Remuneration at AP4

General

AP4’s role as manager of national pension funds requires the level of remuneration to the Fund’s employees, including the CEO, to be reasonable, justifiable and understandable. The Fund generally strives to ensure that, overall, levels of remuneration are in line with the market and enable AP4 to attract and keep talented employees. The Fund’s policy is not to lead the market in pay.

AP4’s Board of Directors

AP4’s Board of Directors has a responsibility to address remuneration issues in an aware, responsible and transparent way. The Board of Directors annually determines the policies governing remuneration and other terms of employment for employees of AP4. Furthermore, the Board conducts an annual follow-up of how these policies have been applied within the Fund over the preceding year. It also verifies and establishes that government guidelines on terms of employment for senior executives in AP4 have been adhered to. As part of this work, the Board compares, regularly and with the support of external consultants, the Fund’s levels of remuneration for both executive management committee and other employees, using salary statistics from relevant and comparable employers in the market.

Remuneration Committee

The Remuneration Committee is a Board-appointed body comprising three members of the Board. The Committee’s remit is to serve in a consultative, monitoring and preparatory role on behalf of the Board of Directors as regards remuneration to the CEO and the Fund’s senior executives. “Senior executives” is defined as the AP4’s executive management committee and other managers reporting directly to the CEO. The Committee prepares important decisions on remuneration and attends to other tasks in the area, as directed by the Board.  The Remuneration Committee is also required to prepare issues relating to the Fund’s policies on remuneration and other terms of employment for all employees. It is further tasked to monitor the application of these policies and to prepare for the assessment of how the Fund has adhered to the government’s guidelines on terms of employment for senior executives at the Swedish National Pension Insurance Funds. 

Remuneration

Total remuneration consists of fixed salary, incentive-based salary, pension and other benefits. No incentive-based salary is paid to senior executives.

Fixed salary - Fixed salaries shall be in line with the market and competitive, but not market-leading. Salaries are determined on an individual basis, taking into account the level of responsibility and degree of difficulty of the duties involved, as well as the competence and capacity for work of the respective employee.

Incentive-based salary - the Board of Directors approve annually a plan for incentive-based remuneration for all the Fund’s employees. No incentive-based salaries are paid to the CEO and senior executives. The plan provides for a capped incentive-based salary amounting to no more than two months’ salary, conditional on the attainment of goals established in advance on objective criteria. The goals incorporated into the plan shall balance a collective orientation with the individual employee’s contribution to and responsibility for the overall outcome over a rolling three-year period. Incentive-based remuneration is paid only if the Fund, in the year to which the incentive-based remuneration pertains, reports an absolute profit.

Pension - AP4 complies with the “BTP” plan, in accordance with the relevant collective bargaining agreement (BAO, the Employers’ Organisation of the Swedish Banking Institutions/SACO, the Swedish Confederation of Professional Associations), for all employees except for the CEO.  Employees joining the AP4 after 1 April 2008, with a salary exceeding 10 income base amounts, will be eligible for alternative BTP, a pension plan based on defined contributions, in which a premium corresponding to 30% of the salary component exceeding 7.5 income base amounts is paid. Other employees are covered - unless otherwise agreed - by a retirement pension mainly based on defined benefits in accordance with the BTP plan. The CEO is entitled to a pension at the age of 65 years and a pension allocation corresponding to 30% of salary.

Substitution of pension for salary/increased retirement pension - All employees are entitled to substitute pension premium payments for part of their gross salary in a way that is cost-neutral to the Fund.

Other benefits - The aggregate value of other benefits amounts to a limited proportion of the total remuneration paid. Other benefits include health insurance, group insurance and fitness subsidies. The Fund has four parking spaces that employees can use, which are taxable as a fringe benefit.

Notice of termination/Severance payments - Notice of termination for all employees except the CEO is subject to the rules established in the collective bargaining agreement between BAO and SACO. The CEO’s employment is subject to notice of termination of 6 months by either party. If employment is terminated by the Fund, a severance payment amounting to no more than 18 months’ salary may also be paid. In the case of new employment or income from business activity, remuneration paid during the period of notice or severance payment will be reduced by an amount corresponding to the new income.

Board of Directors’ follow-up in 2011

In 2011, Towers Watson carried out an analysis, on behalf of the Board and the Remuneration Committee, in the course of which the levels of remueration of all the Fund’s employees were compared with the levels of remuneration of around fifteen comparable reference organisations such as AMF, SPP, other Swedish National Pension Insurance Funds and the Swedish National Debt Office. Towers Watson concluded in connection to its analysis i.a. that the levels of remuneration at the Fund all in all for the executive management committee and the organisation as whole is under median and that the Fund is in line with market but is not market-leading.

The Board is, in consideration of the above, of the view that the levels of remuneration for both executive management committee and the organisation as a whole are reasonable, justifiable, carefully considered and understandable. On the whole, the amounts of remuneration are in line with the market but are not market-leading, and fall well within the framework of the government’s guidelines on terms of employment for senior executives at the National Pension Insurance Funds, and of the Fund’s remuneration policy. 

Reporting

AP4 is required to account for remuneration to its senior executives in a way that is similar to that which applies to listed companies. Consequently, the Fund has to observe the particular rules on accounting for senior executive remuneration that apply to listed companies and public limited liability companies. In addition, the remuneration for every single senior executive must be detailed separately, stating fixed salary, benefits and severance pay.

AP4’s Board of Directors is required to report, in the Fund’s annual report, on whether the approved guidelines have been adhered to or not, together with the reasons for any deviation. Furthermore, AP4’s auditors are required to add to their Audit Report a written and signed statement giving their opinion as to whether the guidelines applying during the financial year have been adhered to or not.

//Fourth Swedish National Pension Fund, Board of Directors, 23 Mars 2012