Chief Executive Officer and Group Executive Team
Decision-making procedure concerning remuneration
Remuneration and financial benefits payable to the CEO and other GET members are determined by the Board of Directors on an annual basis. The Board also makes decisions concerning any potential compensation payable to the CEO and other GET members upon the termination of such person’s employment. Prior to the relevant Board meeting, the matter is deliberated by the Human Resources Committee of the Board of Directors.
Main principles of remuneration
The remuneration of CEO and other GET members is based on Group level remuneration principles, but local laws and market practices are taken into account when applying these principles. The remuneration consists of a non-variable annual base salary, benefits and an annually determined short-term incentive. In addition, the CEO and other GET members are participants in the long-term incentive plans consisting of the performance share plans.
The criteria on the basis of the remuneration of the CEO and other GET members are monitored and the results of such monitoring are regularly reported to the Human Resources Committee and the Board of Directors. The monitoring aims to follow the impact of the remuneration criteria on reaching the Group’s long-term financial targets.
The short-term incentives for the CEO and other GET members are based on the financial performance of the Group and the achievement of personal objectives. The short-term incentives for those GET members having a business segment responsibility are also determined based on the financial performance of the business segment in question. The relevance of the financial performance is 90% for the CEO and 80% or 90% for other GET members and the relevance of the personal objectives is correspondingly 10% for the CEO and 20% or 10% for other GET members. The following indicators are applied when setting financial objectives: earnings per share (EPS) before taxes and return on investment (ROI). In addition, for the GET members having a business segment responsibility also return on net assets (RONA) and value added of the business segment in question are relevant indicators. The above mentioned criteria are selected to promote the Group’s financial targets and success on a short- and a long-term basis.
Objectives for the short-term incentives are set and the achievement is evaluated annually. Possible incentive payments are typically made in March following the earnings period January-December. The payment of the incentive is subject to the person being employed by the Group and not having resigned by the time of the payment. The maximum amount of the short-term incentive for the CEO is the amount corresponding to 100% of the non-variable annual base salary. The maximum amount of the short-term incentives for other GET members varies depending on the position between 50–75% of the non-variable annual base salary.
Performance share plans
Performance share plans function as long-term incentives for the CEO and other GET members. On March 12, 2010 the Board of Directors of the Company decided on establishing a Performance Share Arrangement to form a part of the longterm incentive and retention program for the key personnel of the Company and its subsidiaries. The Performance Share Arrangement offers a possibility to earn the Company shares as remuneration for achieving established targets. A cash payment equivalent to taxes arising to the key personnel from the reward may be granted as part of the remuneration. Participants to the plan belonging to the GET shall hold at least 50% of the shares received until he/she holds shares received from the Performance Share Plans corresponding in aggregate to the value of his/her annual base salary. The ownership requirement applies until termination of employment or service.
The arrangement includes three-year performance share plans which commence annually. A possible reward shall be paid during the calendar year following each three-year plan. Commencement of each three-year plan will be separately decided by the Board of Directors. The Company’s share-based incentive plans in which the earnings year is 2014 or later and based on which incentives are paid in 2015 or later have been described below.
- Performance Share Plan 2012–2014 commenced in 2012 and the reward was based on the Group’s earnings per share (EPS) in 2014. The reward was paid in 2015.
- Performance Share Plan 2013–2015 commenced in 2013 and the reward was based on the Group’s earnings per share (EPS) in 2015. The reward was paid in 2016.
- Performance Share Plan 2014–2016 commenced in 2014 and the reward will be based on the Group’s earnings per share (EPS) in 2016. The reward will be paid during 2017.
- Performance Share Plan 2015–2017 commenced in 2015 and the possible reward will be based on the EPS in 2017. The reward, if any, will be paid during 2018.
- Performance Share Plan 2016–2018 commenced in 2016 and the possible reward will be based on the Group’s EPS in 2018. The reward, if any, will be paid during 2019.
Other key terms
The retirement and resignation age of the CEO is 60 years, unless otherwise agreed upon. In addition to statutory employment pension contribution, early retirement is covered by an arrangement under which the Company contributes annually to a supplementary pension arrangement an amount which shall not exceed the CEO’s monthly base salary. However, the contribution paid by the Company is subject to the CEO contributing the same amount to the supplementary pension arrangement. In case the Service Agreement is terminated prior to the retirement and resignation age, the CEO maintains the right to the funds in the supplementary pension arrangement. The amount of the supplementary pension is determined based on funds contributed to the arrangement by the Company and the CEO as well as returns on these funds.
All other GET members belong to pension systems of their country of residence in force at the time. In addition to the CEO, five other GET members belong to the national employee pension system in Finland and two GET members belong to corresponding pension systems in the United States and the Czech Republic. Subject to a specific resolution by the Board, GET members may additionally be entitled to pension arrangements following local practices, which may be considered partly comparable to supplementary pension plans.
According to the Service Agreement between the Company and the CEO, either party may terminate the Service Agreement with six months’ prior notice. During the notice period, the CEO is entitled to normal salary payments. If the Company terminates the Service Agreement, the CEO is entitled to a termination compensation amounting to 18 months’ base salary in addition to the six months’ salary paid for the notice period. The notice periods and terms applicable to any compensation payable upon the termination of the employment of the other GET members are based on the Service Agreement between the Company and each GET member.