Note 27 - Employees and remuneration

Employees and employee benefits

In 2009, the average number of employees was 50,633 (55,177), of whom 32,955 (35,562) were men and 17,678 (19,615) women.

A detailed specification of the average number of employees by country has been submitted to the Swedish Companies Registration Office and is available on request from AB Electrolux, Investor Relations and Financial Information. See also Electrolux website www.electrolux.com/ir, Company overview.

Of the Board members in the Group, 77 were men and 12 women, of whom 7 men and 4 women in the Parent Company. Senior managers in the Group consisted of 186 men and 40 women, of whom 9 men and 3 women in the Parent Company. The total pension cost for Board members and senior managers in the Group amounted to 37m (48) in 2009.

In accordance with the regulations in the Swedish Annual Accounts Act, in effect as of July 1, 2003, absence due to illness for employees in the Parent Company and the Group in Sweden is reported in the table above. The Parent Company comprises the Group’s head office as well as a number of units and plants, and employs approximately 75% of the Group’s workforce in Sweden.

Compensation to the Board of Directors

The Annual General Meeting (AGM) determines the total compensation to the Board of Directors for a period of one year until the next AGM. The compensation is distributed between the Chairman, Deputy Chairman, other Board Members and remuneration for committee work. The Board decides the distribution of the committee fee between the committee members. Compensation is paid out in advance each quarter. Compensation paid in 2009 refers to one fourth of the compensation authorized by the AGM in 2008, and three fourths of the compensation authorized by the AGM in 2009. Total compensation paid in 2009 amounted to SEK 4,350k, of which SEK 3,750k referred to ordinary compensation and SEK 600k to committee work. For distribution of compensation by Board member, see table below.

Synthetic shares

The AGM in 2009 decided that a part of the fees to the Board of Directors should be payable in synthetic shares. A synthetic share is a right to receive in the future a payment corresponding to the stock-market value of a B-share in Electrolux at the time of payment. In accordance with the fee structure laid down by the AGM, the Directors have for the 2009/2010 term of office been given the choice of receiving 25% or 50% of the fees for the Board assignment in synthetic shares. The remaining part of the fees to the Directors is paid in cash. Foreign Directors have been able to elect to receive 100% of the fee in cash. The synthetic shares entail a right to payment, in the year 2014, of a cash amount per synthetic share corresponding to the price for a B-share in Electrolux at the time of payment. Should a Director’s assignment end not later than four years after the time of allocation, cash settlement may instead take place during the year after the assignment came to an end. The elections made by the Directors mean that on average 25% of the fees for the Board assignment for 2009/2010 is allocated in the form of (in total) 13,349 synthetic shares. At the end of 2009, a total of 26,519 (13,170) synthetic shares were outstanding, having a total value of SEK 4.4m (0.9). The accrued value of the synthetic shares has been calculated as the number of synthetic shares times the volume weighted average price of a B-share in Electrolux as of December 31, 2009. The cost from revaluation of synthetic shares during 2009, was SEK 2.3m. No cash settlements took place in 2009.

Remuneration Committee

The working procedures of the Board of Directors stipulate that remuneration to the President be proposed by a Remuneration Committee. The Committee comprises the Chairman of the Board and two additional Directors. During 2009, the Committee members were Barbara Milian Thoralfsson (Chairman), Marcus Wallenberg and Johan Molin.

The Remuneration Committee establishes principles for remuneration for the President and the other members of Group Management, subject to subsequent approval by the AGM. Proposals submitted by the Remuneration Committee to the Board include targets for variable compensation, the relationship between fixed and variable salary, changes in fixed or variable salary, criteria for assessment of long-term variable salary, pensions and other benefits. The Remuneration Committee acts as grandparent, approving the President’s proposals on the above subjects for members of the Group Management.

A minimum of two meetings are convened each year and additional meetings are held when needed. Eight meetings were held during 2009.

Remuneration Guidelines for Group Management

The AGM in 2009 approved the proposed Remuneration Guidelines. These guidelines and the compensation to Group Management during 2009, are described below.

The overall principles for compensation within Electrolux are tied strongly to the position held, individual as well as team performance, and competitive compensation in the country or region of employment.

The overall compensation package for higher-level management comprises fixed salary, variable salary based on short-term and long-term performance targets, and benefits such as pensions and insurance.

Electrolux strives to offer fair and competitive total compensation with an emphasis on "pay for performance". Variable compensation represents a significant proportion of total compensation for higher-level management. Total compensation is lower if targets are not achieved.

The Group has a uniform program for variable salary for management and other key positions. Variable salary is based on financial targets and may include non-financial targets for certain positions. Each job level is linked to a minimum and a maximum level for variable salary, and the program is capped.

Since 2004, Electrolux has long-term performance share programs for approximately 160 senior managers of the Group. The vesting and exercise rights of the option programs launched up till 2003 will continue as scheduled. For more information see Performance share program.

Compensation and terms of employment for the President

The compensation package for the President comprises fixed salary, variable salary based on annual targets, a long-term performance share program and other benefits such as pensions and insurance.

Base salary is revised annually per January 1. The annualized base salary for 2009, was SEK 8,600,000 (8,600,000). The salary for the President was frozen in 2009. In 2008, the base salary increased by 3.6%.

The variable salary is based on annual financial targets for the Group. The variable salary is 70% of the annual base salary at midpoint, and capped at 110%.

The President participates in the Group’s long-term performance programs, that comprise the current performance share program as well as previous option programs. For more information on these programs see below.

The notice period for the company is 12 months, and for the President six months. The President is entitled to 12 months severance pay based on base salary. Severance pay is applicable if the employment is terminated by the company. It is also applicable if the employment is terminated by the President provided serious breach of contract on the company’s behalf or if there has been a major change in ownership structure in combination with changes in management and changed individual accountability. The President is not eligible for fringe benefits such as a company car or housing.

Pensions for the President

The retirement age for the President is 60.

The President is covered by an alternative ITP plan that is a defined contribution plan in which the contribution increases with age. The contribution is currently 35% of the pensionable salary between 7.5 and 30 income base amounts. In addition, he is covered by two supplementary plans. Contribution to the first plan equals 15% of pensionable salary and contributions to the second plan equals 20% on pensionable salary above 30 income base amounts. Provided that the President retains his position until age 60, the company will finalize outstanding contributions to the alternative ITP plan and one of the supplementary plans. Pensionable salary is calculated as the current fixed salary including vacation pay plus the average actual variable salary for the last three years. The pension cost in 2009 amounts to SEK 7,649,686 (6,463,512). The cost amounts to 61.0% of pensionable salary. Accrued capital is subject to a real rate of return of 3.5% per year.

Electrolux provides disability benefits equal to approximately 70% of pensionable salary less other disability benefits. Electrolux also provides survivor benefits equal to the highest of the accumulated capital for retirement or 250 income base amounts.

The capital value of pension commitments for the current President, prior Presidents, and survivors is SEK 148m (141).

Compensation and terms of employment for other members of Group Management

Like the President, other members of Group Management receive a compensation package that comprises fixed salary, variable salary based on annual targets, long-term performance share programs and other benefits such as pensions and insurance.

Base salary is revised annually per January 1. Salaries for members of Group Management were frozen in 2009.

Variable salary in 2009 is based on financial targets on sector and Group level. Variable salary for sector heads varies between minimum (no pay out) and a maximum of 100% of annual salary, which is also the cap. The US-based members of Group Management have 100% as midpoint and a maximum of 150%. Group staff heads receive variable salary that varies between a minimum (no pay out) and a maximum of 80%, which is also the cap.

One member of Group Management is covered by contracts that entitle to variable compensation based on achieved financial targets during the years 2007–2009 and 2008–2010. The first contract will be settled in 2010 with SEK 10m. The second contract’s pay-out is estimated at SEK 11m in 2011. The compensation is paid provided the individual is employed until the end of 2010. Individual members of Group Management are entitled to additional variable compensation arrangements agreed in connection with the recruitment due in parts provided the member is still employed until the end of 2009. These payments will amount to SEK 0.4m in 2010. For 2009 SEK 4.3m has been paid as recruitment compensation.

The members of Group Management participate in the Group’s long-term performance programs. These programs comprise the performance-share program introduced in 2004 as well as previous option programs. For more information on these programs, please see below.

Certain members of Group Management are entitled to 12 months severance pay based on base salary. Severance pay is applicable if the employment is terminated by the company. It is also applicable if the employment is terminated by the Group Management member provided serious breach of contract on the company’s behalf or if there has been a major change in ownership structure in combination with changes in management and changed individual accountability.

The Swedish members of Group Management are not eligible for fringe benefits such as company cars. For members of Group Management employed outside of Sweden, varying fringe benefits and conditions may apply, depending upon the country of employment.

Pensions for other members of Group Management

The earliest retirement age is 60 for members of Group Management.

Members of Group Management employed in Sweden are covered by the Alternative ITP plan, as well as a supplementary plan. The Alternative ITP plan is a defined contribution plan where the contribution increases with age. The contribution is between 20% and 35% of pensionable salary, between 7.5 and 30 income base amounts.

Provided that the member retains the position until age 60, the company will finalize outstanding premiums in the alternative ITP plan.

The contribution to the supplementary plan is 35% of pensionable salary above 20 income base amounts. Certain Swedish members are covered by a closed supplementary plan in which contributions equal 35% of the pensionable salary. They are also entitled to individual additional contributions.

Electrolux provides disability benefits equal to 70% of pensionable salary less disability benefits from other sources. Electrolux also provides survivor benefits equal to the highest of the accumulated capital for retirement or 250 income base amounts.

The pensionable salary is calculated as the current fixed salary including vacation pay plus the average variable salary for the last three years. Accrued capital is subject to a real rate of return of 3.5% per year.

For members of Group Management employed outside of Sweden, varying pension terms and conditions apply, depending upon the country of employment.

Share-based compensation

Over the years, Electrolux has implemented several long-term incentive programs (LTI) for senior managers. These programs are intended to attract, motivate, and retain the participating managers by providing long-term incentives through benefits linked to the company’s share price. They have been designed to align management incentives with shareholder interests. All programs are equity-settled.

2002 and 2003 option programs

In 2002, a stock option plan for employee stock options was introduced for less than 200 senior managers. The options can be used to purchase Electrolux B-shares at an exercise price that was 10% above the average closing price of the Electrolux B-shares on the exchange Nasdaq OMX Stockholm during a limited period prior to allotment. The options were granted free of consideration. An annual program based on this plan were also launched in 2003. The 2002 program expired on May 6, 2009.

The remaining 2003 program has had a vesting period of three years, where one third of the options were vested each year. If a program participant leaves his or her employment with the Electrolux Group, options may, under the general rule, be exercised within a twelve-months’ period thereafter. However, if the termination is due to, among other things, the ordinary retirement of the employee or the divestiture of the participant’s employing company, the employee will have the opportunity to exercise such options for the remaining duration of the plan.

Performance share program 2007, 2008 and 2009

The Annual General Meeting in 2009 approved an annual long-term incentive program. The program is in line with the Group’s principles for remuneration based on performance, and is an integral part of the total compensation for Group Management and other senior managers. Electrolux shareholders benefit from this program since it facilitates recruitment and retention of competent executives and aligns management interest with shareholder interest.

Allocation of shares under the 2007 program is determined on the basis of three levels of value creation, calculated according to the Group’s previously adopted definition of this concept. The three levels are Entry, Target, and Stretch. Entry is the minimum level that must be reached to enable allocation. Stretch is the maximum level for allocation and may not be exceeded regardless of the value created during the period. The number of shares allocated at Stretch is 50% greater than at Target. Under the 2008 and 2009 programs, the allocation is determined on average annual growth in earnings per share. If the minimum level is reached, the allocation will amount to 25% of the maximum number of shares. There is no allocation if the minimum level is not reached. If the maximum is reached, 100% of shares will be allocated. Should the average annual growth be below the maximum but above the minimum, a proportionate allocation will be made. The shares will be allocated after the three-year period free of charge. Participants are permitted to sell the allocated shares to cover personal income tax arising from the share allocation, but the remaining shares must be held for another two years.

If a participant’s employment is terminated during the performance period, the right to receive shares will be forfeited in full. In the event of death, divestiture or leave of absence for more than six months, this will result in a reduced award for the affected participant.

All programs cover almost 160 senior managers and key employees in about 20 countries. Participants in the program comprise five groups, i.e., the President, other members of Group Management, and three groups of other senior managers. The program comprises B-shares.

If performance is in the middle, i.e., beween minimum and maximum, the total cost for the 2009 performance share program over a three-year period is estimated at SEK 114m, including costs for employer contributions. If the maximum level is attained, the cost is estimated at a maximum of SEK 182m. The distribution of shares under this program will result in an estimated maximum increase of 0.63% in the number of outstanding shares.

For 2009, the long-term incentive (LTI) programs resulted in a cost of SEK 28m (including SEK 8m in employer contribution cost) compared to an income of SEK 94m in 2008 (including SEK 3m in employer contribution cost). The total provision for employer contribution in the balance sheet amounted to SEK 8m (0).

Repurchased shares for LTI programs

The company uses repurchased Electrolux B-shares to meet the company’s obligations under the stock option and share programs. The shares will be sold to option holders who wish to exercise their rights under the option agreement(s) and, if performance targets are met, will be distributed to share-program participants. Electrolux intends to sell additional shares on the market in connection with the exercise of options or distribution of shares under the share program in order to cover the payment of employer contributions.

Delivery of shares for the 2006 program

The 2006 performance share program did not meet the entry level and no shares were distributed.