Guidelines for remuneration to senior management adopted by the Annual General Meeting 2020.
Who the guidelines cover, and their applicability
These guidelines for remuneration of senior executives cover the Chief Executive Officer and other members of group management. The guidelines should be applied to compensation agreed, and amendments to compensation previously agreed, after the guidelines have been adopted by the AGM 2020. Regarding employment terms in other legislatures than Sweden, the relevant adaptations should be made to comply with mandatory local regulation or practice, in order for the overall purpose of these guidelines to be met. These guidelines do not cover compensation resolved by the AGM.
The board of directors is entitled to temporarily depart from these guidelines wholly or partly if there are special reasons for this in an individual case, and a departure is necessary to serve the company’s long-term interests and sustainability, or to ensure the company’s profitability. If such departure occurs, this should be stated in the Remuneration Report at the following AGM. These guidelines apply to the period from the AGM 2020 onwards. Matters regarding departure from the guidelines should be subject to consultation by the Remuneration Committee, and decision by the board of directors.
The guidelines’ promotion of the company’s business strategy, long-term interests and sustainability
Enea’s ambition is to be a global software company, with a strong and leading position in those markets that it addresses, with yearly sales growth, high profitability and healthy cash flows. Organic growth is the foundation of operations, and work is ongoing to develop, rationalize and optimize it. Strategic and complementary acquisitions will be continuously screened, and if considered to add value for customers and shareholders within a well-considered risk level, Enea will attempt to execute such acquisitions. Enea’s target is to maintain an EBIT margin of over 20% per year. EBIT margin will vary during quarters, keeping pace with growth. Growth and earnings will vary between years and quarters, mainly depending on how individual deals occur, and the progress of royalty streams. For more information on Enea’s strategy, see www.enea.com
The board of directors’ opinion is that the company’s ability to attract, motivate and retain high-performing staff and managers is critical for successful implementation of the company’s business strategy and protection of the company’s long-term interests, including sustainability. This entails the company being able to offer competitive benefits packages. Total compensation should contain a variable component linked to the individual performance of staff and managers, but that is also synchronized with the company’s profitability and long-term sustainability.
Forms of compensation, etc.
Remuneration and other employment terms of senior executives should be at market levels. Remuneration consists of basic salary, variable remuneration and pensions. Additionally—and independent of these guidelines—the AGM is entitled to resolve on share or share price-based payments.
Fixed basic salary
The basic salary of the CEO and other senior executives is subject to yearly review. For the CEO, fixed basic salary may represent a maximum of 60% of total compensation excluding LTI (long-term incentive) programs and assuming a 50% outcome of STI (short-term incentive) programs. For other senior executives, fixed basic salary may represent a maximum of 90% of total compensation excluding LTI, and assuming a 50% outcome of STI.
Short-term incentive programs (STI)
Enea’s STI program has three parts. Two of these parts relate to the company achieving specific targets, while one is determined by the achievement of individual targets. The majority of compensation is linked to the company’s financial targets, while the individual part of compensation corresponds to a lesser proportion of them.
The criteria applied relate to the company’s targets for sales and EBIT, pursuant to the adopted annual financial statement. The criteria applying to the individual targets should be formulated prior to the end of the first quarter of the financial year the compensation relates to, and should be as specific as the criteria relating to the company’s targets. The criteria are designed to promote the company’s business strategy, long-term interests, as well as sustainability, and accordingly, the company’s long-term value creation.
The outcome of compensation is subject to consultation by the Remuneration Committee, and decided by the board of directors for the CEO. For other senior executives, the outcome of compensation is consulted and decided by the Remuneration Committee. Payment of compensation is as soon as possible after the Board meeting where the company’s annual financial statement is adopted for the vesting year. Variable remuneration is not pensionable, nor used to calculate vacation pay. The company is not entitled to reclaim this compensation.
For the CEO, the STI may be a maximum of 100% of fixed basic salary, and may be a maximum of 50% of total compensation excluding LTI. For other senior executives, the STI may be a maximum of 120% of fixed basic salary, and may be a maximum of 60% of total compensation excluding LTI.
Long-term incentive programs (LTI)
Senior executives are eligible for incentive programs that are basically share, or share price, related. An incentive program should be designed to increase participants’ commitment to the company’s progress, and be implemented on market terms. Share and share price-related incentive programs are subject to AGM resolution, and accordingly, are not covered by these guidelines.
The CEO’s agreed retirement age is 67, and other senior executives do not have any specifically agreed retirement ages. All pension benefits of senior executives are defined contribution. This means that for senior executives, the company pays individually agreed defined contribution pension premiums. Apart from these pension benefits, the company has no pension obligations to senior executives.
For the CEO, pension will be a maximum of 20% of total compensation excluding LTI, assuming a 50% outcome from the STI. For other senior executives, pension will be a maximum of 20% of total compensation excluding LTI, and assuming a 50% outcome from the STI.
Senior executives employed in countries other than Sweden are subject to local pension plans in their respective home countries. Such plans are consistent with those offered to other employees in the same countries. Accordingly, in terms of retirement age and any additional pension obligations, there may be some variation in employment terms in other legislatures than Sweden where mandatory local regulation or practice requires, and accordingly, the overall purpose of these guidelines should still be met.
Notice period and severance pay
The employment or service contracts of senior executives should apply until further notice, or for a specific period. For the CEO, a six-month notice period applies for termination by the company. In addition to dismissal pay, the CEO is entitled to severance pay of six times fixed monthly salary. During the notice period, the employment contract and associated benefits apply. For other senior executives, maximum notice periods of six months apply to termination by the company. Apart from dismissal pay, other senior executives are not entitled to severance pay. Applicable employment contracts and associated benefits apply during notice periods. Where severance pay is due, no other benefits are payable after the end of the notice period.
Salary and employment terms of employees
Consultation on the board of directors’ proposal on guidelines for remuneration of senior executives considers salary and employment terms of the company’s employees. Information on employees’ total compensation, the components of such compensation, as well as increases and rates of increase of compensation over time, have been collated and served as part of the decision-support data for the Remuneration Committee and the board of directors when appraising the reasonableness of the guidelines and their ensuing limitations.
The board of directors should prepare a proposal for new guidelines when a need for significant amendments arise, although at least every fourth year. The board of directors’ proposal is subject to consultation by the Board’s Remuneration Committee. The Chairman of the Board should serve as Chairman of the Remuneration Committee. With the aim of resolving conflicts of interest, other Board members elected by the AGM that are members of the Remuneration Committee should be independent of the company and its management.
The duties of the Remuneration Committee should include monitoring and evaluating application of the guidelines for remuneration of senior executives as approved by the AGM. When the Remuneration Committee has consulted on the proposal, it is referred to the board of directors for decision. The Chef Executive Officer or other members of group management should not participate in the board of directors’ consideration of, and decisions on, remuneration-related issues, to the extent they are affected by these issues.
If the Meeting does not resolve to adopt the guidelines as proposed, the board of directors should submit a new proposal by no later than at the next AGM. In such case, remuneration should be paid in accordance with the guidelines that applied previously, or if there are no such guidelines, consistently with the company’s practice.
In consultation on these issues, external advisors may be appointed as considered necessary.
Review of guidelines
The guidelines for remuneration of senior executives were reviewed due to the amendments to the Swedish Companies Act that came into effect on 10 June 2019. The proposed amendments are not expected to imply any significant alteration of the remuneration paid according to current guidelines. The company did not receive any points of view from shareholders.