The CEO compensation structure in Swedish listed companies

Abstract

In this thesis we explore how CEOs in Swedish listed companies are compensated. Executive compensation in Sweden has not been extensively treated on a top academic research level, though there are a lot of student theses treating the subject. A lot of studies look at the largest companies seen to market capitalization; we contribute to earlier research adding companies with lower market capitalization, in an effort to retrieve a more balanced picture. We match our results with earlier research on Swedish CEO compensation and try to discern trends in a way that until now has not been done. Our study is two folded, we do a literature review and a quantitative study based on secondary data. The data for CEO compensation are found in the companies’ annual reports. Each report have been thoroughly analysed to give the correct information for the calculations. We show how the total CEO compensations for the fiscal year 2012 are divided between five (5) different components. We follow the division of compensation accounted for in the annual reports; accordingly dividing it in (1) Fixed Salary, (2) Variable Compensation, (3) Other Benefits, (4) Stock & Options and (5) Pension. One of the major differences from our thesis is that we also account for the share of pension and other benefits (perquisites), areas left opaque by many earlier studies. Our study looks at the compensation of 119 CEOs of companies listed on Nasdaq OMX Stockholm1. The sample is made out by all 59 CEOs of companies listed on Nasdaq OMX Stockholm Large Cap, 30 CEOs from Mid Cap and 30 CEOs from Small Cap. The study of Mid Cap and Small Cap companies is mainly performed to give a perspective of the differences of the three different lists, and the structures and levels of compensation. CEOs of Large Cap listed companies have a significantly higher total compensation. The performance sensitive pay also makes up for a considerable larger share of the compensation. In particular the compensation awarded as stock and options is much higher, and makes up a larger share of total compensation for CEOs of Large Cap companies. Our study confirms the view that level of total compensation is positively related to firm size; we think that larger companies may seek to employ better qualified and thereby better paid CEOs. It talks in direction of an international market for CEOs of companies listed at Large Cap, that they are compensated to stay. Important criteria’s for how the compensation is valued is the firm size, turnover and international ownership, these factors can be explained by the agency theory and the Market for CEOs. We also look at different industry sectors to see if there are any discernible differences between the different components and how and to what degree, they are being used. Manufacturing Companies seem to use performance sensitive pay to a higher extent than Non-Manufacturing.