C3. Remuneration of senior executives

Senior executives refer to the President, who is also the CEO, the Executive Vice Presidents, Business Unit Presidents and equivalents, and the Central Staff Managers. For the composition of this group, see Executive Management Team.

Annual General Meeting guidelines for remuneration of senior executives

Remuneration to the CEO and other senior executives will be a fixed salary, possible variable remuneration, additional benefits and pension. Other senior executives include the Executive Vice Presidents, Business Unit Presidents and equivalents, and the Central Staff Managers. The total remuneration is to correspond to market practice and be competitive in the senior executive’s field of profession. Fixed and variable remuneration are to be linked to the manager’s responsibility and authority. For the CEO, as well as for other senior executives, the variable remuneration is to be limited and linked to the fixed remuneration. The variable remuneration is to be based on the outcome of predetermined objectives and, as far as possible, be linked to the increase of value of the SCA share, from which the shareholders benefit. Programs for variable remuneration should be formulated so that the Board, in the event of exceptional financial conditions, has the possibility to limit, or refrain from, payment of variable remuneration if such an action is considered reasonable and in compliance with the company’s responsibility to shareholders, employees and other stakeholders.

In the event of termination of employment, the notice period should normally be two years if termination is initiated by the company, and one year, when initiated by the senior executive. Severance pay should not exist.

Previously agreed pension benefits in the company are either defined benefit or defined contribution plans, or a combination of both, and can entitle the senior executive to pension from the age of 60, at the earliest. To earn full defined benefit pension benefits, the period of employment must be long-term, at present 20 years. When resigning before the age providing entitlement to pension, the senior executive will receive a paid-up pension policy from the age of 60. Pension benefits in new employment contracts should, wherever possible, only include defined contribution pension and entitle the executive to receive a pension from the age of 65. Variable remuneration is not pensionable income. Matters of remuneration of the senior management are to be dealt with by the Remuneration Committee and, as regards the President, be resolved by the Board of Directors.

Company’s application of guidelines

The company applied the guidelines approved by the AGM in the following manner.

Fixed salary

The fixed salary is to be in proportion to the individual’s position and the authority and responsibilities this entails. It is set individually at a level that, combined with other remuneration, is assessed as a market rate and competitive in the labor market in which the executive works.

Variable remuneration

Variable remuneration of the CEO, Executive Vice Presidents and Business Unit Presidents and equivalents is maximized to a total of 100% of the fixed salary. For two Business Unit Presidents, stationed in Latin America and the US, the maximum outcome is 110–130%, while the corresponding limit for other senior executives is 90%. The program for variable remuneration is divided into a short and long-term portion. The short-term portion (Short-term Incentive, or STI) for the CEO, Executive Vice Presidents and Business Unit Presidents and equivalents may amount to a maximum of 50% of fixed salary. For the Business Unit Presidents, stationed in Latin America and the US, the maximum outcome is 60–80% of the fixed salary, while the corresponding limit for other senior executives is 40%. The STI goals set for the Business Unit Presidents are mainly based on operating cash flow, cost control, operating profit and growth for each business unit. The goal for the CEO and others reporting directly to him is based primarily on the Group’s profit before tax, operating cash flow and growth. Furthermore, a non-financial goal also applies accounting for 10 to 30% of the variable remuneration. The long-term portion (Long-Term Incentive, or LTI) may amount to a maximum of 50% of the fixed salary. The senior executive is to invest half of the variable LTI compensation, after tax withholdings, in SCA shares. The shares may then not be sold before the end of the third calendar year after the purchase of shares in the relevant LTI program. The established LTI goal is based on the performance of the company’s B share, measured as the TSR (Total Shareholder Return) index, compared with a weighted index of competitors’ and consumer companies’ shares performance (TSR) over a three-year period. The structure of the LTI was approved by the Board in 2003.

Outcome, variable remuneration

For the CEO, Executive Vice Presidents and Central Staff Managers, STI resulted in 25 to 35% of fixed salary for 2016. STI resulted in variable remuneration corresponding to 8 to 37% of fixed salary for the Business Unit Presidents. The LTI target was achieved for 2014–2016, resulting in maximum outcome for the CEO and other senior executives.

Other benefits

Other benefits pertain, in some cases, to a company car, housing and school fees.

Pension

The CEO has a defined contribution pension based on an annual payment, to be paid by the company, amounting to 40% of the employee’s fixed salary, and in addition to the agreed premium the basic pension benefits in the ITP plan, with retirement pension benefits limited to a maximum salary income of 7.5 income amounts. The retirement age for the CEO is 65. Six of the other senior executives in the Group in Sweden have a combination of defined benefit and defined contribution pension plans that entitle the executives, on reaching the age of 60, to receive a retirement pension (including national pension benefits) of up to 45% of the average salary (excluding variable remuneration) three years prior to retirement age. For full pension, the individual must have been employed for at least 20 years calculated from 40 years of age. Upon termination of employment prior to reaching retirement age, a paid-up policy is received for pension payments from age 60, on condition that the executive, after reaching the age of 40, has been employed in the Group for at least three years. In addition, beneficiaries’ pension amounts to about 50% of retirement pension. In addition to the defined benefit pension, a pension is paid based on premiums paid by the company. The premiums paid for each year of service amount to 10% of the executive’s fixed salary and are invested in a fund or traditional insurance chosen by the executive. Four senior executives in Sweden have a defined contribution pension plan (in addition to national pension benefits) into which the company pays 30 to 40% of the executives’ fixed salary, which is invested in funds or traditional insurance. Five senior executives are employed in companies outside Sweden, of whom three executives are encompassed by defined contribution pension plans and two by defined benefit pension plans.

Notice period and severance pay

The agreement with the CEO stipulates a period of notice of termination of two years if such notice is given by the company. The CEO has a corresponding right with a period of termination of one year. If notice is given by the company, the CEO is not obligated to serve during the notice period. The agreement does not contain any stipulations with regard to severance pay. Between the company and other senior executives, a period of notice of termination of one to two years normally applies, if such notice is given by the company. The executive has a corresponding right with a period of notice of termination of six months to one year. The executive is normally expected to be available to the company during the notice period. The agreements have no stipulations with regard to severance pay.

Preparation and decision process for remuneration

During the year, the Remuneration Committee submitted recommendations to the Board regarding the principles for remuneration of senior executives. The recommendations encompassed the ratio between fixed and variable remuneration and the size of any salary increases. In addition, the Remuneration Committee expressed an opinion on the criteria for assessing variable remuneration and pension terms. The Board discussed the Remuneration Committee’s proposal and decided on the basis of the Committee’s recommendations. The remuneration of senior executives for the fiscal year was based on the Remuneration Committee’s recommendation and, with regard to the CEO, decided by the Board. The executives concerned did not participate in remuneration matters pertaining to themselves. When it was deemed appropriate, the work of the Remuneration Committee was carried out with the support of external expertise. For information about the composition of the Remuneration Committee, see Activities during the year.

The Board’s proposal for new guidelines

The Board has decided to propose to the 2017 Annual General Meeting certain changes in the guidelines for determining salaries and other remuneration for senior executives for the purpose of simplifying and clarifying the guidelines and their application. In addition, it is proposed that the Board, in individual cases, is entitled to depart from the guidelines on special grounds. With the salary situation prevailing in 2017 and an unchanged number of senior executives, the maximum outcome of variable remuneration could entail a cost for the Group, excluding social security costs, of approximately SEK 73m.

Remuneration of senior executives

TC3:1 Remuneration and other benefits during the year 2016

SEK

Fixed salary

Variable remuneration 1)

Other benefits

Total salaries and remuneration

1)

Variable remuneration covers the 2016 fiscal year but is paid in 2017.

2)

Of which LTI program SEK 5,500,000.

3)

Of which LTI program SEK 31,680,631.

4)

During the year, two business areas were discontinued. Remuneration and benefits for the two business area managers are included in the table, but not in the number of senior executives.

President and CEO Magnus Groth

11,000,000

8,998,000 2)

87,738

20,085,738

Other senior executives (15 people) 4)

63,817,033

49,682,430 3)

6,248,771

119,748,234

Total

74,817,033

58,680,430

6,336,509

139,833,972

Pension costs 1)

SEK

 

1)

The pension costs pertain to the costs that affected profit for 2016, excluding special payroll tax.

2)

Outstanding pension obligations amount to SEK 15,741,000.

3)

Outstanding pension obligations amount to SEK 162,635,322.

President and CEO Magnus Groth 2)

4,495,961

Other senior executives (15 people) 3)

22,377,410

Total

26,873,371

Obligations in relation to former presidents and CEOs

For former presidents and CEOs, SCA has outstanding, non-funded obligations amounting to SEK 157m. These costs were recognized in previous years and largely comprise pension obligations.

Remuneration and other benefits during the year 2015

SEK

Fixed salary

Variable remuneration 1)

Other benefits

Total salaries and remuneration

1)

Variable remuneration covers the 2015 fiscal year but is paid in 2016.

2)

President and CEO Magnus Groth, who assumed his position on March 1, collected a fixed annual salary of SEK 9.5m. In connection with the adjustment of the President and CEO’s pension agreement to a defined contribution pension, his fixed annual salary was set at SEK 11m as of December 15. Accordingly, pension obligations will not continue to be earned.

3)

Former President and CEO Jan Johansson, who was dismissed from the position on March 1, will continue to collect contractual employment benefits during a period of notice of two years, with the exception of variable remuneration. The above amounts pertain to Jan Johansson’s fixed salary, benefits and pension costs for the period from 2015 until February 28, 2017, when his employment ends.

4)

Of which LTI program SEK 3,992,608.

5)

Of which LTI program SEK 28,218,873.

President and CEO Magnus Groth 2)

7,922,878

7,713,718 4)

428,659

16,065,255

Other senior executives (17 people)

61,717,544

50,270,385 5)

8,912,198

120,900,127

Former President and CEO Jan Johansson 3)

25,491,326

0

380,318

25,871,644

Total

95,131,748

57,984,103

9,721,175

162,837,026

Pension costs 1)

SEK

 

1)

The pension costs pertain to the costs that affected profit for 2015, excluding special payroll tax.

2)

Outstanding pension obligations amount to SEK 16,304,000.

3)

Outstanding pension obligations amount to SEK 155,571,000.

4)

Outstanding pension obligations amount to SEK 83,014,000.

President and CEO Magnus Groth 2)

3,153,521

Other senior executives (17 people) 3)

63,845,664

Former President and CEO Jan Johansson 4)

25,027,185

Total

92,026,370