Employee Incentives 2025 Comparisons

It is common, although not mandatory, for employees in Sweden to be offered participation in cash or share incentive plans. This particularly applies to employees who are members of the company’s senior management team or hold positions of key importance for the company. These plans are generally designed to align the interests of employees with those of the company, motivating them to contribute to the company’s success. They are an essential part of the compensation strategy for many Swedish companies, helping to attract, motivate, and retain talent.

Examples of common employee incentive plans in Sweden include annual bonuses, profit-sharing plans, performance-based bonuses, stock options, restricted stock units and employee stock purchase plans.

One decisive distinction between share incentive plans and cash plans is that the former may be subject to capital gains tax, while cash plans are always subject to income tax. The principal distinctions between incentive plans offered by publicly listed companies in Sweden as opposed to private companies pertain to the transparency and disclosure requirements, including trading prohibitions, applicable to the former. Also, listed companies, whose shares are traded on an organised market with a transparent price, often have benefits in constructing different share incentive plans, as measurability as well as the employees’ exit possibilities are more favourable than for private companies.

Under the Market Abuse Regulation, persons discharging managerial responsibilities in a listed company must report changes in their holdings to the Swedish Financial Supervisory Authority. This includes changes in holdings related to incentive programmes, such as the allocation of warrants, subscription, and subsequent allocation of shares through the exercise of warrants. The obligation to report such changes arises only when the person discharging managerial responsibilities has conducted transactions in the issuer amounting to at least EUR20,000 within a calendar year, including the transaction that causes the threshold to be exceeded.

Furthermore, persons discharging managerial responsibilities in a listed company are, with certain limited exceptions, prohibited from carrying out transactions in financial instruments issued by the company for a period of 30 calendar days before the publication of an interim or year-end report.

In addition to the transparency and disclosure requirements, there are provisions in the Swedish Companies Act (Aktiebolagslagen (2005:551)) that impose stricter majority requirements on public companies than on private companies. A resolution on a directed issue of shares or warrants to either the board members, CEO, or employees, amongst others, in the issuing company must be supported by nine-tenths of both the votes cast and the shares represented at the general meeting for the resolution to be valid. Furthermore, it is not possible for the general meeting to authorise the board of directors to resolve on said issues.

In May 2023, the European Union adopted the Pay Transparency Directive. The directive shall be implemented in all EU member states, including Sweden, by 7 June 2026. The directive aims to strengthen the application of the principle of equal pay, including variable pay such as bonuses, for equal work or work of equal value between men and women. This will be achieved by increasing pay transparency, establishing minimum requirements for the regulatory framework on the prohibition of pay discrimination and strengthening enforcement mechanisms. The directive has not yet been implemented in Swedish law at the time of writing (January 2025). However, the upcoming implementation is anticipated to introduce some changes, including the right for job applicants and employees to obtain information on pay and certain incentive plans, new rules for companies conducting pay surveys, and a requirement for companies with at least 100 employees to regularly report on pay and certain incentive plans as well as any gender pay gaps, which shall include payments made under incentive plans.

Cash incentive plans are popular in Sweden and can take various forms, including, for example, the following:

• Annual Bonuses: Employees receive a cash bonus based on individual performance, company performance, or a combination of both. These bonuses are typically paid out annually following the end of the company’s financial year.
• Profit Sharing: Employees receive a share of the company’s profits, usually distributed as a cash bonus. This plan directly ties employee rewards to the company’s financial success.
• Performance-Based Bonuses: Employees receive bonuses for achieving specific performance targets, which can be individual, team-based, and/or company-wide.

Share incentive plans are also widely used and can, for example, include the following:

• Warrants: Employees are given statutory securities under the Swedish Companies Act, purchased at market price pursuant to Black-Scholes.
• Performance Shares: Shares are granted to the employee after a vesting period provided that the employee remains in service and one or more performance targets are met.
• Stock Options: Employees are given the right to purchase company shares at a predetermined price after a certain period.
• Employee Stock Purchase Plans: Employees can buy company shares at a discount, often through payroll deductions over a set period.
• Qualified Employee Stock Options (also known as QESO): Employees are given the right to purchase company shares at a predetermined price. The difference between a stock option programme and a QESO programme is mainly that QESOs may be given free of charge to the employee and any gains are taxed as capital gains, not income. Very specific prerequisites must be adhered to.

In addition to the above, long-term incentive plans are also relatively common in Sweden. These plans are designed to reward employees for their contributions over a longer period, typically three to five years. They can include a mix of cash and share-based incentives and are often used to retain key employees and align their interests with the long-term goals of the company.

Neither the offer, grant, vesting or exercise of share awards or options nor the issue or transfer of shares under a share plan gives rise to any prospectus or similar securities law implications for the parent company and/or the local employer. An explicit exception in the EU Prospectus Regulation (2017/1129), which states that the obligation to publish a prospectus is not applicable when securities are offered, allotted or to be allotted to existing or former directors or employees by their employer or by an affiliated undertaking. However, the exception only applies when a document is made available containing information on the number and nature of the securities, as well as the reasons for and details of the offer or allotment.

The promotion and communication of a share plan to employees and other participants of a share plan is normally not restricted as it consists of the documentation provided before the general meeting that is to resolve on the implementation of the share plan.

Additionally, if a company that is operating from Sweden is bound by a collective bargaining agreement, the company is obliged to consult with relevant trade unions before making decisions about, for example, the implementation or amendment of an incentive plan. The union consultations must be concluded before any decision is made by the company. Hence, if the company has a duty to consult, it is important that it takes the initiative to consult with the unions before issuing any new incentive plans or policies. If there is a need to inform the employees of the implementation of an incentive plan before consultations have been finalised, it is important to clarify in the communication to the employees that the implementation of the intended incentive plans is subject to consultations with the relevant unions. Further, it should be noted that the consultations do not have to lead to an agreement. The company is free to take any kind of decision (subject to mandatory law and any applicable collective bargaining agreement) after having fulfilled its duty to consult.

A local employer in Sweden may provide funding for the costs of the plan. Cash bonuses may, for instance, be given to pay the Black-Scholes value of warrants. This is, however, not standard practice since the cash bonus will be subject to income tax.

The general meeting may either resolve to implement an incentive programme – typically based on a proposal from the board of directors – or authorise the board of directors to implement a share plan, including the issuance of warrants or shares (public companies cannot utilise an authorisation). The subsequent allocation of warrants or shares is resolved on by the board of directors. The resolutions typically require at least two-thirds of both the votes cast and the shares represented at the general meeting to be in favour of the proposal, since it is a deviation from the shareholders’ pre-emptive rights to any new warrants or shares in the company. However, the company’s articles of association may contain a provision that requires a larger majority. There are also certain provisions in the Swedish Companies Act that impose stricter majority requirements on public companies than on private companies. A resolution on a directed issue of shares or warrants to either the board members, CEO, or employees, amongst others, in the issuing company must be supported by nine-tenths of both the votes cast and the shares represented at the general meeting for the resolution to be valid.

Shareholders shall be provided with accurate, relevant, and clear information prior to the general meeting’s decision on the incentive scheme as a basis for the decision. In listed companies, certain additional rules apply according to the remuneration rules of the Stock Market Self-Regulation Committee. The documentation for the general meeting shall thereby provide the shareholders with the reasons for the proposal and how the proposal has been prepared, the number of securities as well as their market value and the price at which the instruments can be acquired, among several other information points listed by the Stock Market Self-Regulation Committee.

There are no local exchange control regulations that would impose exchange control restrictions or reporting requirements which would arise from (i) an employee sending local currency out of the jurisdiction in order to pay for shares/an option exercise price; (ii) the employee selling shares and sending currency into the jurisdiction; or (iii) the local employer sending funds out of the jurisdiction to provide funding for the plan.

However, depending on the circumstances at hand and the countries and currencies involved, international exchange and sanctions control regulations would need to be complied with by both the employee and the employer.

The granting of an option/award/RSU and the vesting or exercise of such option/award/RSU may be subject to taxation at grant if the options qualify as securities. Generally, warrants (teckningsoptioner) issued under the Swedish Companies’ Act are taxed as securities. Options taxed as securities are subject to taxation at the point in time that the option is subscribed or purchased. Taxation occurs if the subscription or purchase price is lower than the fair market value of the option at that point in time – ie, a benefit is deemed at hand. The employee will be subject to dry salary tax on the benefit, subject to up to 53% taxation. The employer or issuing entity will be subject to employer’s social security contributions on the benefit amount (up to 31.42%).

Other options such as ESOPs, RSUs, or call options with vesting and leaver restrictions are generally not considered as securities. Consequently, they are generally taxed upon exercise. If the exercise price payable for the underlying securities is less than the fair market value of the securities at exercise, a taxable benefit occurs. The benefit is taxed as salary for the employee, and social security contributions are payable by the employer or issuing entity.

Divestment of shares purchased or subscribed for will, in general, be subject to tax on any capital gains realised. The gains are computed as the sales price less costs for the sale, reduced by the acquisition cost for the shares (price paid plus potential benefit taxed amount). Capital gains are taxed between 20% and 53% depending on the status of the shares. The general tax rate is 30%. 

Swedish tax legislation does not recognise the concept of restricted shares. Either the employee has acquired a real share with all the benefits and liabilities that come with a share (eg, entered the share ledger, ability to vote on the shares, and restrictive covenants that are time-barred). Shares that fulfil such criteria are taxed as securities (see 2.6 Employee Tax and Social Security: Share Options/Awards/RSUs for further information on taxation).

Shares that do not fulfil the above criteria should be taxed as a phantom scheme and may be subject to salary taxation on distributions and “capital gains” on the shares. As a consequence, the employer or issuing entity will be subject to social security contributions on the same taxable basis. Basically, the full amount paid available to the employee should be subject to taxation for the employee and employer/issuer. 

The local employer or the issuer (if Swedish) will be liable to withhold preliminary taxes on salary the month the benefit is taxable (see 2.6 Employee Tax and Social Security: Share Options/Awards/RSUs and 2.7 Employee Tax and Social Security: Restricted Shares). If the gross salary paid to the employee that month does not cover the taxes to be withheld, the excess liability falls on the employee and is payable after filing the annual tax return of the individual (generally filed in May of the calendar year after the year a taxable benefit occurs).

A Swedish entity correctly bearing the employer costs for the plan should be entitled to a corporate tax shield on the costs – ie, the costs should be deductible for Swedish corporate income tax purposes.

In 2018, Sweden introduced rules on tax-exempt employee stock options, so-called qualified employee stock options (QESOs). The rules are found in the Swedish Income Tax Act (Inkomstskattelagen (1999:1229)) (SITA) chapter 11 a. The legislation imposes a vast quantity of absolute criteria to be fulfilled by the issuer, the participant and the issued instrument. The rules are very strict. If one criterion is not fulfilled during the relevant measuring period, the scheme will not be tax-exempt. Delivery of shares under a QESO scheme often takes place via the issuance of warrants by the company to itself, where the warrants will sit until the time of exercise. At the time of exercise, the warrants are delivered to the participant, who will immediately and exclusively use the warrants to subscribe for shares in the company.

QESOs that qualify for tax exemption are tax-exempt upon grant and exercise. A subsequent sale of shares is subject to capital gains tax at the rates outlined in 2.6 Employee Tax and Social Security: Share Options/Awards/RSUs.

It is possible to apply malus and/or claw-back provisions to share or cash awards (including bonuses) in Sweden. For instance, a company may include a provision stipulating that the company reserves the right to reclaim a bonus payment from an employee if it is found that the bonus was disbursed based on an inaccurate financial report. These provisions are often included but are rarely used by the company.

If employees are part of a cash or share incentive plan, such incentive plans will typically apply throughout the employment if they are not withdrawn or modified by the employer. The employer’s right to modify or withdraw the incentive plan will depend on the terms and conditions for the incentive plan and how they have been applied in practice. As a starting point, entitlement to incentive plans will apply during an employee’s notice period if the conditions for entitlement do not state otherwise.

During a transfer of undertaking, the rights and obligations that are based on the employment agreement and the employment relationship that applies during the transfer will also be transferred to the new employer. This includes benefits, such as entitlement to incentive plans, if not otherwise agreed. Hence, incentive plans will typically continue to apply after a transfer of undertaking.

If a company that is operating from Sweden is bound by a collective bargaining agreement, the company is obliged to consult with relevant trade unions before making decisions about, for example, the implementation or amendment of an incentive plan. The union consultations must be concluded before any decision is made by the company. Hence, if the company has a duty to consult, it is important that it take the initiative to consult with the unions before issuing any new incentive plans or policies. If there is a need to inform the employees of the implementation of an incentive plan before consultations have been finalised, it is important to clarify in the communication to the employees that the implementation of the intended incentive plans is subject to consultations with the relevant unions. During the consultation process, the company shall provide the union representatives with relevant information about the incentive plan, or the amendment of such, and answer questions that the representatives may have. Further, it shall be noted that the consultations do not have to lead to an agreement. The company is free to take any kind of decision (subject to mandatory law and any applicable collective bargaining agreement) after having fulfilled its duty to consult.

It is rather common for sharesave schemes and/or bonus schemes (where the bonus is to be used, in whole or in part, to purchase shares) to contain post-vesting or post-employment periods, meaning that the shares must be held for a certain period after allocation or purchase.

It is quite common for awards to be subject to post-employment holding periods, especially for employees holding senior or management positions, or for employees that hold specific knowledge or know-how that is important to keep within the company. Such holding periods are used as an incentive for these employees to stay with the company during a transition period, for example.

As a starting point, consent shall not be used as a lawful basis for processing personal data in an employer/employee relationship due to the imbalance of power within such a relationship. Based on this imbalance of power, it is generally seen as impossible for an employee to give his or her consent freely, which is a requirement for the consent to be considered valid. Depending on the purpose of the collection or transfer of personal data at hand, in relation to a cash or share incentive plan, the processing would typically be based on a contract or a weighing of interests.

Contract as a lawful basis for processing means that the processing is necessary for the performance of a contract to which the data subject is party. A weighing of interests means that the processing is necessary for the purposes of the legitimate interests pursued by the employer (or by a third party), except where such interests are overridden by the interests or fundamental rights and freedoms of the data subject, who in this situation is typically the employee and therefore requires the protection of personal data. These considerations and assessments follow from the EU General Data Protection Regulation (GDPR), which is the main legislation regarding data protection and privacy in Sweden.

There is no explicit legal requirement to translate cash or share incentive plan documents into Swedish, or into another language that an employee may prefer. However, in general, an employer shall ensure that the employees understand all documents that are important for their employment. If there are any ambiguities due to an employee’s inability to understand the content of a document, such ambiguity will be at the employer’s risk, as a starting point. Hence, we recommend that employment-related documents be provided in Swedish if there are uncertainties about whether all employees fully understand the English language.

Listed companies are normally obligated to disclose resolutions on the implementation of a share plan. Such disclosure requirements are set out in the rulebooks for the respective regulated market or trading platform. The disclosure shall normally include information on the main terms and conditions of the scheme and provide investors with information on the motivating factors for management and employees and also on the dilutive effects of the incentive scheme to help investors understand the potential cost of the scheme. Shareholders shall also be provided with accurate, relevant, and clear information prior to the general meeting’s decision on the incentive scheme as a basis for the decision. The information provided should allow for a comprehensive and accurate evaluation of the scheme’s significance for the company and confirm that it has been developed in accordance with the remuneration rules of the Stock Market Self-Regulation Committee.

In addition, if a company that is operating from Sweden is bound by a collective bargaining agreement, the company is obliged to consult with relevant trade unions before making decisions about, for example, the implementation or amendment of an incentive plan. The union consultations must be concluded before any decision is made by the company. Hence, if the company has a duty to consult, it is important that it take the initiative to consult with the unions before issuing any new incentive plans or policies. If there is a need to inform the employees of the implementation of an incentive plan before consultations have been finalised, it is important to clarify in the communication to the employees that the implementation of the intended incentive plans is subject to consultations with the relevant unions. During the consultation process, the company shall provide the union representatives with relevant information about the incentive plan, or the amendment of such, and answer questions that the representatives may have. Further, it shall be noted that the consultations do not have to lead to an agreement. The company is free to take any kind of decision (subject to mandatory law and any applicable collective bargaining agreement) after having fulfilled its duty to consult.

Persons discharging managerial responsibilities must report changes in their holdings to the Swedish Financial Supervisory Authority. This includes changes in holdings related to incentive programmes. The definition of persons discharging managerial responsibilities includes directors of the board and managing directors, including deputies, as well as other persons in the management team, such as chief financial officer and chief marketing officer. The obligation to report such changes arises only when the person discharging managerial responsibilities has carried out transactions in the issuer amounting to at least EUR20,000 in a calendar year, including the transaction that entails that the threshold is passed.

In accordance with the EU Pay Transparency Directive, which shall be implemented in all EU member states, including Sweden, by 7 June 2026, a new duty to provide pay reports will apply for employers with 100 or more employees. Such employers are required to provide pay reports every year or every third year, depending on their size. The reports shall include data on the gender pay gap across the entire workplace, as well as the proportion of female and male employees who have received pay increases or variable payments. Further, the reports shall be shared with the Swedish Equality Ombudsman (Diskrimineringsombudsmannen), which will cause the reports to become public information. This duty to report will include the monthly salary, but also other complementary or variable components of the pay, following from cash incentive plans, for example. It shall be noted that the directive has not yet been implemented in Swedish law at the time of writing (January 2025) and may be subject to further amendment.