The Board has resolved guidelines to the CEO for remuneration to Executive Management. The terms are determined by the CEO in consultation with the Chairman of the Board. The guidelines are communicated to the Annual General Meeting.
The salary and other remuneration of the CEO shall be decided by the board.
The remunerations consist of fixed annual compensation that includes annual base salary and other possible benefits (such as pension plan). The total possible compensation also includes a short term incentive scheme (STI) and a long term incentive scheme (LTI).
Performance-related remuneration of the executive personnel in the form of share options, bonus programs or the like should be linked to value creation for shareholders or the company’s earnings performance over time. Such arrangements, including share option arrangements, should incentivise performance and be based on quantifiable factors over which the employee in question can have influence. Performance- related remuneration should be subject to an absolute limit.
The actual level of annual base salaries (ABS) is based on market conditions and salary levels related to the actual position in the country in question. Kitron uses the Hay tool for determining market levels on an annual basis. The executive positions are evaluated using the Hay positioning grading tool.
Pension plans, based on defined contribution plans, are in place following the practice and regulations in each country. The CEO and members of the Corporate Management Team are members of Kitron’s general pension contribution scheme that applies to all Kitron employees. Some of the members in the Corporate Management Team receive an additional pension contribution. As of 2018 the Norwegian based members of the Corporate Management Team (except the CEO) have received an additional pension contribution corresponding to 20 per cent of the base salary between 12G and 24G. The CEO receives an additional yearly pension contribution amounting to NOK 1 255 079 for 2018.
The company may at any time terminate the CEO employment without further jurisdiction. In such case severance pay constitutes a gross lump sum corresponding to 9 month base salaries at the time of termination.
The board may grant specific purpose bonuses to members of senior executive management. Other benefits are according to company policy and regulations in country of residence.
Short term incentive scheme
The STI system has specific targets and defined maximum pay-outs and is set on annual basis. The possible maximum pay-out is 65 per cent of annual basic salary.
Long-term incentive scheme
In 2015 the Board introduced a new share option program for executive management comprising up to 5,500,000 shares running for three years from the start of the second calendar quarter 2016. The share option program entails that executive management, on certain terms, may be granted a right to subscribe for shares in Kitron at NOK 0.10 per share after a vesting period of three years. The number of options that are vested is inter alia linked linearly to the development of the share quote of the Kitron shares at the Oslo Stock Exchange. Per 31 December 2017, 5,337,500 options have been granted to executive management. The share option program is described in more detail in note 18 in the annual financial statements.
New Long-term incentive scheme 2019-2025
In 2018 the Board introduced a new share option program for executive management for the period 2019 - 2025, comprising of up to 5,000,000 shares. The program is divided into four three-year sub programs, each with an allocation of 1,250,000 option, where the first program starts in 2019, followed by one program every year until 2022. The total program corresponds to approximately 3% of the market cap.
The share option program entails that executive management, on certain terms, may be granted a right to subscribe for shares in Kitron at NOK 0.10 per share after a vesting period of three years. The number of options that are vested for each sub program are linked to development of the market capitalization at Oslo Stock Exchange, adjusted for dividends and share buy-backs. For each program to vest fully the market capitalization adjusted for dividends and share buy-backs must increase 50%. The program starts to vest at an increase of 20%, and will vest linearly between 20% to 50%.
Each sub program is capped at 200% increase of the market capitalization, adjusted for dividends and share buy-backs. The program has a claw back clause. Each of the sub programs has a lock-up period of one year and a down-sale period of two years.