The Remuneration Committee advises the Board of Directors on an ongoing basis on the remuneration of Group Management. This includes fixed salaries, pensions, other benefits and short-term and long-term variable remuneration, all in the context of pay and employment conditions throughout Ericsson. The Remuneration Committee also approves variable remuneration outcomes, prepares remuneration related proposals for Board and shareholder approval and develops and monitors the remuneration policy, strategies and general guidelines for employee remuneration.
During 2009, as the financial crisis hit the world with its full force, there was an increased public focus on compensation and benefits matters. In its work the Remuneration Committee has followed the d`ebate closely. The Committee met seven times during the year. The winter meetings were primarily dedicated to reviewing and implementing a zero salary increase for senior management, the vesting of variable compensation awards and proposals to shareholders at the Annual General Meeting (AGM). In 2009 the policy for senior management remuneration and the Long-Term Variable share-based plans were brought to the AGM with no major changes proposed. During the summer the Committee reviewed short-term targets to ensure that they remained appropriate and challenging. In the fall it began the cycle again with a review of the remuneration strategy, the variable compensation plans and levels of fixed compensation. As is illustrated below, the Committee has also considered market trends, existing and potential remuneration risks, target setting, its working arrangements and investor consultations. Activities during the second half of 2009 resulted in an updated remuneration policy being brought to the AGM which better demonstrates the basic remuneration principles within Ericsson.
This chapter outlines how the remuneration policy is implemented throughout Ericsson in line with corporate governance best practice, with specific references to senior management. To begin with, the work of the Remuneration Committee and our remuneration policy are explained, followed by descriptions of plans and approaches. More details of the remuneration of senior management and Board members’ fees can be found in the Notes to the Consolidated Financial Statements – Note C29, “Information regarding Members of the Board of Directors, Management and Employees” (“Note C29”). Senior management comprises the Group Management Team, including the CEO, and will hereafter be referred to as “Group Management”.
|SUMMARIES OF 2009 SHORT- AND LONG-TERM VARIABLE REMUNERATION|
|What we call it||What is it?||What is the objective?||Who participates?||How is it earned?|
|Short-term: Remuneration delivered over 12 months or less|
|Fixed salary||Fixed remuneration paid at set times||Attract and retain employees, delivering part of annual remuneration in a predictable format||All employees||Market appropriate levels set according to position and evaluated according to individual performance|
|Short-Term Variable compensation (STV)||A variable plan that is measured and paid over a single year||Align employees with clear and relevant targets, providing an earnings opportunity in return for variable cost and performance||Managers, including Group Management||Achievements against set targets. Reward can increase to up to twice the target level and decrease to zero, depending on performance|
|Local and Sales Incentive Plans||Tailored versions of the STV such as sales||As for STV, tailored for local or business requirements,||Most employees limits||Similar to STV. All plans have maximum award and vesting|
|Long-term: Remuneration delivered over 3 years or more|
|Stock Purchase Plan (SPP)||All-employee stock-based plan||Reinforce a “One Ericsson” and align employees’ interests with those of shareholders||All employees are eligible||Buy one share and it will be matched by one share after 3 years if still employed|
|Key Contributor Retention Plan (KC)||Share-based plan for selected individuals||Recognize, retain and motivate key contributors for performance, critical skills and potential||Up to 10 percent of employees||If selected, get one more matching share in addition to the SPP one|
|Executive Performance Stock Plan (EPSP)||Share-based plan for senior executives||Remuneration for long-term commitment and earnings performance||Senior executives, including Group Management||Get up to 4, 6 or, for CEO, 8 further matching shares to the SPP one for EPS growth performance|
ANNUAL CYCLE OF THE REMUNERATION COMMITTEE’S WORK