Incentive systems - Ratos
MENU
Menu
Share 2018-08-17 17:29 RATOS B 34.68 SEK

Incentive systems

Guidelines and principles for remuneration 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 cash salary, pension provisions, warrants and convertible debentures – 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.
  • Both individual efforts and group performance must be linked to clear targets set by the Board.
  • Variable cash salary which is paid to senior executives shall be linked both to collectively and individually set annual targets. The targets are both quantitative and qualitative and aim to fulfil Ratos’s long term strategy and to fulfill a result development which benefits the shareholders.
  • Each year the Board sets a limit for the total variable cash salary, which shall amount to a maximum of approximately 0,6 per cent of the company’s equity at the start of the financial year.
  • Key people at Ratos shall be encouraged to have a shared perspective with the company’s shareholders which is achieved through reasonably balanced incentive programs where employees can share in price rises.

Pension benefits shall, as far as possible, be defined contribution pension solutions, however some pension benefits that follow the ITP-plan are defined benefits. There is no agreed retirement age.

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

Variable cash salary for senior executives

The variable cash salary is linked both to collectively and individually set annual targets. The targets are both quantitative and qualitative and aim to fulfil Ratos’s long term strategy. During 2017, certain amendments have been made regarding the criteria for, and the calculation of, the result of variable cash salary. Examples of targets has been increase in EBITA for the portfolio companies and value increase of the underlying portfolio companies.

Variable cash salary is paid over a two-year period, divided by 50 per cent per year. However, the cost of each year’s variable salaries is recorded in the accounts, in their entirety, the year the remuneration was earned. A cap has been established in relation to each senior executive’s fixed salary which, as for 2017, may amount to a maximum of 130 per cent of the fixed salary.

Follow-up and evaluation of variable cash salaries is made at the beginning of the year following the end of the relevant financial year. The evaluation of the CEO’s and the senior executives goal completion is monitored and evaluated by the Compensation Committee and approved by the Board following a proposal from the Compensation Committee.

Warrants and convertible debentures

The Annual general meeting 2018 resolved upon the implementation of a long-term incentive program for the CEO and other key employees in Ratos consisting of convertible debentures and warrants (below jointly referred to as the “Instruments”), where participants are free to decide to which extent the offered Instruments shall consist of convertible debentures (which lasts for a maximum of 4 years) and/or warrants (which lasts for a maximum of 5 years).

As a requirement for the allotment of warrants, the employee must have signed an agreement with the company regarding repurchase right etc. in which inter alia the company or another buyer appointed by the company has a right to redeem the warrants if the participant’s employment is terminated.

Ratos has issued and allocated a total of 1 240 000 Instruments to the participants, divided into 724 528 convertibles and 515 472 warrants, due to the incentive program. Ratos convertible debenture loans amount to a nominal amount of more than SEK 19 million.

The increase of the company’s share capital could not amount to more than SEK 3,906,000 upon full conversion of the Instruments (based on the current quotient value and that no recalculation has been made in accordance with the terms), which corresponds to a dilution of approximately 0.39 percent of Ratos shares, based on the number of outstanding shares.

Terms of outstanding convertible debentures by May 2018

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
- - - - 724,528 724,528

Outstanding convertibles correspond to approximately 0.23% of the number of outstanding shares.

Terms of outstanding warrants by May 2018

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 37.11 1 515,472 515,472
- - - - 515,472 515,472

Outstanding convertibles correspond to approximately 0.16% of the number of outstanding shares.

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

From the Annual General Meeting 2001 through Annual General Meeting 2017 the AGM have decided on call option programmes directed to senior executives and other key people within Ratos. Board members in Ratos are not included by the offer. The maturity of the call options is 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 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 and normally assumes that the person is still active in the Ratos Group and still holds acquired options or shares acquired through the options from Ratos's. The call options are issued on repurchased shares.

Terms of outstanding call options by May 2018

Maturity date Price/ option, SEK Right to purchase no. of shares Exercise price, SEK/share Number of options Corresponding number of shares
2014 - 20 March 2019 7.30 1 48.50 574,500  574,500
2015 - 20 March 2020 6.50 1 52.10 462,100 462,100
2016 - 20 March 2021 4.80 1 41.50 453,000 453,000
2017 - 18 March 2022 4.50 1 43.60 242,500 242,500
        1,732,100 1,732,100

Oustanding options corresponds to 0.54% of outstanding shares.

Synthetic options

From the Annual General Meeting 2007 through Annual General Meeting 2017 the AGM  decided on a cash-based option programme related to the Ratos’s investments in the companies.

The program is carried out through the issue of synthetic options which are transferred on market value. The programmes give key employees working at Ratos the opportunity to take part in its portfolio companies' value growth. The options only have a value when Ratos’s average annual rate of return exceeds a certain percentage (8% in the 2017 programme). The purchase of options will be subsidised by the option purchaser receiving an extra cash compensation corresponding to a maximum of 50 per cent of the option premium up to a certain percentage (5% in the 2017 programme) of Ratos’s investment in the relevant portfolio company, after deduction of 55 per cent standard tax, whereby the compensation will be divided into equal components over 4 years and normally requires that the person concerned is still active in the Ratos group and still holds options acquired from Ratos.