Note 3. Personnel information and remuneration of management and auditors

3.1 Average number of employees

3.2 Wages, salaries other remuneration and social costs

A total of 62 million SEK (66) of the Group’s pension costs relates to Boards and presidents. The Group’s pension liability to these persons amounted to 105 million SEK (161). Correspondingly, 23 million SEK (23) of the Parent Company’s pension costs related to the Boards and presidents. The Parent Company’s pension liability relating to these persons amounted to 4 million SEK (4).

Employee profit-sharing program

To promote performance that is favorable to the Group’s long-term development and also to stimulate continued employee loyalty, Sandvik has historically had a profit-sharing system for all employees in wholly-owned companies in Sweden since 1986.

From January 2019 the Board of Directors has decided to decentralize the profit sharing scheme to Sandvik´s business areas and to the group functions. The responsibility of this variable salary model will be entirely handled by Sandvik´s business areas and when applicable by divisions. The decision on the design of the future arrangements will be implemented based on local business decisions. Therefore the profit shares will, from 2019 and onwards, not be reported in Sandvik’s annual report.

Sandvik’s Board of Directors has also decided that employees with an individual variable salary, STI (short-term incentive), will not be covered by any other short-term schemes that are based on the company’s results, and are therefore exempted from the profit-sharing scheme from 2019.

3.3 Wages, salaries and other remuneration by market area

3.4 Gender distribution in senior management

3.5 Remuneration of the board of directors and senior executives

The Board

Fees to the Chairman and other external Board members are paid in accordance with the resolution at the Annual General Meeting. No Board fees are paid to the President and the employee representatives.

In accordance with the resolution of the 2019 Annual General Meeting, the total fee to the external Board members elected at the Meeting amounts to in total 6,690,000 SEK on an annual basis. Of this amount 2,550,000 SEK is payable to the Chairman of the Board (Johan Molin) and 690,000 SEK to each of the other external Board members (Jennifer Allerton, Claes Boustedt, Johan Karlström, Helena Stjernholm, Lars Westerberg and Marika Fredriksson).

In addition to these amounts, the Annual General Meeting resolved that a fee for committee work should be paid to Board members elected by the Meeting, in an amount totaling 640,000 SEK to the members of the Audit Committee (Claes Boustedt 300,000 SEK, Helena Stjernholm 170,000 SEK and Lars Westerberg 170,000 SEK) and in an amount totaling 375,000 SEK to the members of the Remuneration Committee (Johan Molin 145,000 SEK, Johan Karlström 115,000 and Helena Stjernholm 115,000 SEK).

The long-term asset manager and largest shareholder of Sandvik shares, Industrivärden, granted in 2019 the Chairman of the Board one million call options over Sandvik shares with a five-year term and an exercise price of 177 SEK. The options were purchased at market price.

President and other senior executives

Principles of remuneration

The following guidelines approved by the Annual General Meeting for remuneration of senior executives have been applied since the Annual General Meeting in 2019:

The remuneration of the Group Executive Management is to comprise fixed salary, variable salary, pension and other benefits. The total remuneration package should be based on market terms, be competitive and reflect the individual’s performance and responsibilities as well as the Group’s earnings trend.

The variable salary may comprise short-term incentives in cash and long-term incentives in cash, shares and/or share-based instruments in Sandvik AB. Variable salary in cash is conditional upon the fulfillment of defined and measurable goals and should be maximized in relation to the fixed salary. Long-term incentives in the form of shares and/or share-based instruments in Sandvik AB may be provided through participation in long-term incentive programs approved by the General Meeting. Terms and conditions for variable salary should be designed so that the Board of Directors, if exceptional economic circumstances prevail, has the option of limiting or refraining from payment of variable salary if such a measure is considered reasonable.

In specific cases, agreements may be reached regarding one-off remuneration amounts provided that such remuneration does not exceed an amount corresponding to the individual’s annual fixed salary and maximum variable salary in cash and is not paid more than once per year and individual. Pension benefits should be defined contribution.

Normally, severance pay is paid when employment is terminated by Sandvik. Members of the Group Executive Management generally have a period of notice of not more than 12 months, in combination with severance pay corresponding to 6–12 months fixed salary. An alternative solution may be applied to the President comprising a period of notice of 24 months and no severance pay. No severance pay will be paid when employment is terminated by the employee.

The Board of Directors is to have the right to depart from the guidelines resolved on by the Annual General Meeting if, in an individual case, there are special reasons for this. The sphere of senior executives encompassed by the guidelines comprises the President and other members of the Group Executive Management.

President and CEO

Sandvik’s President and CEO, Björn Rosengren, was paid an annual fixed salary of 15,099,000 SEK and received the fringe-benefit value of a car provided by the company. In addition, an annual variable cash based salary of maximum 75 percent of the fixed salary is payable. The variable salary for 2019 amounted to 3,397,275 SEK.

Björn Rosengren is entitled to retire at age 65. A pension premium of 37.5 percent of his annual fixed salary is reserved annually.

In the event of termination of employment by the company, Björn Rosengren has a notice period of 12 months and 12 months’ severance pay.

An agreement has been signed with the incoming President and CEO Stefan Widing on partial redemption of his existing long-term incentive program and for partially lost annual variable salary from his previous employer. Payment of SEK 10.3 million was made in 2019. The agreement also states that if Stefan Widing decides to leave Sandvik, on his own initiative, before 31 December 2021 there is an obligation to reimburse 90 percent of the amount for the months remaining between his last working day and December 31, 2021.

Other senior executives

For other members of the Group Executive Management who are covered by a Swedish pension plan (ITP1 or ITP2), the retirement age is minimum 62.

For members that are covered by the ITP plan 1 (defined contribution) a supplement of 5 percent of the salary portions in excess of 7.5 income base amounts may apply.

For members that are covered by the ITP Plan 2 (defined benefit), a supplementary defined-contribution plan under which the company each year contributes 25–33 percent (depending on age and employment start in GEM) of fixed salary portions in excess of 20 price base amounts applies. Members of the Group Executive Management employed as per 31 December 2019 are covered either by the ITP 1- or by the ITP2 occupational pension plans.

Severance pay is paid in the event that the company terminates employment. The severance pay equals 6–12 months’ fixed salary in addition to the notice period, which is 6–12 months. Any other income from employment may be deducted from the severance pay.

Long-term incentive programs.

Share-based incentive program 2016–2019

The 2016, 2017, 2018 and 2019 Annual General Meetings approved the Board’s proposal to introduce a performance share program for each year for about 350 senior executives and key individuals in the Sandvik Group, divided into four categories. For all participants, a personal investment is required in each separate program and the programs encompass at Grant a maximum total of 6,318,250 shares.

All program participants have invested in Sandvik shares (“investment shares”), up to an amount corresponding to 10 percent of their fixed annual pre-tax salary at the time of the investment.

In the LTI 2016 and 2017 each acquired investment share entitles participants to be allotted, free of charge, after a period of three years, one Sandvik share (“matching share”). In the LTI 2016, 2017, 2018 and 2019 provided certain performance targets are met Sandvik shares (“performances shares”) may be allotted. The maximum number of performance shares that may be allotted for each acquired investment share depends on the category to which the participant belongs.

The number of performance shares that will finally be allotted to the participant for each acquired investment share is dependent on the development of the Sandvik Group adjusted Earnings Per Share (“EPS”) during the financial year that the investment shares were acquired, compared to adjusted EPS for the previous financial year.

In January 2016, 2017, 2018 and 2019 respectively the Board of Directors established the levels regarding adjusted EPS for the performance year in question that had to be attained for allotment of a certain number of performance shares.

Performance outcome 2016–2019

The 2016 LTI program: Matching shares were allotted during 2019. Performance shares were also allotted since the performance targets set by the Board of Directors were essentially met. Adjusted EPS for the financial year 2016 amounted to 5.48 SEK.

The 2017 LTI program: Matching shares will be allotted during 2020 if all the prerequisites for allotment are met. Performance shares will also be allotted since the performance targets set by the Board of Directors were met. Adjusted EPS for the financial year 2017 amounted to 7.99 SEK.

The 2018 LTI program: Performance shares will be allotted since the performance targets set by the Board of Directors were met. Adjusted EPS for the financial year 2018 amounted to 10.58 SEK.

The 2019 LTI Program: Performance shares will partly be allotted since the performance targets set by the Board of Directors were partly met. Adjusted EPS for the financial year 2019 amounted to 11.31 SEK. This means that no later than June 2022, and if all the prerequisites for allotment are met, one performance share per one investment share will be allotted and an additional 18,87 percent of the remaining shares within the range of 5–15 percent EPS 2019 increase in relation to adjusted EPS 2018 will be allotted. The allotment of performance shares requires continuous employment and that all investment shares are held during a period of three years from the acquisition of the investment shares.

The number of allotted shares (matching shares under the 2016–2017 LTI programs and performance shares under the 2016–2019 LTI programs) for the President and other members of the Group Executive Management on 31 December 2019, corresponds to the number of outstanding performance shares and matching shares at year-end.

Costs for the programs

The following IFRS2 provisions were established during the year: 14.6 million SEK, excluding social costs for the 2019 LTI program, of which 2.2 million SEK for the President and other senior executives; 52.9 million SEK, excluding social costs for the 2018 LTI program, of which 7.7 million SEK for the President and other senior executives; 34.0 million SEK, excluding social costs for the 2017 LTI program, of which 7.7 million SEK for the President and other senior executives.

The employee matching shares and performance shares are expensed as an employee expense (excluding social costs) over the vesting period and are recognized directly against equity. The amount recognized is continuously revised throughout the vesting period of each program. Social costs are expensed during the vesting period of each program based on the change in value of the employee matching shares and performance shares.

Preparation and decision-making process

The Board’s Remuneration Committee prepares issues relating to the Group Executive Management’s remuneration. The Committee met three times during the year. Issues dealt with included the distribution between fixed and variable salary, the magnitude of any pay increases and the long-term variable incentive program.

The Board discussed the Remuneration Committee’s proposals and made a decision, using the Committee’s proposal as a basis. Based on the Remuneration Committee’s proposals, the Board decided on the remuneration of the President for 2019. The President decided on remuneration to other senior executives after consultation with the Remuneration Committee. The Remuneration Committee performed its task supported by expertise on remuneration levels and structures. For information on the composition of the Committee, refer to the Corporate Governance Report.

3.6 Fees and remuneration to the Group’s auditors

Fees and remuneration to the Group’s auditors were as follows:

Audit refers to the statutory audit of the financial statements, the accounting records and the administration of the business by the Board of Directors and the President and CEO, and auditing and other review procedures performed in accordance with agreements or contracts. This includes other procedures required to be performed by the company’s auditors as well as other services caused by observations during the performance of such examination and other procedures.

Tax consultancy services relate to services in the tax area. Other services essentially comprise advice in areas closely related to the audit, such as other assurance, advice on accounting issues and due-diligence services in connection with acquisitions.