Review of 2010 – USD version - Skanska

Note
37 Continued
Financial targets for variable salary elements
Measure of earnings Starting point 1 Outperform 1 Outcome Fulfillment level 2
Group 3 Income after financial items, SEK bn 4 2.6 4.6 5.4 100%
Corresponding to USD bn 4 0.4 0.6 0.8
Return on equity, % 13.0 16.0 20.9 100%
Construction 5 Operating income, SEK bn 2.6 4.3 4.7 84%
Corresponding to USD bn 0.4 0.6 0.7
Operating margin, % 2.2 3.7 4.1 86%
Working capital as a percentage of sales –8.1 –11.7 –18.1 89%
Skanska Value Added, SEK bn 6 0.06 0.15 0.13 76%
Corresponding to USD bn 6 0.01 0.02 0.02
Residential Development Operating income, SEK bn 7 0.2 0.4 0.5 100%
Corresponding to USD bn 7 0.02 0.05 0.06
Number of homes started as a percentage of the
number of homes sold 8 110 130 140 100%
Homes sold as a percentage of completed homes
on January 1, 2010 50 90 72 55%
Commercial Property Development 10 Operating income, SEK bn 0.3 0.5 0.8 100%
Corresponding to USD bn 0.04 0.08 0.11
Return on capital employed, % 11, 12 2.4 5.4 8.4 100%
Leases, sq. m 11 85,000 150,000 100,900 24%
Projects started, points 11, 13 14 25 30 100%
Infrastructure Development 3 Operating income, SEK bn 0.1 0.2 0.3 100%
Corresponding to USD bn 0.01 0.03 0.03
Number of project points 14 20 80 93 100%
1 Targets are translated to 2010 exchange rates.
2 Fulfillment level is based on outcomes in business areas.
3 Excluding shares of income in the Autopista Central, Chile.
4 The Outperform target at Group level is 95 percent of the total Outperform targets of the business
streams. The results include residential development and commercial property development
operations carried out within Construction operations in the Nordic countries (according to IFRSs)
but exclude eliminations at the Group level.
5 The results include residential development and commercial property development operations
carried out within Construction operations in the Nordic countries (according to IFRSs).
6 Skanska Value Added is equivalent to operating income after subtracting the cost of capital
employed. Refers to Latin America.
In addition to the above-mentioned financial performance targets, each person in the
Senior Executive Team has non-financial targets that may reduce the final outcome.
These non-financial targets mainly concern health and safety, strategic initiatives and
management development. The outcome is reduced in cases where the operations for
which the person is responsible have not achieved the non-financial targets.
For the Senior Executive Team, excluding the President and CEO, annual variable
remuneration is mainly tied to the Group targets and/or to the business units they are
directly responsible for. The non-financial targets are connected to the business units
and/or operations that individuals in the Senior Executive Team are responsible for. The
preliminary outcome for the other members of the Senior Executive Team averaged
93 percent. Non-financial targets did not result in any deductions. The Board will decide
on the final outcome after a follow-up of operations during the first quarter of 2011.
Targets and performance related to variable remuneration for the President and CEO
For the President and CEO, the financial target has mainly been the same as the Group
targets according to the above table. The Board of Directors has the option of reducing
the President and CEO’s final outcome for variable remuneration by a maximum of
50 percent, based on the outcome of the Group’s non-financial targets. The preliminary
outcome for the variable remuneration of the President and CEO (i.e. excluding the
Employee Ownership Program) shows the maximum outcome of 50 percent of fixed
salary, since the Group’s financial targets were achieved and nothing was subtracted as
a consequence of non-financial factors. The Board will decide on the final outcome after
a follow-up of operations during the first quarter of 2011.
Pension benefits
The retirement age for members of the Senior Executive Team is 60–65 years, and
employees in Sweden are entitled to pension benefits according to the premiumbased
ITP 1 occupational pension system or the defined-benefit ITP 2 pension system.
Employees outside Sweden are covered by local pension plans. The ITP 1 premium is
7 Operating income according to segment reporting excluding residential development operations
carried out within Construction operations in the Nordic countries.
8 Refers to the Residential Development Nordic business unit.
9 Refers to residential development in the Czech Republic and Slovakia.
10 Operating income according to segment reporting excluding commercial property development
operations carried out within Construction operations in the Nordic countries.
11 Includes only the Commercial Development Nordic and Europe business units.
12 Including unrealized development gains and changes in market value.
13 A point system in which points are received depending on the size of the project that has been
started, according to a defined scale.
14 A point system in which points are received for high status in project development and project
divestments, according to a defined scale.
4.5 percent of gross cash salary up to 7.5 base amounts of income per year (as defined
by Swedish social insurance rules, and amounting to USD 53,200 in 2010) and 30 percent
of gross cash salary above that. The defined-benefit ITP 2 plan guarantees a lifetime
pension from age 65. The pension amount is a certain percentage of final salary, and the
service period to qualify for a full pension is 30 years. The pension entitlement is 10 percent
for portions of salary up to 7.5 base amounts, 65 percent for portions between
7.5 and 20 base amounts (in 2010: USD 141,800) and 32.5 percent for portions of salary
up to 30 base amounts (in 2010: USD 212,700).
In addition, this group is covered by a supplementary pension entitlement, with a premium
of 20 percent, for portions of salary exceeding 30 base amounts.
Within the framework of the ITP 1 pension system, Skanska introduced a Companyspecific
pension plan with in-house management of the pension assets, which is offered
to all employees in Sweden. The premium is 5.5 percent of gross cash salary up to
7.5 base amounts (in 2010: USD 53,200). The plan is free of charge for employees and
guarantees that pension assets will be the highest of a benchmark portfolio consisting
of 60 percent equities and 40 percent bonds, the consumer price index or paid-in
premiums.
Severance pay
In case of termination by the Company, the notice period is normally six months, with
continued fixed salary and benefits, excluding variable remuneration. After the notice
period, severance pay is disbursed for 12–18 months. When payments are disbursed
after the notice period, other income must normally be subtracted from the amount
payable.
A mutual notice period of 24 months applies between Skanska and the President and
CEO, with retention of fixed salary and benefits, excluding variable remuneration.
No severance pay will be disbursed in case of termination.
146 Notes, including accounting and valuation principles Skanska Review of 2010 – USD version