Confederation of Swedish Enterprise agrees principles for managing directors' remuneration

In February 2002, the board of the Confederation of Swedish Enterprise adopted new principles for the remuneration of managing directors in companies listed on the Swedish stock exchange. This initiative partly resulted from a public controversy over the size of pay-offs made to two former managing directors of the ABB engineering group.

In mid-February 2002, it became public that two ex-managing directors at the Swedish-Swiss engineering group, Asea Brown Boveri (ABB), had received the largest pay-offs in Swedish company history after leaving the firm, because of very generous agreements they had reached with the ABB board (in 1992 and 1996). Percy Barnevik may thus receive a total of SEK 930 million in pension payments and his successor, Göran Lindahl, SEK 530 million. Mr Barnevik told the media that it was the construction of the agreements reached in the 1990s that made the size of the pay-off possible, and that nobody could have imagined at the time that the agreements would have resulted in the payment of such large sums. It is, however, not clear at the time of writing (late February 2002) if the two former managing directors will have their pay-off agreements with ABB renegotiated and if they will be forced to repay some of the money, or do so voluntarily. The issue was due to be discussed at the annual general meeting of ABB shareholders in March 2002.

However, the ABB affair caused considerable indignation throughout Swedish society, and also on the employers' side. On 22 February, the board of the Confederation of Swedish Enterprise (Svenskt Näringsliv), unanimously approved a set of principles on various aspects of remuneration for managing directors in companies listed on the Swedish stock exchange. The board noted that pay and pensions for senior employees are the responsibility of the boards and owners of individual companies. However, in the light of the current debate and because of recent similar recent discussion, there is a need for guidelines for all companies.

The principles recommended by the Confederation of Swedish Enterprise are as follows:

• pay, pension arrangements and redundancy payments for the managing director should be decided by the board of the company concerned. Every year the arrangements in this area should be accounted for in public, for example in the company's annual report;

• at the basis of the managing director's remuneration agreement should be a fixed salary based on responsibility and the size of the company;

• there may be a flexible part of the salary which is realised when goals set by the board are achieved;

• in the agreement between the managing director and the company board, the main emphasis should be on doing the job and achieving the results. This should focus on remuneration during the employee's career as a manager, not after resignation or retirement;

• the board must be able to dismiss a managing director immediately. A redundancy payment may be paid in the event of termination of contract by the employer. Such a payment should not be made when the manager in question resigns; and

• the managing director's pension should be contribution-based. In the case of existing fixed-benefit pensions, there should be a paragraph in the agreement limiting the size of the future pension.