2019 7.30 1 55.20 574,500  574,500
2015 - 20 March 2020 6.50 1 57.10 462,100 462,100
        2,771,700 2,806,176

Oustanding options corresponds to 0,9% of outstanding shares.

Synthetic options

The 2016 Annual General Meeting, like all Annual General Meetings since 2007, resolved on a cash-based option programme related to Ratos’s investments in portfolio companies. The programmes are carried out through the issue of synthetic options that are transferred at a market price. The programmes give key people within Ratos an opportunity to participate in the investments in the individual portfolio companies. Options related to an individual investment only have a value if Ratos’s annual return on the investment exceeds 10% (from option programme 2015). The purchase of options may be subsidised by the option purchaser receiving an extra cash compensation corresponding to a maximum of 50% of the option premium after deduction for 55% standard tax, whereby the compensation will be divided into equal components over five years and normally provided the person concerned is still working in the Ratos Group and still holds options acquired from Ratos. The total value of the issued options at the closing date will be a maximum of 3% of the difference between the actual realised value for Ratos’s investment at the closing date and the cost increased by 10% per year.