UPM Annual Report 2016

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Developing empowering and engaging leaders

THE RIGHT TO ACCESS SAFE DRINKING WATER UPM promotes access to safe drinking water, proper sanitation facilities and good hygiene by implementing the WBCSD’s WASH at the Workplace Pledge. By signing the WASH Pledge, companies commit to providing access to safe water and sanitation for all employees in premises. As the first phase of the three-year implementation plan, UPM conducted the WASH Pledge Self-Assessment survey in all production sites in 2015. The survey concerned the local water, sanitation and hygiene conditions for employees at the sites. In 2016, UPM continued the evaluation for its sales network and terminals. So far, the survey results have proved that UPM is compliant with the WASH Pledge requirements although some areas of improvement were identified. UPM renovated a washroom and installed some new showers for men and women at the Raflatac Johor terminal in Malaysia. “We provide companies with an asset of tools that brings together international best practice and standards set by recognised bodies such as the World Health Organisation about what a healthy work place should look like,” explains Associate Sara Traubel from the WBCSD. Traubel thanks UPM for the very structured approach it has taken to performing the self-assessments, addressing the gaps and communicating internally about the initiative and the need to address WASH. UPM will continue the programme by assessing its forestry and wood sourcing facilities in 2017.

ENERGY AND CURIOSITY AT THE BOOT CAMPS

When seeking out new innovations, bringing together people with different backgrounds and skill sets creates the best circumstances for success and fresh results. UPM’s new “Boot Camp” innovation programme brings together UPM employees from different businesses and functions. The workshop lasts for one or two days, during which time the employees team up to tackle topical development pro- jects. The Boot Camp participants are chosen based on their relevant skill sets and their interest in development work. The actual workshops are very informal — the group decides on the goals and methods together. After the workshop, the groups pitch their ideas to the judges and a winner is chosen from among them. The panel of judges consists of experts and members of the management. In 2016, approximately 150 UPMers participated in the Boot Camps. Some of the ideas generated at the Boot Camps were refined within initial business concepts and then developed further. The aims of the internal Boot Camps are to work on real business challenges and to develop the ways in which we work.

UPM aims to have inspiring leaders who empower and engage employees at all levels. We strive to lead by our own example, in accordance with UPM values and with integrity. Our values guide and support us in our daily actions — Trust and be trusted; Achieve together; Renew with courage. UPM continuously develops leadership capabilities and management teams. The development programme portfolio is created to support aspects of leading self, people and the business. Topics such as self-leadership, coaching capabilities, innovation and leading in complexity are integrated into various development activities. In 2016, the theme of aiming higher in business performance and leadership was integrated into strategy communication and leadership programmes. UPM continued to support a coaching leadership style and the use of various tools for feedback on behaviours and performance. The aim is to improve dialogue and the feedback culture within the company. UPM also continued its mentoring programmes as a valuable tool for developing leaders. Investments in training and the renewal of front-line leadership development capabilities continued globally. In Finland, the Future Supervisor Programme, which brings new supervisors to the company, was ongoing. UPMwants to develop its working environment so that it is diverse and inclusive. It is important to employ people with different competences, backgrounds and experiences and of different genders, ages and nationalities to bring multiple views and improve decision-making and business success. In 2016, UPMpublicly committed to strengthening its commitment to a diverse and inclusive workplace by signing the Finnish Diversity Charter. It describes how a company can promote equal opportunities in the workplace. UPM focused strongly on training on the renewed Code of Conduct, including discussions on inclusive behaviour in the working environment. UPM continued to review the status of diversity in businesses and functions and integrated inclusion into key leadership development programmes to improve performance and innovation. The implementation of the diversity initiative will continue in 2017. UPM promotes active participation At the end of 2016, UPMhad 19,310 employees working in 45 countries. UPMpromotes local leadership at the main production sites, where 96% of management team positions are held by locals. Overall at UPM, approx imately 0.2% of employees were on international assignments at various levels of the organisation in foreign countries. As a multinational company, UPM complies with international, national and local laws and regulations and respects international agreements concerning human and labour rights and freedom of association. UPM abides by legally binding collective agreements. UPM does not collect information on or report on its employees’ union membership at a global level due to differences in national legislation in the various countries. The estimated percentage of employees covered by collective agreement mechanisms was 71% in 2016. UPMpromotes active employee participation and consultation, organised in accordance with international and national rules and regulations. UPM respects the privacy of employees and promotes equal opportunities and objectivity in employment and career development. To encourage an open, international dialogue, UPMhas a co-operative body, the UPMEuropean Forum, which focuses on issues related to changes within the company and the business environment in general. The forum organises regular meetings for employee representatives from business units operating in Europe.

Rewarding and recognising good performance

Read more: www.upm.com/innovation, www.upmbiofore.com

UPM offers rewards and recognition with an emphasis on high performance. UPMhas a total compensation approach consisting of a base salary, benefits and incentives, which are determined by UPM’s global rules, local legislation, general agreements, local market practice, the level of the position and individual performance. Gender, race, age and nationality have no role in the definition of salaries and wages. The differences between male and female average salaries do not differ a lot and vary to both directions, assessed for salaried employees in UPM’s main countries of operations. Intangible recognition is included in the total reward portfolio, which means that UPMprovides, for instance, a safe and healthy working environment, interesting and meaningful work and excellent leadership and career opportunities. Individual, team and business performance are criteria for compensation planning and decisions. All UPM’s employees belong to a unified annual Short Term Incentive (STI) scheme. The plan includes group- and business- level targets and personal and/or team performance targets. EBITDA is one of the key financial indicators for the group and business-level targets. The annual incentives paid in 2016 for the 2015 STI plan were EUR 52.9 million and the estimated amount of annual incentives for the 2016 STI plan is EUR 59.1 million. For significant individual or team successes, there is a separate Achievement Award system in place. UPMhas two long-term incentive plans: a Performance Share Plan (PSP) for senior executives and a Deferred Bonus Plan (DBP) for other key employees. Since 2011, when the plans have been launched annually and approximately 670 employees have been covered by the plans. In both plans, the earning of shares is subject to the achievement of predetermined criteria. Under the plans, UPM shares are awarded based either on group/business area-level performance or total shareholder return. More information about long-term incentives can be found on www.upm.com in the Investors section, under Governance, in the Remuneration Statement.

Supporting re-employment The central elements of UPM’s activities regarding permanently closed operations and restructuring are typically retraining, re-employment and relocation within the company, supporting entrepreneurship as well as severance payments. Active measures promoting employment and retraining are carried out in close co-operation with various authorities and other third parties. In restructuring situations, UPM follows local labour laws. In Finland, the employer’s minimum notice period is determined in the Finnish Employment Contract Act and collective agreements, based on the length of employment: for employment of less than 12 years, the notice period varies between 14 days and four months, and for employment exceeding 12 years it is six months. Similarly, in Germany the minimum notice period is determined by the German Civil Code and adhered to by collective agreements. It is calculated based on the length of employment: from zero up to 20 years, the notice period varies accordingly from four weeks to seven months. In China, the minimum notice period is 30 days and is described in local legislation. In 2016, UPMpermanently closed Madison paper mill in the US. UPM also sold Schwedt mill in Germany. In Finland, UPM adjusted operations at the UPMTervasaari mill after the tenant’s announcement to close down its operations at the mill site. UPMpersonnel was reduced by approximately 400 people by the end of 2016 as a conse quence of these measures. In November, UPM announced plans to permanently close two paper machines at UPM Steyrermühl and UPMAugsburg in Austria and Germany.