Remuneration in Nordic Large-Cap companies

A rapidly changing environment underpinned by exponential advances in technology as well as demographic and economic shifts have impacted the way we view work satisfaction and career expectations. Boards and executives need to better engage with their employees to truly understand their motivations and expectations at work today​. The primary contributing factor was obviously the COVID-19 pandemic. On the upside,​ we have seen organisations and workers rise to the occasion - unveiling human potential at its best. Organisations have been adopting remote or virtual work, seeking out new ways to collaborate, or leveraging the power of technology in new and different ways​. However, we have also seen unintended consequences including deterioration of employee well-being​ and increasing rates of burnout​.

So, what will the future of reward look like in practice? ​Traditional reward programmes are typically designed to achieve a simple goal of paying market value or drive specific performance (‘table stakes’) and are received by employees periodically through pay cheques and bonuses.​ With the continual blurring of lines between work and home life, the future reward experience needs to be embedded in all aspects of the daily life of the workforce and to emphasise the wants and needs of employees through use of both market and motivator rewards. Organisations will continue to embed ‘​table stakes’ at the heart of any reward strategy to provide the fundamental, baseline required to attract and retain talent by meeting employee expectations, market and social norms.​ In addition, organisations will increasingly use motivator rewards to provide an enhanced experience, act as a differentiator in the demand for talent, and to align employee, organisational and executive goals.​​

So, how will the future of executive remuneration be impacted by these human capital and reward trends for the wider workforce? ​

In 2021, we saw executive remuneration practices returning to a more normal recurring practice and positive development impacted by the positive shareholder experience for investors holding shares in the Nordic Large-Cap companies, including increased or high levels of long-term incentives granted. We also saw scrutiny of company remuneration practices for 2021 reach an all-time high, with shareholders, proxy advisors, the media, and other external and internal stakeholders all weighing in.

This annual report does the important work of providing a benchmark of remuneration data. We will look at the developments in executive remuneration and provide an overview of the executive and board remuneration practices for the Nordic Large-Cap companies.

All Nordic Large-Cap companies are required to publish remuneration reports for 2021 in accordance with the Shareholder Rights Directive (SRDII) as implemented into the local Companies Acts for all listed companies. Our report provides an updated overview of the regulatory and reporting requirements of SRDII in the Nordics. We describe these requirements and updated guidelines and provide our benchmarking survey insights on remuneration disclosure practices for 2021. While there are a wide range of practices, and variation in the quality of remuneration disclosures, we note that Nordic Large-Cap companies, overall, have increased the level of disclosure in their remuneration reports. Additionally, almost all remuneration reports were adopted at the annual general meetings (AGMs). However, there is still room for improvement many Large-Cap companies can still further enhance their ‘pay for performance’ disclosures.

Remuneration committees will have their work cut out for them in 2022 in their annual cycles. The work includes reviewing existing remuneration practices against market practices, preparing scenarios for grants of variable executive pay, aligning with the shareholder experience, setting ESG metrics and targets in executive remuneration, and developing responses to shareholder feedback.

In 2022, remuneration committees will also need to balance their responses carefully to more complex and broader questions and dilemmas related to executive remuneration, engage more closely with the wider workforce and their investors, and provide clear communication and argumentation in the remuneration reports.

Deloitte continues to advise our clients as they build more resilient organisations addressing human capital and reward trends and developing executive remuneration design and implementation while ensuring transparent policies and reporting to shareholders and other key stakeholders.

Selected key findings for the Nordics – September 2022

Deloitte’s first Nordic executive remuneration benchmark report for 2021 shows that – while transparency has improved compared to 2020 - there will be a continued need to focus on shareholder aligned incentive pay for executives based on ‘pay for performance’, including setting ESG metrics and targets in executive remuneration. 
 

1. Variable vs fixed

Variable remuneration as a share of total pay for CEOs:

- Denmark: 43% (2020: 37%) 

- Finland: 45% (2020: 42%) 

- Norway: 34% (2020: 26%) 

- Sweden: 30% (2020: 26%) 

Variable remuneration as a share of total pay for all executive directors:

- Denmark: 40% (2020: 34%)

- Finland: 38% (2020: 42%)

- Norway: 34% (2020: 33%)

- Sweden: 27% (2020: 22%)

2. Base salaries

Median annual base salary changes for CEOs for 2021:

- Denmark: 5.6% 

- Finland: 1.4%

- Norway: 5.6%

- Sweden: 5.8%

Median annual base salary changes for CFOs for 2021:

- Denmark: 2.2% 

- Finland: Insufficient public data points 

- Norway: 7.5%

- Sweden: 5.1%

3. Annual bonus

Median bonus as percentage of base salary for CEOs:

- Denmark: 60% (2020: 50%)

- Finland: 57% (2020: 43%) 

- Norway: 44% (2020: 40%)

- Sweden: 70% (2020: 49%)

4. Long-term incentives

Median LTI allocation as percentage of base salary for CEOs:

- Denmark: 63% (2020: 48%)

- Finland: 131% (2020: 86%) - significantly higher than other Nordic countries also due to ‘vested pay’-reporting

- Norway: 44% (2020: 33%)

- Sweden: 48% (2020: 49%)

Median LTI allocation as percentage of base salary for all executive directors:

- Denmark: 58% (2020: 39%)

- Finland: Insufficient public data points

- Norway: 36% (2020: 41%)

- Sweden: 26% (2020: 25%)

Performance and restricted share units as well as options and warrants are popular forms of long-term share-based payment.

Vesting criteria disclosure have improved in 2021, however still many Nordic Large-Cap companies can still work further on ‘pay for performance’ disclosures.

5. Board pay

Median board member base pay:

- Denmark: EUR 54k (2020: EUR 50k)

- Finland: EUR 52k (2020: EUR 52k)

- Norway: EUR 36k (2020: EUR 35k)

- Sweden: EUR 48k (2020: EUR 45k)

Median total chairperson pay:

- Denmark: EUR 189k (2020: EUR 181k)

- Finland: EUR 117k (2020: EUR 106k)

- Norway: EUR 70k (2020: EUR 69k)

- Sweden: EUR 108k (2020: EUR 100k)

Median chairperson pay multiple: 

- Denmark: 3.0x

- Finland: 2.0x

- Norway: 1.9x

- Sweden: 2.5x