Swedish CEOs earn less than their foreign colleagues

Thursday, June 19, 2008

Swedish CEOs of large listed companies still earn much less in comparison to their international competitors. A Swedish CEO earns on average 40 percent of what the equivalent international peers do, although the variations vary. This is documented in a report written by H&H.

Part of the differences can be explained by size since Swedish companies are often smaller than their peers. A proportionate adjustment to size equalises the levels of compensation. But if you implement a factor of 1.20 for higher compensation, when company size doubles, Swedish CEOs still earn much less than their foreign colleagues. This size factor is empirically relevant, at least in Sweden.

The study investigates CEO remuneration for 23 Swedish companies of Large Cap and 53 global peers. The information on compensation during 2007 was collected from their Annual Reports and for US and Canadian companies from their Proxy Statements. For each Swedish company a group of five peers were appointed. A similar study by H&H was published in February 2007. In this study the data was earnings during year 2005.

Remuneration in the Annual Reports

We have also studied how the remuneration to the CEO is communicated to the shareholders. Best in communicating on CEO remuneration are American, British and Dutch companies. These companies have usually a Remuneration or Compensation report in their Annual Reports or Proxy Statements, including a detailed description of the compensation model with components, targets and ceilings. Also the peer group for evaluation is presented and which salary consultancy firms are involved.

In the Annual Reports of Swedish companies remuneration is just a part of a footnote and in some cases also a description in the Corporate Governance Report. Some companies are more ambitious, for example Ericsson, Volvo and Scania.

Both the construction of bonus systems and other incentives and the communication around it varies a lot between companies and countries. Companies from countries like Spain, France and Denmark are outside the study, due to the lack of detailed information. Pension costs are also excluded for the same reason.

Our general impression is that the companies, both in Sweden and abroad, have learnt from the debate and are now beginning to treat the communication issues around CEO remuneration as more important. The fact that Principles for Remuneration for the Board of Management today is a mandatory item on the agenda for the Annual General Meeting contributes, as well as the media focus on the remuneration issue.

The aim of this study is to put a global perspective on the CEO remuneration debate. Most of the large Swedish corporations are presenton the international market. The labour market for corporate leaders is getting more and more internationalized. Thus the remuneration of CEOs should be studied in a global context.

The report (in Swedish):  VD-ersättningar i internationell belysning 2007. May 29, 2008.

This study has been background for an article in the Swedish business magazine Affärsvärlden No. 25-32, 2008.