AB Volvo has previously had share-based incentive programs for fiscal years 2004, 2005, 2006, 2007 and 2008, established after decisions by the respective Annual General Meeting, which have now been completed.
Share-based incentive program
The Annual General Meeting 2009 decided to implement a share-based incentive program for senior executives within the Volvo Group pertaining to the 2009 financial year. The program implies that the maximum number of eligible senior executives (including members of the Group Management) amounts to 275 persons and that the maximum number of Volvo shares that can be allotted amounts to 2,950,000, of which CEO Leif Johansson can receive a maximum of 40,000 shares and the other participants a maximum of 10,000 – 20,000 shares each. Participants not resident in Sweden at the time of allotment may, to the extent AB Volvo considers it favourable from a cost or administrative perspective, instead of shares, receive an amount in cash corresponding to the market value of the shares at the time of allotment.
Shares will be allotted provided the Volvo Group’s return on equity (ROE), calculated on the basis of the Volvo Group’s annual report 2009, is higher than 12%. Maximum allotment will be effected if ROE reaches 15% and shares will be allotted proportionally within the interval in accordance with the Board’s instructions. The Annual General Meeting further decided that treasury shares held by AB Volvo may be used to fulfil the company’s commitments in accordance with the program.
Assuming that the maximum amount of shares will be allotted, the cost for Volvo for the incentive program including social fees, will amount to a maximum of 147 million SEK calculated on an assumed share price at implementation of the program of 42.20 SEK.
Volvo applies IFRS 2 Share-based Payments. IFRS 2 distinguishes “cash-settled” payments from “equity-settled” payments. The Volvo program includes both a cash-settled and an equity-settled part. The value of the equity-settled payment is determined at the grant date, recognized as an expense during the vesting period and credited to equity. The fair value is calculated according to share price reduced by dividend connected to the share before the allotment. The additional social costs are reported as a liability, revalued at each balance sheet date in accordance with UFR 7, issued by the Swedish Financial Reporting Board. The cash-settled payment is revalued at each balance sheet day and is reported as an expense during the vesting period and as a current liability. An assessment regarding whether the terms for allotment will be fulfilled is made continuously. If the assessment changes, the expense will be adjusted.