UPM Annual Report 2018

UPM AT A GLANCE

STRATEGY

BUSINESSES

SOCIETY AND ENVIRONMENT

GOVERNANCE AND COMPLIANCE

REPORT OF THE BOARD OF DIRECTORS

FINANCIAL STATEMENTS

AUDITOR’S REPORT

OTHER FINANCIAL INFORMATION

3. Employee rewards

the Group Executive Team. For the President and CEO the maximum annual incentive amounts to 150% of the annual base salary. The expenses recognised in income statement in respect of share- based payments for the Group Executive Team were EUR 3.0 million (7.8 million). In accordance with the executive contract, the retirement age of the President and CEO Jussi Pesonen is 60. For the President and CEO, the target pension is 60% of the average indexed earnings from the last ten full calendar 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. The expenses of the President and CEO’s defined benefit pension plan in 2018 were EUR 0.9 million (0.6 million). The plan assets amounted to EUR 11.5 million (10.9 million) and the obligation amounted to EUR 11.7 million (10.4 million).

The retirement age of other members of the Group Executive Team is 63. Other Group Executive Team members are under defined contribution plans. If notice of termination is given to the President and CEO, severance pay of 24 months' base salary will be paid in addition to the salary for the six-month notice period. Should the President and CEO give notice of termination to the company, no severance pay will be paid in addition to the salary for the notice period. For other members of the Group Executive Team, the period for severance pay is 12 months in addition to the six months’ salary for the notice period, unless notice is given for reasons that are solely attributable to the executive. Should other member of the Group Executive Team give notice of termination to the company, no severance pay will be paid in addition to 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 and shall receive compensation equivalent to 24 months' base salary.

3.1 Employee costs

3.2 Key management personnel

The Annual General Meeting 2018 resolved that the remuneration of the Board of Directors remain unchanged. The Annual General Meeting 2017 decided to raise the annual Board fees, which had remained the same since 2007, and also adopted annual committee fees, which had not been paid earlier. The Chairman of the Board of Directors receives an annual base fee of EUR 190,000, the Deputy Chairman of the Board EUR 135,000 and other members of the Board EUR 110,000. The annual base fee is paid in company shares and cash so that approximately 40% of the fee is paid in the company shares to be purchased on the Board members’ behalf, and the rest in cash. The company pays any costs and transfer tax related to the purchase of the company shares. The annual committee fees are paid in cash. No annual fees are paid to the President and CEO for his role as a member of the Board. In 2018, 2,539 (3,067) company shares were paid to the Chairman, 1,804 (2,179) to the Deputy Chairman and 1,470 (1,776) to other members of the Board.

EURm

2018

2017

Salaries and fees

936

965

Share-based payments

13

23

Pension and other post-employment benefits, defined benefit plans Pension costs, defined contribution plans

29

57

105 110

107 113

Other indirect employee costs 1)

Total

1,194 1,265

1) Other indirect employee expenses primarily include other statutory social expenses, excluding pension expenses .

Shareholdings (no. of shares) and fees of the Board of Directors

3.3 Share-based payments UPM offers rewards and recognition with an emphasis on high performance. All UPM’s employees belong to a unified annual Short Term Incentive (STI) scheme. In addition, UPM has two long-term incentive plans: the Performance Share Plan (PSP) for senior executives and the Deferred Bonus Plan (DBP) for other key employees.

Performance Share Plan The Performance Share Plan (PSP) is targeted at Group Executive Team (GET) members and other selected members of the management. Under the ongoing plans the UPM shares are awarded based on the total shareholder return during a three-year earning period. The earned shares are delivered after the earning period has ended. Total shareholder return takes into account share price appreciation and paid dividends.

Annual base fee (EUR 1,000)

Annual committee fee (EUR 1,000)

Shareholdings 31 December

2018

2017

2018

2017

2018

2017

Board members Björn Wahlroos, Chairman

262,283 310,465

259,744 308,661

190 135 110 110 110 110 110 110 110 –

190 135 110 110

20 10 10 35 15 10 20 10 15 –

20 10 10 35

Berndt Brunow, Deputy Chairman

Henrik Ehrnrooth Piia-Noora Kauppi Marjan Oudeman 1)

7,821

6,351

17,706 1,470

16,236

PERFORMANCE SHARE PLANS

PSP 2015–2017 PSP 2016–2018 PSP 2017–2019 PSP 2018–2020

–

– –

– –

Jussi Pesonen, President and CEO

418,859

353,491

No. of participants at 31 December 2018

24

22

24

30

Ari Puheloinen

9,846

8,376 41,172 6,351 18,150 37,000

110 110 110 110 110

10 20 10 15 15

Actual achievement

100%

100%

–

–

Veli-Matti Reinikkala

42,642

Max no. of shares to be delivered 1) to the President and CEO

Suzanne Thoma

7,821

107,196 325,876 252,980 686,052

112,500 319,500 240,500 672,500

92,500 275,500 222,000 590,000

84,100

Kim Wahl

19,620

to other members of GET to other key individuals

250,400 227,000 561,500

Wendy E. Lane

–

–

–

Total

1,098,533 1,055,532

1,095

1,095

145

145

Total max no. of shares to be delivered

Share delivery (year)

2018

2019

2020

2021

1) Succeeding Wendy E. Lane, who stepped down from the Board on 5 April 2018.

Earning criteria (weighting)

Total shareholder return (100%)

Total shareholder return (100%)

Total shareholder return (100%)

Total shareholder return (100%)

Salaries and benefits of the President and CEO and the Group Executive Team

1) For PSP 2015–2017 and PSP 2016–2018, the gross number of shares actually earned.

President and CEO Jussi Pesonen

Other members of Group Executive Team 1)

EUR 1,000

2018 1,094 1,416 2,966

2017 1,049 1,119 2,656

2018 3,971 2,387 9,014

2017 3,934 2,088 8,174

Deferred Bonus Plan The Deferred Bonus Plan (DBP) is targeted at other selected key employees of the group and it consists of annually commencing plans. Each plan consists of a one-year earning period and a two-year restriction period. UPM shares are awarded based on achievement of

Salaries

group or group and business area EBITDA targets. Prior to share delivery, the share rewards earned are adjusted with dividends and other capital distributions, if any, paid to all shareholders during the restriction period.

Short-term incentives

Share rewards

Benefits

31

31

131

251

Total

5,507

4,854

15,502

14,446

11 members in 2018 and 2017.

1)

DEFERRED BONUS PLANS No. of participants (at grant)

DBP 2015

DBP 2016

DBP 2017

DBP 2018

In 2018, costs under the Finnish statutory pension scheme for the President and CEO amounted to EUR 471,000 (413,000) and payments under the voluntary pension plan were EUR 923,000 (1,170,000). In 2018, costs under the Finnish and German statutory pension schemes for Group Executive Team (GET) members (excluding the President and CEO) amounted to EUR 988,000 (899,000) and payments under the voluntary pension plan were EUR 880,000 (850,000).

The remuneration of the President and CEO and other members of the Group Executive Team consists of the base salary and benefits, short-term incentives and long-term share-based incentives. The short-term incentive plan for the President and CEO and other members of the Group Executive Team is linked to the achievement of the predetermined financial targets of the group or business area as well as individual targets. The incentives amount to a total maximum of 100% of annual base salary to the Business Area Executives and to a total maximum of 70% of annual base salary to the other members of

350 321

340 303

360 333

370 357

No. of participants (at 31 December 2018) Max no. of shares to be delivered (at grant)

800,000 382,497

770,000 350,261

525,000 311,627

450,000 415,602

Estimated no. of shares to be delivered at 31 December 2018 1)

Share delivery (year)

2018

2019

2020

2021

Earning criteria

Group/Business area EBITDA

Group/Business area EBITDA

Group/Business area EBITDA

Group/Business area EBITDA

1) For DBP 2015 and DBP 2016, the gross number of shares actually earned.

138

139

CONTENTS

ACCOUNTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018