UPM Annual Report 2017

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Governance

In brief

Strategy

Businesses

Stakeholders

Accounts

Remuneration Committee Duties and responsibilities of the Remuneration Committee are related to the remuneration of the President and CEO and senior executives who report directly to the President and CEO, and to the review of the company's talent and succession planning procedures for senior management. The annual and other topics reviewed and considered by the committee to perform its duties are presented in the enclosed table. In 2017, the committee paid special attention to the company’s talent review and succession planning procedures and reported to the Board on these matters.

Remuneration Committee work in 2017

ANNUAL TOPICS Design of short-term incentive (STI) plan and achievement award STI earning criteria and target setting

Design of long-term incentive (LTI) plans

Earning criteria of LTI plans LTI target setting and allocations

STI plan and achievement award

STI actuals

Commencing LTI plans (Performance Share Plan and Deferred Bonus Plan)

STI pay-outs

LTI actuals LTI pay-outs

Executive compensation in peer companies Compensation and benefits of the President and CEO Compensation and benefits of the GET members and other CEO reports GET performance review and succession plan Business area management team talent review and succession plan Talent review process

Ongoing LTI plans

Management share ownership

Employee Engagement Survey results

Committee charter Committee calendar

Board remuneration The AGM 2017 decided to raise the annual Board fees, which had remained the same since 2007. It also adopted annual committee fees, which had not been paid earlier. The Nomination and Governance Committee proposed the adjustment of the fees due to the increased workload of the Board and its committees – as a result of expansive regulatory requirements and UPM’s ongoing transformation – combined with the need to enhance the Board’s ability

to attract competent and diverse talent. The adjusted fees and each director’s annual remuneration and the number of purchased shares are presented in the tables below. No annual fees are paid to the President and CEO for his role as a member of the Board. Board members did not receive any financial benefits for their Board or committee membership other than their annual base and committee fees. Shares purchased for Board members in 2017 may

not be transferred within two years from the purchase date (26 April 2017) or until the director's Board membership ends, whichever occurs first. The payment of board remuneration in shares and cash has long been a practice at UPM. Board members are encouraged to own company shares on a long-term basis and most of them have substantial holdings, indicating a close alignment of directors’ interests with those of shareholders.

OTHER TOPICS

ADDITIONAL INFORMATION

EU Shareholders’ Rights Directive

Upcoming changes in regulatory environment

Nomination and Governance Committee Duties and responsibilities of the Nomination and Governance Committee are related to the composition, diversity 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. The annual and other topics reviewed and considered by the committee to perform its duties are presented in the enclosed table. In 2017, the committee was occupied with a search of new director candidates and preparation of amendments to the company’s Articles of Association.

Nomination and Governance Committee work in 2017

ANNUAL TOPICS Director evaluation and nomination process

Board performance

Size and composition of the Board

Board diversity

Relevant director qualifications, skills and experi- ence Committee independence and expertise require- ments Evaluation of director nominees’ independence

Overall evaluation of director candidates’ independence Composition of the Board committees Biographical details of director nominees Non-executive director remuneration in peer companies Board remuneration (proposal to the AGM) Composition of the Board (proposal to the AGM)

Board remuneration and payment mechanism

ANNUAL BASE FEE (EUR)

2017

2016

PAYMENT MECHANISM

Chairman

190,000 135,000

175,000 120,000 120,000 95,000

40% in company shares, 60% in cash to cover taxes Two-year lock-up period

Board and committee annual fees

Deputy Chairman

Audit Committee Chairman

–

Payment mechanism of Board remuneration Number of directors (proposal to the AGM)

Members

110,000

Board evaluation survey

Board self-evaluation results

ANNUAL COMMITTEE FEES 2017 (EUR)

CHAIRMAN MEMBERS

PAYMENT MECHANISM