The aim of the company’s management remuneration is to promote the company’s long-term financial success, competitiveness and favourable development of shareholder value. The remuneration comprises non-variable and variable components. The variable components are linked to predetermined and measurable performance and results criteria, and maximum levels have been set for the variable components of the remuneration.
The base salary is paid monthly in cash. The base salary includes fringe benefits such as company car and phone.
Short term incentives are based on the company’s Short Term Incentive Plan and they are paid annually in cash. The amount of the incentive is linked to the executive’s position and achievement of annually set targets.
Long term incentives are based on the Performance Share Plan targeted at the Group Executive Team members and other selected members of the management. The Performance Share Plan consists of annually commencing three-year plans, and the incentives are payable in company shares following a three-year earning period. The number of payable shares is linked to the executive’s position and achievement of set targets. Long term incentives are also paid to other key employees of the group based on the Deferred Bonus Plan.
The company’s short and long term incentive plans are described in greater detail in the Remuneration Statement.
Information on the management remuneration prior to 2015 is available in the Remuneration Statements published by the company.
In accordance with the executive contract, the retirement age of the President and CEO Jussi Pesonen is 60. The target pension is 60% of the average indexed earnings from the last 10 years of employment calculated according to the Finnish statutory pension scheme. The cost of lowering the retirement age to 60 is covered by supplementing the statutory pension with a voluntary defined benefit pension plan. Should the President and CEO leave the company before reaching the age of 60, an immediate vesting right corresponding to 100% of the earned pension (pro rata) will be applied.
In 2016, costs under the Finnish statutory pension scheme for the President and CEO amounted to EUR 370,000 (EUR 353,000 in 2015) and payments under the voluntary pension plan to EUR 1,000,000 (EUR 1,000,000).
Other members of the Group Executive Team are covered by the statutory pension plan in the country of residence, supplemented by voluntary defined contribution pension plans. The retirement age is 63. Executives belonging to the Group Executive Team before 1 January 2010 have fully vested rights corresponding to 100% of the accumulated account. Executives who have become Group Executive Team members after 1 January 2010 are entitled to fully vested rights five years after becoming a member.
In 2016, costs under the Finnish and German statutory pension schemes for the Group Executive Team members (excluding the President and CEO) amounted to EUR 881,000 (EUR 900,000 in 2015) and payments under the voluntary pension plan to EUR 818,000 (EUR 651,000).
The President and CEO and other members of the Group Executive Team are entitled to compensation for the termination of their executive contract in accordance with the compensation provisions of each executive’s contract. Compensations payable under various circumstances are presented in the table below.
1) If the notice is given for reasons that are solely attributable to the executive, (s)he receives only the salary for the notice period.
If there is a change of control in the company, the President and CEO may terminate his executive contract within three months and other members of the Group Executive Team within one month from the date of the event that triggered the change of control.
The President and CEO’s and other Group Executive Team members’ right to short and long term incentives in case their executive contract is terminated depends on the terms and conditions of the incentive plans and on the date of notice of termination. As a general rule, the right to incentives requires a valid contract.
At the end of 2016, the President and CEO and other members of the Group Executive Team owned a total of 664,234 UPM shares, corresponding to 0.12% of the total number of shares and votes in the company.
*) Group Executive Team member from 1 July 2016. **) Group Executive Team member from 8 February 2016.
The Board of Directors encourages the Group Executive Team members to have direct share ownership in the company. It is recommended that the President and CEO maintains a share ownership of UPM shares corresponding to his two-year gross base salary and other members of the Group Executive Team a share ownership corresponding to a one-year gross base salary. Until the share ownership recommendation is fulfilled, the Group Executive Team members shall retain 50% of the net shares received under the Performance Share Plan.