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AP1 revises policy on board pay

SWEDEN - Swedish buffer fund Första AP-Fonden, AP1, is calling for company board members to be paid fixed fees rather than incentive schemes.

The call comes amid a revision of its ownership stance which also sees a move towards a more active shareholder policy.

"One important issue for the board is to evaluate the CEO," Ossian Ekdahl, the fund's head of corporate governance, explained to IPE.

"It means that the board should not have the same incentive program as the CEO (and the rest of the management). We wanted to stress this issue more and draw the conclusion that the board should have a fixed fee.

The fund also wants to see "relative incentive programs" instead of ordinary ones as "long-term share-related incentive schemes expose the company to a risk for movements in the price of its own shares," the paper on ownership policy states.

"The value of the options should not only depend on the share price of the company but rather the share price in relation to its peers. If the board doesn't propose a relative options program then the program has to have an upper limit to the value of the option," Ekdahl said.

With regard to the differentiation of voting rights the new paper stresses that the Swedish system of class A and class B shares (A shares normally have 10 votes and B shares one, with a few exceptions) "is more transparent than many other possible systems". However, "in many cases the disadvantages of having different share classes outweigh the advantages."

"In these cases we will work together with other shareholders in order to change the structure for that company (as we did in the case of Ericsson)," Ekdahl said.

Other changes in the policy include a demand for external evaluation of board member performance as - according to Ekdahl - AP1 thinks "that all the external evaluation of boards that we have seen have been valuable both to the nomination committees and to the boards".

AP1 also included a paragraph stating that the "Swedish Code of Corporate Governance should also be used, to an appropriate extent, by companies not formally subject to compliance with the Code". This includes smaller companies.

"It is essential that companies which do not follow certain rules provide a satisfactory and company-specific explanation."

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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