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AP1 revises ownership policy over gov't guidelines

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SWEDEN - Första AP-fonden (AP1) is planning to abstain from voting on remuneration issues for senior executives of companies it is invested in, until a decision on a revised ownership policy has been made following new government guidelines.

The Swedish government announced new guidelines earlier this week to the employment conditions of executives at state-owned companies, including the removal of a 'variable salary' - which can include incentive programmes, gratuities and similar allowances - for senior executives.

Maud Olofsson, the minister for enterprise and energy, said the aim is to make the state a "model in terms of bonuses and allowances", so the guidelines for senior executives in state-owned enterprises are being "tightened" and where possible variable salaries are being removed.

The guidelines, which replace the previous rules adopted in July 2008, are meant to provide "clear directives to the boards of state companies to be able to act professionally and focus on continued value creation".

Following the publication of these new guidelines, the First Swedish National Pension Fund confirmed at its latest board meeting it would urgently interpret how the new rules can be incorporated into its ownership policy.

The Board revealed it intends to seek dialogue with the other AP funds before deciding on amendments to the ownership policy. However, pending this decision, AP1 said it will "abstain from voting" on decisions concerning the compensation rules and incentive programmes for senior executive of companies it is invested in.

The government has meanwhile also released new guidelines on the remuneration of executives in the AP-funds, Sweden's state pension funds, which include the "discontinuation of variable remuneration for senior executives in the funds", although other employees can receive variable compensation up to a maximum of two months' salary under certain conditions. 

Mats Odell, local government and financial markets minister, pointed out that AP funds have an important mandate to manage Swedish pension funds, so by stopping variable compensation for senior executives it will "safeguard" the continued public confidence in the funds.

Since 2001, the government has ruled guidelines on incentive programmes in state-owned firms should 'guide' the AP-funds but it has now decided "specific" guidelines should apply to the AP-fund board in matters relating to employment and reimbursement, and warned the total remuneration for senior executives should be "fair and balanced" and not be significantly higher than in other comparable institutions.

In addition, the measures, which are designed to complement the new guidelines for remuneration in state-owned companies, stated the AP-funds' boards are responsible for previous contracts with executives so they should renegotiate variable salary conditions and any other agreements that are in breach of the new guidelines.

These guidelines also state pension benefits are defined contribution (DC) with a maximum cost of 30% of fixed salary, although if the AP fund offers defined benefit (DB) pensions it must follow the relevant collective retirement scheme, while the retirement age should not be less than 62 years old.

The pension funds' compliance with the guidelines will be monitored by the government and an evaluation of the buffer funds' performance will be included in its annual letter to parliament on the schemes' activities.

Full details of the guidelines can be found on the government website.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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