The guidelines for remuneration to senior executives were approved by the Annual General Meeting 2023.
Background
The previous guidelines were approved by the Annual General Meeting 2022. The changes made are primarily linguistic related to the variable remuneration and the performance criteria. The Company has not received any comments on the guidelines from shareholders. These guidelines do not apply to any remuneration resolved upon or approved by the General Meeting and are only applicable to remuneration agreed, and amendments to remuneration already agreed, after the adoption of these guidelines by the Annual General Meeting 2023.
Application of guidelines
These guidelines apply to remuneration to the Group Executive Management and to members of the Board of Directors if remuneration is paid for work performed outside the scope of the ordinary board work (e.g. pursuant to an employment or consultancy agreement). As of the date of these guidelines, the Company’s Group Executive Management are the Managing Director, the CFO, the CTO and the Head of Legal. These guidelines constitute a framework within which remuneration to the Group Executive Management may be decided on by the Board of Directors.
General remuneration principles
In short, the group’s business strategy is to create shareholder value working across the whole upstream oil and gas industry lifecycle of exploration, appraisal, development and production. A central objective in the group’s business model is to explore for and produce oil and gas in an economically, socially, and environmentally responsible way. For more information regarding the group’s strategic priorities, please refer to the group’s annual reports and the Company’s website (www.tethysoil.com).
The Company’s remuneration principles are to ensure responsible and sustainable remuneration decisions that support the Company’s strategy, long-term interests and sustainable business practices and further enhance the group’s market position as well as increase the shareholder value. To this end, salaries and other employment terms shall enable the group to retain and recruit skilled group executives at a reasonable cost. The remuneration shall be on market terms and based on the principles of performance, competitiveness and fairness.
When evaluating whether these guidelines and the limitations set out herein are reasonable, the Board of Directors (including the Remuneration Committee) has considered the total income of all employees of the Company, including the various components of their remuneration as well as the increase and growth rate over time.
In order to comply with mandatory rules or established local practice, remuneration which is subject to rules outside Sweden may be adjusted to comply with such local rules, taking into account, to the extent possible, the overall purpose of these guidelines.
Elements of remuneration
The remuneration covered by these guidelines may consist of fixed salary, variable salary, pension, non-financial benefits and severance pay. In addition hereto, the General Meeting may decide on, inter alia, long-term incentive programmes in which the Group Executive Management can participate.
Principles for fixed salary
The fixed salary shall be in line with market terms, be competitive, and shall take into account the scope and responsibility associated with the position, as well as the skills, experience and performance of each member of the Group Executive Management. On the assumption of payment of full variable salary, pension benefits and other benefits, the fixed salary is expected to amount to no more than 45 per cent of the total remuneration. If there is no variable salary, pension benefits or other benefits, the fixed salary will constitute the entire remuneration.
Principles for variable salary
Variable salary, i.e. cash bonuses, shall be based on a set of predetermined and measurable performance criteria that reflect the key drivers for pursuing the Company’s strategy, long-term interests and sustainable business practices. Such performance criteria include (but are not limited to) health, safety & environment (HSE), ESG, reserves & resources and financial return as well as individual performance.
To which extent the criteria for awarding variable salary have been satisfied shall be determined annually in connection with the publication of the year-end report for the respective financial year based on an evaluation of the executive’s achievement of the performance indicators as described in the agreed individual performance targets.
Payment of variable salary shall be conditional upon the Group Executive Management member remaining employed for the duration of the qualification period.
Variable salary shall qualify for pension benefits only to the extent it is required pursuant to mandatory provisions of applicable collective bargaining agreements.
The annual variable salary may not amount to more than twelve months’ fixed salary and is therefore expected to amount to no more than 50 per cent of the total remuneration.
Principles for pension benefits
Pension benefits shall comprise a defined contribution scheme with premiums calculated on the full fixed salary and be set on an individual basis, however, provided that mandatory provisions of applicable collective bargaining agreements do not require otherwise.
Pension benefits may not amount to more than 30 per cent of the fixed salary and is therefore expected to amount to no more than 25 per cent of total remuneration.
Principles for non-financial benefits
Non-financial benefits shall be based on market terms and shall facilitate the duties of the Group Executive Management. Non-financial benefits may include, inter alia, life insurance, medical insurance etc.
Premiums and other costs relating to non-financial benefits may not amount to more than five per cent of the fixed salary and is therefore expected to amount to no more than five per cent of the total remuneration.
Remuneration during notice period and severance pay
The notice period for termination of the Managing Director shall not exceed twelve months and the notice period for termination of other members of the Group Executive Management shall not exceed nine months.
A mutual termination period of twelve months applies between the Company and the Managing Director and of up to nine months between the Company and other members of the Group Executive Management.
Severance pay to the Managing Director and other members of the Group Executive Management shall not exceed twelve months’ gross fixed salary, provided that the employment is terminated by the Company. In the event a member of the Group Executive Management terminates his or her employment, no severance shall be payable.
Notwithstanding the above, in the event of a change of control of the Company, the Managing Director or other members of the Group Executive Management may receive severance pay in excess of twelve months’ fixed salary and may receive severance pay even if notice is given by the executive, provided that the sum of salary paid during the notice period and the severance pay may not exceed the equivalent of 24 months’ gross fixed salary.
For the purposes of these guidelines, a change of control shall mean any event whereby a single party (or a group of parties acting in concert), directly or indirectly, controls in excess of 51 per cent of the shares or votes in the Company (e.g., due to a public tender offer).
Principles for certain remuneration to members of the Board of Directors
To the extent members of the Board of Directors perform work for the Company outside the scope of the ordinary board work, consultancy fees on market terms may be paid in addition to any board fees resolved upon by the General Meeting. The Nomination Committee is tasked with proposing a framework, if any, for such remuneration, to be approved by the Annual General Meeting.
Long-term incentive programmes
Any remuneration resolved upon by the General Meeting is not covered by these guidelines. Accordingly, these guidelines do not apply to the Company’s long-term incentive programmes resolved upon by the General Meeting.
The Company’s existing long-term incentive programmes are directed to certain key employees of the group and designed to create conditions for retaining and recruiting competent and committed personnel to the group. More information on the Company’s existing and proposed incentive programmes from time to time is available on the Company’s website (www.tethysoil.com).
In connection with incentive programmes resolved on by the General Meeting, the Company may make such cash payments to the participants which are compatible with the decisions to implement or settle such incentive programmes (e.g., by making cash payments to participants who, pursuant to the terms of the programmes, are to receive incentive instruments (e.g., warrants) free of charge or be compensated for tax effects). Such payments shall not be considered part of the fixed or variable salary as they are an integral part of the incentive programmes.
Preparation and review of the compliance of these guidelines
The Board of Directors has established a Remuneration Committee to deal with matters of executive compensation and wider group remuneration. These guidelines have been prepared by the Remuneration Committee of the Board of Directors and the Board of Directors. The Remuneration Committee is responsible for preparation of updated proposals in respect of guidelines for executive remuneration. A proposal for amended guidelines is to be prepared by the Remuneration Committee and the Board of Directors when the need for material amendments arises, but at least every four years.
Within the scope and on the basis of these guidelines, the Board of Directors shall, based on the Remuneration Committee’s preparation and recommendations, annually decide on the specific revised remuneration terms for each member of the Group Executive Management and make such other decisions in respect of remuneration for member of the Group Executive Management that may be required.
The members of the Remuneration Committee are independent in relation to the Company and the Group Executive Management. The Managing Director and the other members of the Group Executive Management do not participate in the Board of Directors’ handling of, or resolutions regarding, remuneration-related matters if they are affected by such matters.
Derogations from these guidelines
The Board of Directors is entitled to adjust the compensation in the case of, for example, extraordinary increases or decreases in the group’s earnings. The Board of Directors may also temporarily resolve to derogate from these guidelines, in whole or in part, if in a specific case there is special cause for such derogation and a derogation is necessary to serve the Company’s long-term interests, including its sustainability, or to ensure the Company’s financial viability.