3.1 Average number of employees ¹⁾

1) Complete information by country is presented in the Annual Report that was submitted to the Swedish Companies Registration Office.

3.2 Absence due to illness, Parent Company

3.3 Wages, salaries, other remuneration and social costs

A total of SEK 69 M (40) of the Group’s pension costs relates to Boards and presidents. The Group’s pension liability to these persons amounted to SEK 221 M (264). Correspondingly, SEK 32 M (10) of the Parent Company’s pension costs related to the Board of Directors and presidents. The Parent Company’s pension liability relating to these persons amounted to SEK 61 M (90).

Employee profit-sharing program

To promote a performance that is favorable to the Group’s long-term development and also to stimulate continued employee loyalty, Sandvik has had a profit-sharing system for all employees in wholly owned companies in Sweden since 1986. The Group’s return during 2010 implied a maximum allocation of SEK 250 M (0) to the profit-sharing foundation.

3.4 Wages, salaries and other remuneration by market area ¹⁾

1) Complete information by country is presented in the Annual Report that was submitted to the Swedish Companies Registration Office.

3.5 Information on remuneration of the Board of Directors and senior executives 

Guidelines

The guidelines for the remuneration of Sandvik’s senior executives were adopted at the Annual General Meeting in 2010. They are designed to ensure that Sandvik, from a global perspective, can offer market-based remuneration in order to attract and retain qualified employees.

Components of remuneration

The total remuneration package is distributed between fixed salary, annual variable salary, long-term variable salary, pension and other benefits, such as company car, free housing, health insurance and severance benefits. It is intended that the components shall jointly form a well-balanced remuneration and benefit program that reflects the individual’s performance and responsibility as well as the Group’s earnings trend.

Long-term variable salary

In 2006, the Board decided to implement a cash-based program for long-term variable salary. Based on a common goal perception for executives, specialists and shareholders, the program was to form a link to future performance goals aimed at the long-term enhancement of the value of the company. This was to be achieved through an overall shared Group and business area focus on and governing towards profitable growth. An additional purpose was to improve the possibilities to recruit and retain key employees in the Group.

A long-term variable salary program was decided for each of the years 2007, 2008, 2009 and 2010. Some 400 Sandvik employees participated in the programs on a global basis. The programs applied for a three-year period, with any settlement paid after the third year of each program. The 2007 program was concluded in 2009, but resulted in no settlement in 2010. Any settlement for the 2008 program will take place in 2011, for the 2009 program in 2012 and for the 2010 program in 2013.

Under these programs, there is a direct link between performance, added value, and remuneration. There is an annual maximum outcome related to the participant’s fixed salary in the December of the third year. The outcome is conditional upon meeting measurable goals established by the Board for certain key ratios that create shareholder value linked to the company’s growth, profitability and capital efficiency over a three-year period. For members of Group Executive Management, the maximum long-term variable salary can amount to 40–50% of the annual fixed salary.

Amounts attributable to these three programs are expensed and reserved continuously, based on assumptions regarding goal achievement. In 2010, no long-term variable salary was paid. The 2007 long-term variable salary program covering the years 2007-2009 resulted in no settlement, since the performance targets set by the Board of Directors were not met. During the year, a provision of SEK 52 M was made for the 2010 long-term variable salary program, of which SEK 5 M pertained to the President and other senior executives. No provisions were made for the 2008 and 2009 long-term variable salary programs.

Preparation and decision-making process

The Board’s Remuneration Committee prepares issues relating to Group Executive Management’s remuneration. The Committee met seven times during the year. Issues dealt with included the distribution between fixed and variable salary, the magnitude of any pay increases and the long-term variable salary. The Board discussed the Remuneration Committee’s proposals and made a decision, using the Committee’s proposal as guidance.

Based on the Remuneration Committee’s proposals, the Board decided on the remuneration of the President for 2010. The President decided on remuneration to other senior executives after consultation with the Remuneration Committee. The Remuneration Committee performed its task supported by expertise on remuneration levels and structures. For information on the composition of the Committee, refer to the Corporate Governance Report.

Remuneration to the Board and senior executives

The Board

Fees to the Chairman and other external Board members are paid in accordance with the resolution at the Annual General Meeting. No Board fees are paid to the President and the employee representatives.

President and other senior executives

The following guidelines approved by the Annual General Meeting for remuneration to senior executives were applied for 2010:

The Board’s motion concerning guidelines for remuneration of senior executives is designed to ensure that the Sandvik Group, from a global perspective, can offer remuneration at the market rate and that is competitive to attract and retain skilled personnel to Sandvik’s Group Executive Management. Group Executive Management’s remuneration comprises fixed salary, annual variable salary and long-term variable salary. The components are intended to create a well-balanced remuneration and benefit program that reflects the individual’s performance and responsibility and the Group’s earnings trend. The fixed salary, which is individual and differentiated based on the individual’s responsibility and performance, is determined based on market-rate principles and is reviewed annually. Payment of annual variable salary requires fulfillment of annually established goals. The goals are related to the company’s earnings and to measurable goals within the individual’s area of responsibility. The annual variable salary for Group Executive Management may not exceed 50–75% of fixed salary. The long-term variable salary requires fulfillment of measurable goals, set by the Board, pertaining to certain key figures that create shareholder value linked to the company’s growth, profitability and capital efficiency over a three-year period. The maximum payment of long-term variable salary for Group Executive Management is 45–50% of the annual fixed salary. Group Executive Management’s other benefits shall correspond to what could be considered reasonable in relation to generally accepted practice in the market. The benefits comprise pension, company car, housing, medical insurance and severance pay. The pension benefits for Group Executive Management are based on fixed salary or gross salary paid in cash and shall be defined-benefit or defined-contribution solution. Normally, retirement is at age 62. Retirement age for the President is 60. Normally, severance payment is made when employment is terminated by the company. Any other income from employment is deducted from the severance pay, which is between 12 and 18 months for persons under 55 years of age and between 18 to 24 months for persons over 55. No severance amount is paid to employees who resign from the company. The Board shall have the right to deviate from the guidelines resolved by the Annual General Meeting, if in individual cases there is a special reason for this. The sphere of senior executives encompassed by the proposal is the President and other members of Group Executive Management.

The Board’s motion for remuneration of senior executives to be applied in 2011

The Board proposes that for 2011, the Annual General Meeting resolve to apply the following revised guidelines for remuneration of senior executives in accordance with the Board’s proposed guidelines:

The Board’s motion concerning guidelines for remuneration of senior executives is designed to ensure that the Sandvik Group, from a global perspective, can offer remuneration at the market rate and that is competitive to attract and retain skilled personnel to Sandvik’s Group Executive Management. Group Executive Management’s remuneration comprises fixed salary, annual variable salary and long-term variable salary in the form of salary and/or shares in Sandvik AB. The components are intended to create a well-balanced remuneration and benefit program that reflects the individual’s performance and responsibility and the Group’s earnings trend. The fixed salary, which is individual and differentiated based on the individual’s responsibility and performance, is determined based on market-rate principles and is reviewed annually. Payment of annual variable salary requires fulfillment of annually established goals. The goals are related to the company’s earnings and to measurable goals within the individual’s area of responsibility. The annual variable salary may not exceed 75% of annual fixed salary. The long-term variable cash salary requires fulfillment of measurable goals, set by the Board, pertaining to certain key figures that create shareholder value linked to the company’s growth, profitability and capital efficiency over a three-year period. The maximum payment of long-term variable cash salary is 50% of the annual fixed salary. Long-term variable remuneration may also be provided in the form of shares in Sandvik AB by participating in a share-based incentive program that includes the offer of acquiring personnel options and matching rights. The program, which shall have been adopted by the Annual General Meeting, shall contain the principal conditions that certain categories of top-level senior executives are required to have invested personally in the Sandvik share, that the vesting period is three years subject to the requirement that the individual remain an employee for this entire period and that the allotment of shares shall be related to performance criteria linked to the company’s growth, profitability and capital efficiency – Sandvik Value Added (SVA). Group Executive Management’s other benefits shall correspond to what could be considered reasonable in relation to generally accepted practice on the market. The benefits comprise pension, company car, housing, medical insurance and severance pay. The pension benefits for Group Executive Management are based on fixed salary or gross salary paid in cash and shall be defined-benefit or defined-contribution solution. Normally, retirement is at age 62. Retirement age for the President is 60. Normally, severance payment is made when employment is terminated by the company. Any other income from employment is deducted from the severance pay, which is between 12 and 18 months for persons under 55 years of age and between 18 to 24 months for persons over 55. No severance amount is paid to employees who resign from the company. The Board shall have the right to deviate from the guidelines resolved by the Annual General Meeting, if in individual cases there is a special reason for this. The sphere of senior executives encompassed by the proposal is the President and other members of Group Executive Management.

Remuneration and other benefits during the year

In accordance with the resolution at the Annual General Meeting, the total fee to the external directors elected at the Meeting amounts to SEK 4,050,000. Of this amount, SEK 1,350,000 (on an annual basis) is payable to the Chairman of the Board (Anders Nyrén) and SEK 450,000 to each of the other external Board members (Georg Ehrnrooth, Fredrik Lundberg, Hanne de Mora, Egil Myklebust, Simon Thompson and Lars Westerberg).

In addition to these amounts, the Annual General Meeting resolved that an additional fee should be paid for the committee work to committee members not employed by the company, in an amount totaling SEK 400,000 to be divided between the members of the Audit Committee (Hanne de Mora SEK 150,000, Anders Nyrén SEK 125,000 and Simon Thompson SEK 125,000) and in an amount totaling SEK 250,000 to be divided between the members of the Remuneration Committee (Georg Ehrnrooth SEK 75,000, Egil Myklebust SEK 75,000 and Anders Nyrén SEK 100,000).

Apart from the pension obligations to the President, Lars Pettersson, there are no pension obligations to other Board members.

Effective 1 January 2010, President and CEO Lars Pettersson is paid an annual fixed salary of SEK 7,650,000 and receives the fringe-benefit value of housing and car provided by the company. In addition, a variable salary of maximum 75% of the fixed salary is paid. The variable salary for 2010 amounts to SEK 5,737,500.

Lars Pettersson is entitled to retire with pension at age 60. His pension between the ages of 60 and 65 will amount to 65% of the fixed salary up to 30 price base amounts and 50% of fixed salary in excess of 30 price base amounts. No pension insurance policy is taken out for his pension through age 65, and at 31 December 2010, the obligation for pension vested through that date amounted to SEK 25,016,142. Until 31 December 2008, the pension from the age of 65 was arranged through the ITP Plan 2 and a supplementary defined-contribution plan. From 1 January 2009, following a change of system offered to all salaried employees at Sandvik under the ITP 2 plan, the President’s pension comprises the ITP 1 plan, meaning 4.5% of salary portions up to 7.5 income base amounts and 30% of salary portions thereafter. In addition, a supplement of 5% of salary portions exceeding 7.5 income base amounts is paid.

In 2010, Sandvik expensed and reserved SEK 77 M in severance pay for Lars Pettersson. The amount pertains to salary, pension benefits, taxes and social security contributions for the period until Lars Pettersson’s 60th birthday. The amount also includes commitments for a pension between the age of 60 and 65 that will be earned during the period until Lars Pettersson’s 60th birthday. The agreement entails that Sandvik will pay compensation to Lars Pettersson for nine months in excess of the terms stipulated in his employment contract. This additional portion amounts to approximately SEK 10 M. 

Effective 1 February 2011, Sandvik’s new CEO and President, Olof Faxander, will be paid an annual fixed salary of SEK 9,900,000 and receive the fringe-benefit value of housing and car provided by the company. In addition, a variable salary will be paid in accordance with the guidelines for senior executives.

Olof Faxander is entitled to retire with pension at age 60. A premium of 35% of his annual fixed salary is reserved annually.

Severance pay is paid in the event that the company terminates employment. Severance pay equals 24 months’ fixed salary in addition to the notice period.

For other members of Group Executive Management, pension age is 62. Pension between the age of 62 and 65 will amount to 65% of fixed salary up to 30 price base amounts, 50% of fixed salary between 30–50 price base amounts, and 25% of fixed salary in the interval 50–100 price base amounts (15 years is required for full accrual). No pension insurance policies have been taken out for pensions through age 65 and, at 31 December 2010, the obligation for pensions vested through that date amounted to SEK 35,376,292.

The pension from age 65 to the other members of Group Executive Management is arranged through the ITP Plan and a supplementary defined-contribution plan under which the company each year contributes 20–30% (depending on age) of fixed salary portions in excess of 20 price base amounts. Alternatively, this group may be encompassed by the ITP Plan 1 and a supplement of a maximum of 5% for salary portions exceeding 7.5 income base amounts if this solution has been chosen under the offering to all salaried employees at Sandvik under the ITP 2 plan. In such a case, the previous system with the ITP 2 plan and the supplementary plan will not apply. Of the seven remaining members of Group Executive Management employed on 31 December 2010, four people are encompassed by the ITP 1 plan and three people remain in the ITP 2 plan and a supplementary plan. Severance pay is paid in the event that the company terminates employment. The severance pay equals 12–18 months’ fixed salary in addition to the six-month notice period. For both the President and other members of Group Executive Management, any earned income is offset against the severance pay.

Remuneration and other benefits attributable to 2010 expensed during the year

1) Amount pertaining to 2010 and expected to be paid in 2011.
2) Other benefits largely pertain to the fringe-benefit value of housing and company car.
3) The amounts pertain to provisions made for the 2010 long-term variable salary program.
4) Expensed during 2010 and will be paid in 2011. The amount includes a Board fee of SEK 1,350,000, a Remuneration Committee fee of SEK 100,000 and an Audit Committee fee of SEK 125,000.
5) Lars Pettersson’s fixed salary as of 1 January 2010 amounted to SEK 7,650,000, the remaining amount relates to vacation pay, etc. Board fees are not paid to internal Board members. 
6) Pertains to the following persons in 2010: Peter Gossas, Lars Josefsson, Peter Larson, Ola Salmén, Bo Severin, Anders Thelin and Göran Westerberg. Costs for Bo Severin and Göran Westerberg also relate to the full fiscal year 2010. They have been included as members of Group Executive Management from 1 October 2010.

3.6 Gender distribution in senior management

3.7 Audit fees

Fees and remuneration to the Group’s auditors were as follows:

Audit refers to the statutory audit of the financial statements, the accounting records and the administration of the business by the Board of Directors and the President, and auditing and other review procedures performed in accordance with agreements or contracts. This includes other procedures required to be performed by the company’s auditors as well as other services caused by observations during the performance of such examination and other procedures.

Tax consultancy services relate to services in the tax area. Other services essentially comprise advice in areas closely related to the audit, such as advice on accounting issues, tax services and due-diligence services in connection with acqusitions.