Page 19 - Kitron Annual Report 2011

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Notes to the consolidated financial statements
Pension commitments, bonus
schemes and other compensation
for employees
Pension commitments
Group companies have various pension schemes.
These schemes are generally funded through pay-
ments to insurance companies or pension funds on
the basis of periodic actuarial calculations. The group
has both defined contribution and defined benefit
plans. A defined contribution plan is one under which
the group pays fixed contributions to a separate legal
entity. The group has no legal or constructive obliga-
tions to pay further contributions if the fund does not
hold sufficient assets to pay all employees the ben-
efits relating to employee service in the current and
prior periods. A defined benefit plan is one which is
not a defined contribution plan, and typically defines
an amount of pension benefit an employee will receive
on retirement. That benefit is normally dependent on
one or more factors such as age, years of service and
pay. The liability recognised in the balance sheet in re-
spect of defined benefit pension plans is the present
value of the defined benefit obligation at the balance
sheet date less the fair value of plan assets. Changes
in pension commitments relating to changes in pen-
sion plans are allocated over the average remaining
period of service. The same applies to variances in
underlying pension assumptions to the extent that
these exceed 10 per cent of the larger of pension
commitments and pension fund assets (corridor).
The pension commitment is calculated annually by
an independent actuary using a straight-line earnings
method. The present value of the defined benefit obli-
gations is determined by discounting the estimated fu-
ture cash outflows using interest rates corresponding
to a 10-year Norwegian government bond extended
in duration to provide a term to maturity approximating
to the terms of the related pension liability. Estimated
payroll tax on the net pension commitment calcu-
lated by an actuary is added to the carrying amount
of the obligation. Changes in pension plan benefits
are recognised immediately in the profit and loss
account unless rights in the new pension plan are
conditional on the employee remaining in service for
a specific period of time (the vesting period). In that
case, the costs associated with the change in benefit
are amortised on a straight-line basis over the vest-
ing period. For defined contribution plans, the group
pays contribution to publicly- or privately administered
pension insurance plans on an obligatory, contractual
or voluntary basis. The group has no further payment
obligations once the contributions have been paid.
The contributions are recognised as a payroll expense
when they fall due. Prepaid contributions are recog-
nised as an asset to the extent that a cash refund or a
reduction in the future payments is available.
Share-based compensation
The fair value of share options granted is assessed at
the granting date and expensed over the vesting pe-
riod. The cost also includes payroll tax.
Liabilities incurred related to cash-settled options
(share appreciation rights) are measured at the fair
value at the reporting date. Until the liability is settled,
the fair value of the liability is remeasured at each re-
porting date with any changes in fair value recognised
in profit or loss for the period.
Bonus schemes
Certain senior executives have bonus agreements re-
lated to the attainment of specified targets for the busi-
ness (budgets and activities). Obligations (provisions)
and costs (pay) are recognised for bonuses in accord-
ance with the company’s contractual obligations.
Severance pay
Severance pay is given when the contract of employ-
ment is terminated by the group before the normal
age of retirement or when an employee voluntarily
agrees to leave in return for such a payment. The
group recognises severance pay in the accounts
when it is demonstrably obliged either to terminate the
contract of employment for existing employees in ac-
cordance with a formal, detailed plan which the group
cannot rescind, or to make a payment as a conse-
quence of an offer made to encourage voluntary resig-
nations. Severance pay which falls due more than 12
months after the balance sheet date is discounted to
present value.
Provisions
The group makes provisions when a legal or con-
structive obligation exists as a result of past events,
it is more likely than not that an transfer of financial
resources will be required to settle the obligation,
and the amount of the obligation can be estimated
with a sufficient degree of reliability. Provisions relate
primarily to restructuring costs. Obligations falling due
more than 12 months after the balance sheet date is
discounted to present value.
Government Grants
Government grants including non-monetary grants at
fair value, will only be recognised when there is rea-
sonable assurance that the company will comply with
the conditions attaching to them, and the grants will
be received. The grants are recognised as cost reduc-
tions in the profit and loss statement.