UPM Annual Report 2017

Governance

In brief

Strategy

Businesses

Stakeholders

Accounts

Executive management Jussi Pesonen has been the President and Chief Executive Officer of UPM-Kymmene Corporation since January 2004. He has also been a member of the company's Board of Directors since March 2007. In the operating management of the company, the President and CEO is assisted by the Group Executive Team, the Business Area Boards

Components of management remuneration

Management remuneration The aim of the company's management remuneration is to promote the company's long-term financial success, competitiveness and shareholder value. Remuneration comprises non-variable and variable components. These components are shown in the table on the right. The variable components are linked to predetermined and measurable performance and results criteria, and maximum levels have been set for their payment. The payable amounts of incentives are linked to the executive's position and achievement of annually set business and individual targets. Salaries, benefits and incentives paid to the President and CEO and members of the Group Executive Team in 2017 are shown in the enclosed tables. Read more on the company’s Board and management remuneration principles, decision-making procedures, incentive schemes, termination payments and pension benefits in the Remuneration Statement and on pages 125–127 of this report.

COMPONENT Base salary Fringe benefits

PAYABLE IN

BASIS OF PAYMENT Executive contract Executive contract Short-Term Incentive Plan Performance Share Plan

TIME OF PAYMENT

and the Strategy Team. The Group Executive Team consists of the executives heading the business areas and the global functions and assists the President and CEO in approving and executing group-level guidelines and procedures. The President and CEO chairs the Group Executive Team.

Members of the Group Executive Team and their positions and share­ holdings in the company are shown in the table below. Information on the executives' biographical details, professional and educational backgrounds and significant commitments is available on pages 88–89 of this report.

Cash

Monthly Monthly

E.g. company car and phone

Short-term incentives

Cash

Annually

Long-term incentives

Shares

Annually following a three-year earning period

Remuneration of the President and CEO in 2017

Members of the Group Executive Team

SALARIES AND BENEFITS (EUR 1,000)

TEAM MEMBER SINCE

2017

2016

UPM SHARES 31 DEC. 2017

UPM SHARES 31 DEC. 2016

EXECUTIVE

POSITION AT UPM President and CEO

Salary

1,049 1,119 2,656

1,049

Short-term incentives

888

Jussi Pesonen

2001 2008 2013 2004 2016 2008 2002 2004 2016 2013 2013 2010

353,491 107,103 47,050 69,949 51,579 76,739 13,420 13,695 26,685 19,656 37,861 824,148 6,920

304,064 85,355 26,686 58,087 39,717 64,877 15,420 12,845 16,794 40,067 664,234 – 322

Share rewards

3,098

Tapio Korpeinen Bernd Eikens Pirkko Harrela Antti Jääskeläinen

CFO, Executive Vice President, UPM Energy Executive Vice President, UPM Specialty Papers Executive Vice President, Stakeholder Relations

Benefits

31

30

Total

4,854 2,380

5,065 2,592

Income tax withholding *)

Executive Vice President, UPM Raflatac

Juha Mäkelä Jyrki Ovaska

General Counsel

*) Income taxes withheld from salaries and benefits and remitted to tax authorities by UPM.

Executive Vice President, Technology Executive Vice President, Human Resources Executive Vice President, UPM Paper ENA Executive Vice President, UPM Plywood

Riitta Savonlahti Winfried Schaur Mika Sillanpää Kari Ståhlberg Heikki Vappula

Remuneration of the Group Executive Team in 2017 (excluding the President and CEO)

SALARIES AND BENEFITS (EUR 1,000)

Executive Vice President, Strategy

2017

2016

Executive Vice President, UPM Biorefining

Salaries

3,934 2,088 8,174

3,564 1,779 6,269

Total

Short-term incentives

Share rewards

Benefits

251

231

Total

14,446

11,843

Management responsibilities Members of the Group Executive Team carry the main responsibility for the business areas and global functions that they lead. These responsibility areas are shown in the illustration below. In addition to the President and CEO who chairs the boards, the Business Area Boards comprise the CFO, the EVPs of the global functions and the EVP of the business area in question. The Business Area Boards assist the President and CEO with business-area-level decision making in matters pertaining to each

business area's strategy, budget, business performance, operating investments, commercial strategies, business development plans, business and strategic risks, strategic and organisational changes, and HRmatters. The Strategy Team is chaired by the President and CEO. Its other members are the CFO and the heads of the strategy, technology and legal functions. The team assists the President and CEO in matters pertaining to the preparation of group strategies, strategic projects, capital expenditure, M&A and other

strategic development initiatives for approval by the Board of Directors. Each business area and global function has a management team. These teams assist the business area or function head in the preparation and execution of strategies, budgets, business development plans, and the operating model and organisation for the business area or function in question. The biggest business areas have further been divided into strategic business units, each with their own management teams.

Auditor and auditor remuneration

Governance principles Read more on UPM’s decision-making and management principles on pages 18–19 and 104–106 of this report. More information on our governance is available on the corporate website and in the following statements, charters and policies, all available on www.upm.com/governance: • Corporate Governance Statement 2017 • Remuneration Statement 28 February 2018 • Board and Committee Charters • Diversity Policy of the Board of Directors • Director independence criteria

The Audit Committee prepared the Board's proposal to the AGM 2017 for the election and remuneration of the auditor. Together with corporate management, the committee evaluated the qualifications and independence of the auditor, and the auditor's provision of audit-related and non-audit services. The evaluation included an 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 to the Board the re-election of PricewaterhouseCoopers Oy as the company's auditor and the Board concurred with this proposal and made a corresponding proposal to the AGM. The AGMre-elected Pricewaterhouse­ Coopers Oy, a firm of Authorised Public Accountants, as the company's statutory auditor for a one-year term, with Authorised Public Accountant Merja Lindh as the lead

audit partner. Ms Lindh has held this position since 8 April 2014 and the last year that she can act as a signing partner is 2020. The last year that PricewaterhouseCoopers Oy can act as the company’s auditor is 2023. The AGM further resolved that the audit fee would be paid against invoices approved by the Board of Directors' Audit Committee. The amounts paid to the auditor, as approved by the Audit Committee, are shown in the following table.

Responsibility areas of the members of the Group Executive Team

PRESIDENT AND CEO JUSSI PESONEN

Auditor’s remuneration

CFO 1)

UPM Biorefining

Tapio Korpeinen

Heikki Vappula

EUR MILLION

2017

2016

General Counsel

UPM Energy

Juha Mäkelä

Tapio Korpeinen

Audit fee

2.3 0.1

2.3 0.1

Audit-related services Tax services Other services

Strategy

Antti Jääskeläinen UPM Raflatac

Kari Ståhlberg

0.3 0.5 3.2

0.7 0.5 3.6

Technology 2)

UPM Specialty Papers

Jyrki Ovaska

Bernd Eikens

Human Resources

UPM Paper ENA

Riitta Savonlahti

Winfried Schaur

Total

Stakeholder Relations 3)

UPM Plywood

Pirkko Harrela

Mika Sillanpää

UPM complies with all recommendations of the Finnish Corporate Governance Code issued by the Securities Market Association. This Code available on the Securities Market Association's website at www.cgfinland.fi .

1) Incl. Finance & Control, Treasury, IR, IT, Sourcing and Real Estate (incl. Finnish forest assets) 2) Incl. Investment Management, R&D, new business development (biochemicals, biocomposites) 3) Incl. Brand & Communications, Environment & Responsibility, Public & Media Relations

CONTENTS

84

85

UPM Annual Report 2017

UPM Annual Report 2017