UPM Annual Report 2016

Governance

In brief

Strategy

Businesses

Stakeholders

Accounts

ment, the committee evaluated the qualifica­ tions and independence of the auditor, and the auditor’s provision of audit-related and non- audit services. The evaluation included the assessment of the effectiveness of the audit process, quality of audit, performance of the lead auditor and the audit team, and co-operation with the auditor’s international audit network. As a result of this evaluation, the committee recommended the re-election of Pricewater­ houseCoopers Oy as the company’s auditor. Remuneration Committee Duties and responsibilities of the Remuneration Committee are related to the remuneration of the President and CEO and senior executives reporting directly to the President and CEO, and to the review of the company’s talent and succession planning procedures for senior management. To perform its duties, the committee reviews the senior executives’ total remuneration annually. The executive remuneration consists of the base salary and fringe benefits, perform­ ance-based short- and long-term incentives, and pension benefits. The committee’s review of the executives’ salaries and benefits included benchmarking the salaries and benefits to market practices in corresponding positions in peer companies. Based on this review, the committee made recommendations to the Board for the salaries and benefits of the President and CEO and other senior executives. Related to the company’s short- and long- term incentive schemes, the committee reviewed and prepared the annually commencing plans and made recommendations to the Board for the structure, earning criteria, targets and allocation of these plans. The com­ mittee also evaluated the achievement of the set targets and the overall performance of the President and CEO and other senior executives, and made recommendations to the Board for the approval of short- and long-term incentive pay-outs. These pay-outs are summarised in the tables on page 81 of this report. As to the succession plans for senior management, the committee reviewed the company’s talent and succession planning procedures and reported to the Board on such matters. The committee was also informed of the results of the employee engagement survey, which was conducted in August–September. In addition, the committee reviewed and approved amendments to its charter. The Remuneration Committee follows remuneration market trends at regular intervals. In 2016, the committee was provided with a comprehensive review of executive remuneration, including comparison of the company’s executive remuneration with that of peers, regulatory framework of remuneration, and remuneration market trends in Europe, the US and APAC. According to that review, the applied remuneration instruments and metrics at UPMwidely reflect the common market practices.

Committee members and their attendance in committee meetings 2016

ATTENDANCE/ NO. OF MEETINGS ATTENDANCE-%

COMMITTEE

MEMBERS

Audit Committee

Piia-Noora Kauppi (Chairman)

7/7

100

Wendy E. Lane

7/7

100

Kim Wahl

7/7

100

Remuneration Committee

Veli-Matti Reinikkala (Chairman)

4/4

100

Henrik Ehrnrooth

4/4

100

Suzanne Thoma

4/4

100

Nomination and Governance Committee

Björn Wahlroos (Chairman)

4/4

100

Berndt Brunow

4/4

100

Ari Puheloinen

4/4

100

Board committees The committees assist the Board of Directors by preparing matters to be decided by the Board. In addition, the committees assist the Board in its oversight and monitoring responsibilities. The Board is responsible for the performance of any duties assigned to the committees. The directors appointed to the Board committees in the Board’s organisational meeting on 7 April 2016 are presented in the table above. The table also contains information on the number of committee meetings and committee members’ attendance in the meetings. The written committee charters approved by the Board of Directors set forth the purposes, composition, operations and duties of each committee, as well as qualifications for committee memberships. As mentioned earlier, the charters were updated in 2016 and are available on the corporate website. Each committee is responsible for carrying out the duties assigned to it in its charter. The committees hold their meetings prior to Board meetings in order to prepare matters for the Board’s decision making. In the Board meeting following the committee meetings, the Committee Chairmen report to the Board on matters discussed and actions taken by the committees. In addition, minutes are kept for the committee meetings and submitted to the Board members for their information. Audit Committee Duties and responsibilities of the Audit Committee are related to the oversight of the company’s financial reporting processes and financial reporting, internal control, internal audit and risk management, and to monitoring the audit and compliance procedures of the company. To perform its duties, the Audit Committee monitored the company’s financial performance and reviewed the key financial figures and quarterly financial reports and recommended the approval of the reports to

Nomination and Governance Committee Duties and responsibilities of the Nomination and Governance Committee are related to the composition and remuneration of the Board of Directors and to corporate governance. When needed, the committee also identifies individuals qualified to serve as the President and CEO. Following the committee’s review of the Board composition and assessment of the Board competences, diversity and qualifications in relation to UPM strategy, operations, and governance needs, no major development needs were identified and therefore, no changes in the Board composition were proposed to the AGM in 2016. With regard to Board remuneration, the committee emphasised the importance of aligning the interests of directors with those of shareholders and concluded that shares continued to be the preferred form of remuneration, but did not propose any changes in the level of remuneration. In 2016, the committee was especially occupied with governance and compliance-

Corporate Governance Code’s independence criteria. The criteria adopted by the committee are available on the corporate website. The incumbent directors’ independence evaluation is discussed earlier on pages 76-77 of this report. The committee also assessed directors’ independence on a continuous basis, and in every meeting reviewed a report on any changes in directors’ professional engagements and positions of trust and assessed the potential effects of such changes on directors’ indepen­ dence and availability for Board work, and reported to the Board on the outcome of such assessments. According to the committee’s assessment, the changes that took place in 2016 had no effect on the directors’ independence or availability. Furthermore, the committee reviewed the composition, qualification criteria and duties of the Board committees, and made a proposal to the Board of Directors for the appointment of committee members and chairmen. In addition, the committee assisted the Board in the annual evaluation of the Board performance and working methods and in the review of the survey results.

related matters and assisted the Board in the revision of the UPMCode of Conduct, amendment of the board and committee charters and establishment of the Board diversity principles. These principles and the Board Diversity Policy are discussed earlier on page 77 of this report. The Board Diversity Policy also includes a description of the various phases of the Nomination and Governance Committee’s well-established director nomination and evaluation process. This process is presented in the illustration below. When preparing the Board’s proposal to the AGM regarding the composition of the Board, the committee follows this process. Director independence criteria The committee also assisted the Board in the annual assessment of director independence. To facilitate this assessment, the committee adopted director independence criteria in February, which complements the Finnish Director evaluation and nomination process

the Board. The committee’s results reviews also included reviews of potential significant and unusual transactions, and accounting estimates and policies for the period in question. On a quarterly basis, the committee also reviewed reports on assurance and legal matters, including status reports on compliance, internal control, internal audit, litigations, and other legal proceedings. Other quarterly reports presented for the committee’s review included treasury reports and energy risk management report. The lead audit partner attended all committee meetings and provided the committee with reports on the interim procedures and findings as well as accounts of the audit and non-audit fees incurred during the quarter in question. The committee had quarterly non-executive sessions with the internal and statutory auditors and held sessions with executive management, and among the committee members at the end of each meeting. With regard to monitoring the effectiveness of the company’s risk management systems, the committee reviewed the company’s risk management process and was informed of the top 20 risks as well as group-level strategic risks identified in this process including macroeconomic, political, environmental, compliance and business-specific risks. In 2016, the committee also reviewed and acknowledged the company’s adoption of ESMA (European Securities and Markets Authority) guidelines on alternative performance measures and considered implications resulting from the Market Abuse Regulation for the directors and senior executives and for corporate procedures and policies. In addition, the committee reviewed and approved amendments to its charter due to the changes in the regulatory framework. The Audit Committee also prepared the Board’s proposal to the AGM for the election and remuneration of the auditor. In this respect, and together with corporate manage­

Director evaluation and nomination process

Evaluation of the performance and composition of the Board

Board proposal for director nominees to the AGM

Disclosure of director nominees

Presenting the proposal at the AGM

Search for potential new director candidates

Recommending director nominees to the Board

Election of directors by the AGM

Evaluation of director candidates’ independence

Evaluation of director candidates

CONTENTS

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79

UPM Annual Report 2016

UPM Annual Report 2016