Remuneration to Group Management
– excerpt from Trelleborg’s Annual Report for 2006
During 2006, the President, who is also Chief Executive Officer, received a fixed salary, variable salary and other compensation as shown in the table below. The variable salary has an established upper limit, maximum SEK 3 M, per full year. Of the total variable salary, 65 percent is based on the Trelleborg Group’s profit before tax, and 35 percent on the Group’s net profit, in both cases excluding the effect of structural changes approved by the Board. The variable salary does not constitute pensionable income.
The President has a pension agreement that entitles him to retire at the age of 65. However, under the terms of the pension agreement, both the company and the President have the right, without special justification, to request early retirement from the age of 60, with a mutual six-month notice of termination. The employment agreement and pension agreement shall be rendered invalid from the effective date of the President’s possible early retirement. The pension agreement is solely premium-based, and the premium is computed as 35 percent of the fixed annual salary. Pension premiums were expensed in 2006 as shown in the table below.
The President’s employment contract stipulates that termination of employment by the company shall be subject to a period of notice of 24 months. This clause does not apply if termination is initiated by the President, in which case a period of notice of six months shall apply. The principles for compensating other senior executives are based on both a fixed and variable salary. The variable part has an established upper limit and accounts for about 30-50 percent of total salary, based mainly on the earnings trend for the Group. In view of market conditions, the established upper limit for certain senior executives positioned outside Sweden may total 70 percent of total salary.
Some of these executives have agreements specifying mutual rights to request early retirement from the age of 60. In this case, compensation normally amounting to 60 percent of fixed annual salary is paid until the age of 65, when the regular retirement pension payments become effective. At the beginning of 2007, benefit-defined plans were replaced by defined-contribution plans, whereby the pension premium is calculated at 30 percent of fixed annual salary. For other senior executives, extended notice of termination periods apply when initiated by the company – normally 12, 18 or 24 months – which do not apply when initiated by the individual. For the President and other senior executives, there is an opportunity to have a company car free of charge.
Incentive program
The Board of Directors resolved in 2005 to introduce a long-term incentive program for the President and other senior executives (about 25 persons) that hold a significant influence on the Trelleborg Group’s earnings per share. The Board of Directors also resolved to introduce a similar program in 2006. Both programs are ongoing three-year programs for which the Board will approve possible new programs annually. The programs are cash-based and constitute a supplement to the annual variable salaries, provided the executive is employed by the Trelleborg Group as per December 31 in the year to which the program applies. The target value is the Trelleborg Group’s earnings per share, with an annual improvement of 10 percent, and includes costs for the programs. For 2005, the Board established a goal of SEK 12.40 in earnings per share. Payments to senior executives for the 2005 program have an upper cap, corresponding to 100 percent of the average annual variable salary at the end of the program. For 2006, the Board established a target of SEK 14.10 with the upper cap for payments to senior executives set at 150 percent of the average annual variable salary at the end of the program. The result is calculated annually and accumulated over the three-year period, and possible payments are made in the first quarter of the year after the program expires. For the program approved for 2005, accordingly, payment will be made in the first quarter of 2008, and for the program approved in 2006, payments will be made in the first quarter of 2009. The payments do not constitute pensionable income. In 2006, there were no charges for these programs.
