In 2010 Swedish Match AB's Board of Directors decided about the present incentive structure for the CEO and the group management team.
The members of the GMT may be entitled to a variable salary in addition to the fixed salary. The variable salary may include both an annual short term incentive program to be paid out in the beginning of the subsequent year depending on the outcome of the program, and a long term incentive program with a performance period which shall not be shorter than three years.
Short term incentive
The variable salary is capped in relation to the fixed salary and reflects the market practice in the country of residence. To promote managements’ shareholding in the company at least half of the short term incentive shall be used to purchase and hold shares. If a group management team member doesn’t undertake to purchase shares for at least half of the received cash award net of income tax and to retain such shares for a period of not less than three years, the maximum short term incentive is reduced by 20 percentage points.
The short term incentive shall primarily be based on specific, clear, predetermined and measurable financial or operational criteria set by the Board of Directors in relation to the President, and by the Compensation Committee in relation to the Group Management Team. Performance targets for the short term incentive are determined in the beginning of each year. The predominant performance criterion for the CEO and the heads of corporate functions in the short term incentive program for 2016 was Group operating profit from product areas. Those members of the Group Management Team who were operating unit Presidents had partly the same criterion as the CEO and partly incentive criteria linked to the operating unit.
Long term incentive plan
Under the long term incentive program eligible executives may, after a three year performance period, receive a cash bonus based on the actual performance of the Swedish Match Group under the performance period. Executives participating in the long term incentive program are obliged to purchase shares for any cash bonus received under the program net after tax and to hold such shares for a period of two years after purchase.
The Final Award under each program will be dependent on the Actual Performance during the current three yearlong Performance Period as determined by the Compensation Committee after the end of the Performance Period. The Performance Criteria, Performance Thresholds and Performance Targets will be determined by the Board of Directors in relation to the President and by the Compensation Committee in relation to the group management team in the first year of the Performance Period and will be communicated to the Executives at the beginning of the Performance Period.
If an Executive’s employment is terminated by the executive, or if the employment is terminated by the employing company other than for cause prior to the Settlement Date the executive is entitled to a reduced Final award under the Plan. If an Executive’s employment is terminated by the Company for cause prior to the Settlement date the executive is not entitled to any Final Award under the plan.
In the three yearlong incentive program that ended in 2016, the performance criterion for the CEO and other members of group management was based on the accumulated Group Operating profit from product areas. The threshold and target for maximum payout were 10,057 MSEK and 10,807 MSEK respectively for the performance period. The Compensation Committee established the total performance outcome for the long term program to 90.0 percent.
In the event that the pay out of an incentive is made based on performance that is proven to be manifestly misstated, the Board may decide to reclaim whole or a part of what has been paid. In its decision to reclaim any amount the Board may, in its sole discretion, reduce the amount to be reclaimed based on the executive’s lack of direct involvement in the performance and reporting of performance which has been manifestly misstated as well as any depreciation of value of shares purchased for the incentive.