1. THE SWEDISH EXPERIENCE
SAY-ON-PAY AND DISCLOSURE OF REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT
THE SWEDISH EXPERIENCE
Tobias Hultén

2. THE SWEDISH CORPORATE GOVERNANCE MODEL
The shareholders’ meeting has a clearly stated superior position in relation to the company's board and CEO - the shareholder majority can effectively control the company's decision-making and operations. No advisory votes possible, the instructions of the shareholders’ meeting are binding.
Concentrated ownership - usually dominated by one or a small number of major shareholders who often further strengthen their control through the holding of shares with greater voting rights and are active owners.
The boards of directors of listed companies consist predominantly of non-executive directors.
Strong minority protection rules – the corporate bodies may not make decisions which are intended to give undue advantage to a shareholder or to any other party to the detriment of the company or any other shareholder. Principle of equal treatment.
The governance model and concentrated ownership have had the effect that principal-agent problems have been limited and say-on-pay has historically not been a central issue for the Swedish legislator.

3. BACKGROUND
Increase in private savings from the ‘70s combined with a deregulation of foreign ownership restrictions and a pension system reform in the early ‘90s led to a significant increase of international and institutional ownership and increased public interest in the stock market.
The structure of the say-on-pay regulation in Sweden has to a large degree been influenced by the occurrence of a handful of events in the 1980s and ‘90s that caught public interest:
The Leo AB case in 1983, where the board and senior management where offered shares in a directed share issue at a significant discount to market value, led to the passing of the “Leo Act” in 1987, imposing a strict regulatory regime in relation to shares issues directed to directors and employees.
Tendencies towards corporate kingdoms, the introduction of golden parachutes and uncapped variable cash remuneration programs in a number of high profile companies in the late ‘90s contributed to a loss of public trust in the financial markets and, as a response, the government appointed a special commission (the “Trust commission”) to investigate the need for interventions to restore trust in the financial markets.
The Trust commission identified the “passive” institutional ownership as a contributing factor and recommended, among other things, the introduction of say-on-pay rules and other efforts to promote active shareholders through a self-regulatory corporate governance code inspired by international precedents (2005). The code’s say-on-pay rules where shortly thereafter (2006) transposed into the Companies Act.

4. THE REGULATORY FRAMEWORK
Cash remuneration
Equity based incentive schemes - ”Lex Leo”
All limited liability companies
The general meeting decides on remuneration for each director of the board.
Companies listed on a regulated market
The general meeting decides on remuneration guidelines for senior management.
Additional code recommendations (comply or explain) based on the 2005/2009 recommendations by the EC:
The board should have a remuneration committee to prepare, monitor and evaluate variable remuneration schemes and the application of the guidelines;
Predetermined limits on variable remuneration (not necessarily expressed as a maximum amount);
Minimum vesting period of three years;
Cap on severance pay.
Public limited liability companies (i.e. all listed companies)
Issues or transfers of shares, warrants or convertibles to the directors, executives or employees in a public company (or its subsidiaries) requires approval of the shareholders’ meeting with at least nine-tenths of the votes cast and the shares represented at the meeting.
The statements of the Swedish Securities Council (the ”market court”) expand the scope of law, addressing related/similar transactions and circumvention attempts on a self-regulatory basis (good stock market practice) with a focus on the practical implications and importance for the parties concerned.

5. FLEXIBILITY AND PROPORTIONALITY - OVERVIEW
LISTED COMPANIES - REGULATED MARKET
LISTED COMPANIES
PRIVATE COMPANIES
REMUNERATION TO THE DIRECTORS OF THE BOARD
EQUITY BASED INCENTIVES (DIRECTED SHARES ISSUES)
CASH REMUNERATION TO SENIOR EXECUTIVES
DECISION OF THE SHAREHOLDERS’ MEETING
DECISION OF THE SHAREHOLDERS’ MEETING WITH 9/10 MAJORITY
BOARD DECISION WITHIN SHAREHOLDER GUIDELINE

6. REMUNERATION GUIDELINES (for companies listed on a regulated market)
Scope and implication
Control mechanisms and disclosure requirements
The guidelines shall cover all forms of remuneration (salary, bonuses, pensions, benefits etc) and must specify:
the nature of the remuneration;
the conditions under which it is payable; and
an estimated total cost for the company.
The annual accounts shall include:
the remuneration guidelines, including the board’s proposal for the coming year; and
the actual remuneration paid to the CEO (on an individual basis) and other senior executives (on a group basis).
The board decides on the remuneration of individual managers within the limits set by the guidelines.
Ahead of each AGM, the auditor must issue a statement on whether the guidelines have been followed. The statement shall be made available to the shareholders at least three weeks before the AGM.
The guidelines may provide that the board of directors may deviate from the guidelines if there are particular reasons for doing so in an individual case.
Any such deviation must be disclosed and motivated in connection with the board’s proposal for remuneration guidelines for the coming year.

7. REMUNERATION GUIDELINES – A PRACTICAL EXAMPLE
“Recruiting and retaining the most suitable executives and employees is vital in order to achieve long-term competitive return for the shareholders. Therefore, [company] strives to offer its employees a total compensation package which is competitive and in line with market conditions.”
“The short-term variable cash salary shall be dependent upon the individual’s achievement to meet annually set goals. [---] [T]he highest possible short-term variable cash salary shall vary due to the position held and employment agreements and shall [---] generally amount to percent of the fixed cash salary. [---] The total short-term variable cash salary before tax for all current [senior executives] can vary between SEK [-] and SEK [-] million during 2018 [---]. The short-term variable cash salary might exceed this amount in the event that the [group of senior executives] is expanded.
“Pension benefits shall consist of a premium based pension plan of which the ratio of pension provisions to fixed cash salary depends on the age of the executive. In respect of employees working abroad, pension benefits shall be adjustable in line with local pensions practice. The age of retirement for the [senior executives] shall be 60 years.”
“Fixed cash salary during the notice period and severance pay shall [---] in aggregate not exceed the fixed cash salary for two years.”
“The board of directors may deviate from the guidelines where special cause exists therefor in an individual case.”
“The Remuneration Committee annually monitors and evaluates on-going, and during the year completed, programs concerning variable salary [---] remuneration structure and levels of remuneration [---] the application of the guidelines approved at the [AGM][---] as well as programs for long-term variable remuneration.”

8. CONCLUDING REMARKS
The say-on-pay regulation in Sweden governs the decision-making procedures regarding remuneration of directors and executives.
Rather than putting up a substantive regulation (creating and defining quantifiable limitations), the purpose of the rules is to give the shareholders control over and transparency with regards to the remuneration levels.
The board is responsible and accountable for the remuneration paid to individual members of the management team.