Incentive systems

Guidelines and principles for remuneration to senior executives


Guidelines for executive remuneration

These guidelines cover members of the board of directors, the CEO and other senior executives in Ratos’s management team. The guidelines are applicable to remuneration agreed, and amendments to remuneration already agreed, after adoption of the guidelines by the annual general meeting 2020. These guidelines do not apply to any remuneration decided or approved by the general meeting.

The guidelines’ promotion of the company’s business strategy, long-term interests and sustainability
Read more about the company’s business strategy and longterm interests, including its sustainability.

A prerequisite for the successful implementation of the company’s business strategy and safeguarding of its long-term interests, including its sustainability, is that the company is able to recruit and retain qualified personnel. To this end, it is necessary that the company offers competitive remuneration. These guidelines enable the company to offer the executive management a competitive total remuneration.

Long-term share-related incentive plans have been implemented in the company. Such plans have been resolved by the general meeting and are therefore excluded from these guidelines. Read more about these incentive plans.

Variable cash remuneration covered by these guidelines shall aim at promoting the company’s business strategy and long-term interests, including its sustainability.

Types of remuneration, etc.
The remuneration to senior executives shall be on market terms and may consist of the following components: fixed cash salary, variable cash remuneration, pension benefits and other benefits. Additionally, the general meeting may – irrespective of these guidelines – resolve on, among other things, share-related or share price-related remuneration.

The satisfaction of criteria for awarding variable cash remuneration shall be measured over a period of one year. The variable cash remuneration may amount to not more than 100 per cent of the total fixed annual cash salary. Further variable cash remuneration may be awarded in extraordinary circumstances, provided that such extraordinary arrangements are limited in time and only made on an individual basis, either for the purpose of retaining executives, or as remuneration for extraordinary performance beyond the individual’s ordinary tasks. Such remuneration may not exceed an amount corresponding to 25 per cent of the fixed annual cash salary and may not be paid more than once each year per individual. Any resolution on such remuneration shall be made by the board of directors based on a proposal from the compensation committee.

For the CEO, pension benefits, including health insurance (Sw: sjukförsäkring), shall be premium defined. Variable cash remuneration shall not qualify for pension benefits. The pension premiums for premium defined pension shall amount to not more than 30 per cent of the fixed annual cash salary.

For other senior executives, pension benefits, including health insurance, shall be premium defined. Variable cash remuneration shall not qualify for pension benefits. The pension premiums for premium defined pension shall amount to not more than 30 per cent of the fixed annual cash salary.

Other benefits may include, for example, reimbursements for dental care and health care (including medication), medical insurance (Sw: sjukvårdsförsäkring) and company cars. For the CEO, such benefits may be paid out to a customary limited extent.

Criteria for awarding variable cash remuneration, etc.
The variable cash remuneration shall be linked to predetermined and measurable criteria which can be financial or non-financial. They may be individualized quantitative or qualitative objectives. The criteria shall be designed so as to contribute to the company’s business strategy and long-term interests, including its sustainability, by for example being clearly linked to the business strategy or promote the executive’s long-term development. The proportion of variable cash remuneration varies depending on the senior executive’s position in the company. The portion of the variable cash remuneration linked to the outcome of financial criteria is normally 100 per cent for the CEO and the CFO, 85 per cent for the Business Area Managers and 65 per cent for other senior executives, even if the portion can be larger or smaller depending on the specific circumstances, and shall be dependent on (i) EBITA growth in Ratos’s company portfolio, (ii) growth in earnings before tax (EBT) for the Ratos group, and (in certain cases) (iii) EBITA growth for portfolio companies in the business area where a member of a business area team works. Variable cash remuneration is paid out in an amount of 50 per cent in the year after the remuneration is earned and 50 per cent in the year thereafter.

To which extent the criteria for awarding variable cash remuneration has been satisfied shall be evaluated/determined when the measurement period has ended. The board of directors is responsible for the evaluation so far as it concerns variable remuneration to the CEO, based on a proposal from the compensation committee. For variable cash remuneration to other senior executives, the CEO is responsible for the evaluation. For financial objectives, the starting point for the evaluation shall be the latest financial information made public by the company.

Warrants and convertible debentures

The 2019 Annual General Meeting voted to introduce a long-term incentive programme for the CEO and other key personnel in Ratos consisting of convertibles and warrants (referred to below as the “Instruments”), where participants in the programme are free to decide how large a share of the Instruments offered should comprise convertibles (which extend for no more than four years) and/or warrants (which extend for no more than five years). One prerequisite for allotment of warrants is that the employee has signed an agreement regarding repurchase etc. with the company whereby the company or purchaser designated by the company has the right to repurchase warrants if the participant’s employment is terminated.

Ratos has, pursuant to the incentive programme issued and allocated a total of 1,270,000 Instruments to participants, distributed between 751,300 convertibles and 518,700 warrants, at the time of the date for the issue of the Instruments. Ratos’s convertible debentures amount to a nominal amount of just over SEK 20m. A convertible carries the entitlement to subscribe for one share at a conversion rate of SEK 27.25.

The increase in the company’s share capital may, in the event of full exercise of the Instruments, amount to no more than SEK 4,500,000 (assuming the current quota value and that no recalculation takes place in accordance with the terms and conditions), corresponding to a dilution of approximately 0.40% of shares in Ratos, based on the number of shares outstanding on the issue date for the Instruments.

The measurement of warrants was conducted in accordance with the customary pricing model (Black & Scholes), where volatility was assumed to be 26.0% and risk-free interest -0.39%. The subscription price is 125% of the volume-weighted average share price in accordance with Nasdaq Stockholm’s official stock exchange list for Class B shares between 13 May and 23 May 2019. As the warrants are being offered free of charge to participants, they will receive a benefit corresponding to the market value of the warrant at the date of the allotment (option premium). The net expense for participants, after subsidies, will be approximately 50% of the taxable benefit.

Terms of outstanding convertible debentures by 31 March 2020

Maturity date Subscription price, SEK Conversion price, SEK/share Right to purchase no. of shares Number of convertible debentures Corresponding number of shares
2018-2022-06-08 26.64 26.64 1 724,528 724,528
2019-2023-06-07 27.25 27.25 1 751,300 751,300
        1,475,828 1,475,828

 

Terms of outstanding warrants by 31 March 2020

Maturity date Warant value, SEK 1) Subscription price, SEK/share Right to purchase no. of shares Number of warrants Corresponding number of shares
2018-2023-06-08 3.30 36.22 1 429,811 429,811
2019-2024-06-14 3.93 33.81 1 518,700 518,700
        948,511 948,511

 

1) As the warrants are offered to the employees free of charge, the employees will thereby receive a benefit corresponding to the market value of the warrants at allocation (Warrant value). After subsidization the net cost for participant will amount to approximately 50 percent of the benefit value.

Call option programmes

Annual general meetings from 2001 up to and including 2017 have decided on call option programmes directed to senior executives and other key people within Ratos. Members of the Board of Ratos are not included in this offer. Employees have paid a market premium for the call options in all programmes. Acquisition of call options is subsidised by the purchaser receiving extra remuneration corresponding to a maximum of 50% of the option premium after deduction for 55% standard tax, whereby the remuneration is divided into equal parts for five years. Payment of remuneration is normally conditional upon continued employment and continued holding of options acquired from Ratos or shares acquired through the options. The call options are issued on treasury shares.

Terms of outstanding call options by 31 March 2020

Maturity date Price/ option, SEK Exercise
price, SEK
Right to purchase no. of shares Number of options Corresponding number of shares
2016 Sept - 19 March 2021 4.80 40.70 1 453,000 453,000
2017 Sept - 18 March 2022 4.50 42.80 1 242,500 242,500
        695,500 695,500

 

Synthetic options

The 2017 Annual General Meeting, like all Annual General Meetings since 2007, resolved on a cash-based option programme related to Ratos’s investments in the companies. The programme is carried out through the issue of synthetic options that are transferred at market price. The programme gives the CEO and other key people within Ratos an opportunity to share in the investment result of the individual companies. Options related to an individual investment only have a value if Ratos’s annual return on the investment exceeds 8%. According to the 2017 option programme, the total value of the issued options at the closing date will be a maximum of 5% of the difference between the actual realised value for Ratos’s investment at the closing date and the cost increased by 8% per year. Acquisitions of synthetic options are subsidised by the purchaser receiving extra remuneration corresponding to a maximum of 50% of the option premium up to 5% of Ratos’s total investment in the relevant company after deduction for 55% standard tax, whereby the remuneration is divided into equal parts for four years and is normally conditional upon continued employment in the Ratos Group and continued holding of options acquired from Ratos.