Ericsson’s Strategic Use of C Shares: Aligning Incentives with Long-Term Shareholder Value

Ericsson’s recent move to acquire 23.1 million C shares, tied to its 2025 Long-Term Variable Compensation (LTV 2025) program, marks a significant shift in how the telecom giant aligns executive incentives with shareholder value. Approved at its Annual General Meeting (AGM) on March 25, 2025, the initiative underscores Ericsson’s focus on long-term strategic goals, refined performance metrics, and governance modernization. This article examines the mechanics of the C share acquisition, its implications for equity structure, and how it positions Ericsson for sustained growth amid industry challenges.

The Mechanics of C Share Acquisition

The LTV 2025 program involves a directed issue of 12.7 million C shares to Skandinaviska Enskilda Banken AB (SEB), a financial intermediary, at a price of SEK 5 per share (equivalent to the quota value). These shares will be converted into B shares after an acquisition offer between May 5 and May 19, 2025. The total conversion will increase Ericsson’s B shares to 3.109 billion, while retaining 15.58 million B shares in treasury stock.

The program targets 200 executives, including the CEO, with shares vesting over three years (2025–2027) based on performance metrics. A key feature is the 70% sell-down allowance, permitting executives to sell shares to cover taxes and social security liabilities. This mechanism reduces the financial burden on participants while ensuring shares remain liquid.

Performance Metrics: Balancing Financial and ESG Goals

The LTV 2025 program ties 45% of awards to a three-year average Group EBITA (excluding write-downs/restructuring), with a maximum vesting of 200%. The remaining 55% is split between TSR metrics (both absolute and relative to a global peer group) and ESG performance, emphasizing sustainability and governance. This multi-faceted approach ensures executives prioritize both profitability and responsible business practices.

Shareholder Impact and Governance Adjustments

The acquisition of C shares directly addresses equity dilution concerns, as the converted B shares represent just 0.38% of Ericsson’s total capitalization. Meanwhile, the AGM approved a dividend of SEK 2.85 per share, split into two installments, signaling confidence in cash flow stability.

Notably, the AGM rejected a proposal requiring executive bonuses to wait until all employees receive cost-of-living adjustments. This highlights Ericsson’s preference for performance-based compensation over rigid pay equity measures, a stance supported by institutional investors focused on long-term returns.

Risks and Considerations

While the LTV 2025 program aligns incentives with shareholder interests, risks remain. The 70% sell-down clause could pressure B share liquidity in the short term, especially if executives opt to liquidate shares to meet tax obligations. Additionally, the TSR metric’s geographic scope—now aligned with global peers—may expose the program to macroeconomic volatility.

The program’s heavy reliance on EBITA also carries risk, as Ericsson continues to navigate costly restructuring and regulatory scrutiny in markets like the U.S. and China.

Conclusion: A Strategic Move with Long-Term Payoffs

Ericsson’s acquisition of C shares marks a deliberate step to embed long-term thinking into its leadership culture. By linking executive compensation to EBITA, TSR, and ESG outcomes, the company incentivizes decisions that balance profitability with sustainability and stakeholder trust.

Crucially, the program’s modest equity dilution (0.38%) minimizes shareholder dilution concerns, while the SEK 5 per share acquisition price aligns with Ericsson’s quota value, avoiding premium outlays. With the AGM’s approval of a two-installment dividend and governance updates, shareholders appear confident in Ericsson’s ability to execute its strategy.

The LTV 2025 program’s structure—coupled with Ericsson’s expanding 5G leadership and cost-cutting initiatives—positions it to capitalize on global connectivity trends. While risks persist, the strategic use of C shares signals a commitment to aligning executive and shareholder interests, a move likely to bolster investor confidence in the years ahead.