Remuneration principles

According to the Swedish Companies Act the Board of Directors shall each year propose to the annual general meeting guidelines for remuneration to senior executives upon which the annual general meeting shall decide.

Principles of remuneration to management

At the Annual General Meeting 2016, it was resolved, in accordance with the proposal of the Board of Directors, to adopt the principles for determination of salary and other remuneration payable to the President and other members of the Company management. The members of the Group management are referred to below as the “Group Management Team” or “GMT”.

The objective of these principles is to ensure that the Company is able to recruit and retain employees with appropriate skills and qualifications for their respective duties. The remuneration structures shall encourage employees to do their utmost to safeguard shareholders’ interests. Swedish Match takes into account both global remuneration practice and the practice of the country of residence of each member of the GMT. The principles apply in relation to members of the GMT appointed after the adoption of the principles, and, in other cases, to the extent permitted under existing agreements. Note 5 Personnel sets out details of the remuneration and benefits of the GMT during 2015.

The total remuneration paid to GMT consists of fixed salary, variable components in the form of annual short term variable remuneration and long term variable remuneration, pension, other benefits and terms related to termination of employment.

1. Fixed salary: The fixed salary for the GMT shall correspond to market rates and shall be based on each member’s competence, country of ­residence, responsibility and performance.
2. Variable salary: 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 program to be paid out in the beginning of the subsequent year depending on the outcome of the program, and a long term program with a performance period which shall not be shorter than three years. The variable salary 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 GMT. The variable salary shall be capped in relation to the fixed salary and reflect the market practice in the country of residence.

The Company shall have the right to reclaim variable components of remuneration that were awarded on the basis of data which subsequently proved to be manifestly misstated.
3. Profit Sharing System: All employees in Sweden are participating in Swedish Match’s profit sharing system (“PSS”). For 2016 the maximum total accruals for GMT members is estimated to 0.3 MSEK.
4. Insurable benefits: Old age pension, disability and sickness benefits, medical benefits and life insurance benefits shall be designed to reflect the practices in the country where a member of the GMT is resident. New members of the GMT shall preferably be covered by defined contribution plans.
5. Severance pay, etc: A mutual period of notice of six months shall apply. Fixed salary during notice of termination and severance payment (if any) shall not exceed an amount corresponding to 24 months fixed salary. Members of the GMT residing outside Sweden may however be offered notice periods for termination and severance payment that are competitive in the country where the members are resident.
6. Other benefits: Other benefits shall be payable in accordance with local custom. The combined value of these benefits shall constitute a limited value in relation to the total remuneration package and shall correspond to the market norm.
7. The Board’s right to deviate from the principles: The Board of Directors shall be entitled to deviate from the ­principles approved by the Annual General Meeting if specific reasons for doing so exist in any individual case.
8. Committee work and decisions: Swedish Match’s Board of Directors shall have a Compensation Committee. The Committee has the authority to approve salary and other remuneration and employment terms for members of the GMT, except those regarding the President. The Committee shall prepare and present proposals for the Board’s decisions on issues relating to salary and other remuneration and employment terms for the President. The Committee is authorized to decide and in relation to the President to propose to the Board of Directors the further details regarding the criteria and targets on which the variable salary is based for the GMT. In addition hereto the Committee is authorized to decide to what extent such criteria and targets have been met both for the GMT and the President.
9. Previous undertakings not yet due: The Company has no previous undertakings not yet due besides what is evident from the Annual Report 2015. 

Application of principles on variable salary for 2016

In order to ensure alignment with long term shareholder interests, to strengthen the retention element of the variable salary and to promote company shareholding among the GMT the variable salary includes a short term cash incentive and a long term cash incentive program where the short term program includes an incentive for the GMT members to purchase and retain shares in the Company while the long term program includes an obligation to purchase and an undertaking to retain such shares. The performance period for the short term and the long term programs will be one year and three years respectively.

Short term variable salary: The maximum short term variable salary for the President and other members of the GMT residing in Sweden shall be 70 and 60 percent respectively of their 2016 base salary. To comply with local market standards the maximum short term incentive for one member residing outside of Sweden shall be 70 percent of the 2016 base salary. Subject to justified exemptions, a 20 percentage point reduction in maximum variable salary shall apply to any GMT member who does not commit to purchase Company shares for at least 50 percent of the received cash award net of income tax and to retain such shares for a period of not less than three years. The minimum level of performance that must be reached to earn any allocation and the maximum level of performance at which payout is capped shall be defined in the beginning of each year by the Compensation Committee in relation to the GMT members other than the President and by the Board of Directors in relation to the President. Accruals for short term variable salary objectives for GMT members for 2016 are estimated1) to range between 0 MSEK and 15 MSEK.

Long term variable salary:  The maximum long term variable salary of the President and other members of the GMT (except as set forth below) shall be either 45 percent of the 2016 base salary or 750,000 SEK depending on the remit of the GMT member. Subject to justified exemptions, all members of the GMT will be obliged to purchase company shares for the full cash award net of income tax and shall retain such shares for a period of not less than two years. One member of GMT residing outside Sweden may participate in an additional long term variable salary program capped at 100 percent of the base salary every second year.

The outcome in the long term variable salary program is dependent on one criterion determined at the beginning of 2016 but measured over the full performance period 2016–2018. The criterion is total Group Operating profit from product areas for the years 2016–2018. There will not be any pay-out at all unless there is an improvement in relation to the comparable performance of the Group in 2015.

Accruals for the GMT long term incentive programs are estimated1) to range between 0 MSEK below minimum level and 11 MSEK at maximum level depending on performance outcome.

Board's evaluation of remuneration policy

The Board of Directors regularly monitors and evaluates the company’s application of the guidelines for salary and other remuneration as adopted by the Annual General Meeting 2015 - for the CEO and the Group Management Team (GMT). The Board of Directors has also evaluated current remuneration structures and levels in the company and notes that these are competitive, balanced, correspond to market practice and comply with the guidelines on remuneration adopted by the Annual General Meeting. Regarding the programs for variable remuneration for the CEO and the GMT – both ongoing and those that have ended during the year – the Board of Directors has concluded that the financial criteria and thresholds for 2015 were specific, clear and measurable. The criteria were predetermined and relevant for the year and the outcome in terms of variable salary was appropriate in view of the performance of the business.

The Report of the Board of Directors pursuant to rule 10.3

1) Estimation made on the assumption that Group Management Team is unchanged and on an assumed exchange rate SEK vs.USD of 8.56.