Provides an investment opportunity for all of Ericsson's employees
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Part of Ericsson's remuneration strategy to retain key competence
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Drives earnings and provides competitive remuneration for senior management
Ericsson's (NASDAQ: ERIC) Long Term Variable Remuneration Program, which first started in 2004, is an integral part of the company's remuneration strategy. The Board of Directors has decided to propose that the Annual General Meeting on April 13, 2010, resolves on a continued Long Term Variable Remuneration Program 2010 (LTV 2010) which, compared to the previous programs, contains minor changes for the CEO's participation and the performance target period for the executive plan. The program comprises in total 23.5 million B-shares.
The Program is divided into three plans: (1) a Stock Purchase Plan embracing all employees, where employees receive one Ericsson share for each share invested in under the plan, (2) a plan for up to ten percent of employees, selected as key contributors to receive a second matching share, and (3) a plan embracing the CEO and other senior managers, up to 0.5 percent of employees who at a maximum can earn a further four, six or in the case of the CEO, nine (previous plans: eight) matching shares in addition to the ordinary matching share under the Stock Purchase Plan, provided that certain financial goals are met.
Matching under the program requires employees to invest up to 7.5 percent of gross fixed salary in Ericsson shares. It is proposed that the CEO will be able to invest up to 10 percent of the gross fixed salary and the short term variable remuneration (previous plans: up to 9 percent of the gross fixed salary). The participants must also retain the shares and remain in employment at the time of matching, three years after investment.
The adjusted CEO participation and performance matching opportunity is a consequence of the Board's decision to change the composition of the different remuneration elements in the CEO's total remuneration package to shift the emphasis from fixed to variable and from short-term to long-term, as well as helping to build a significant long term holding in Ericsson shares.
For transparency and simplicity reasons, it is also proposed that the three year performance target period for the executive plan is adjusted to financial years instead of, as for previous plans, measuring years from the third quarter to the second quarter.
Financing of the LTV 2010
The proposal gives the shareholders the opportunity to vote for each of the respective plans, including financing. The Board of Directors has considered different financing methods for transfer of the shares to employees under the LTV 2010, such as transfer of treasury stock and an equity swap agreement with a third party.
The Board of Directors considers the transfer of treasury stock as the most cost efficient and flexible method to transfer shares under the LTV 2010 and has therefore decided to propose that the Annual General Meeting resolve as follows.
Transfer of treasury stock: No more than 19.4 million B-shares shall be transferred to employees covered by the terms of the three plans under the LTV 2010. The company shall also have the right, before the Annual General Meeting in 2011, to transfer no more than 4.1 million B-shares in the Company on an exchange to cover certain expenses, mainly social security payments.
Dilution and costs
The Company has approximately 3.3 billion shares in issue. As per December 31, 2009, the Company held 79 million shares in treasury. The 23.5 million shares required to implement the LTV 2010 correspond to approximately 0.74 percent of the total number of outstanding shares.
The total effect on the income statement of the LTV 2010, is estimated to range between SEK 919 million and SEK 1 611 million unevenly distributed over the years 2010-2014. The costs can be compared with Ericsson's total remuneration costs 2010, including social security fees, amounting to SEK 55 billion.
The complete proposal of the Board of Directors will be available on Ericsson's website, www.ericsson.com, as from the publication of the Notice of the Annual General Meeting.
The Ericsson Annual Report for 2009 is available as of March 8, 2010, on http://www.ericsson.com/ericsson/investors/financial_reports/2009/annual-report.shtml
Notes to editors:
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