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

COMPONENTS OF MANAGEMENT REMUNERATION

Remuneration In accordance with the Finnish Corporate Governance Code, we have published our Remuneration Statement for the financial year 2018 and this statement is available on the corporate website at www.upm.com/ governance. We refer to this statement for information on our remuneration principles, remuneration decision-making procedures, short and long-term incentive schemes, termination payments and pension benefits. Please see also pages 138–140 of this report. In the following, we report on the directors’ and executives’ actual remuner­ ation in 2018.

Remuneration of the Board of Directors

Remuneration of the executive management

COMPONENT

PAYABLE IN

BASIS OF PAYMENT TIME OF PAYMENT

and CEO for his role as a member of the Board. Board members did not receive any other financial benefits for their Board or committee membership than the annual base and committee fees. Shares purchased for the Board members in 2018 may not be transferred within two years from the purchase date (27 April 2018) 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.

The aim of the company’s management remuneration is to promote the company’s long-term financial success, competitiveness and shareholder value. Remuneration comprises fixed 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. The company has the right to recover any rewards under the variable components if they have been awarded under false pretences or erroneously. Salaries, benefits and incentives paid to the President and CEO and members of the Group Executive Team in 2018 are shown in the enclosed tables. In 2018, costs under the Finnish statutory pension scheme for the President and CEO amounted to EUR 471,000 (EUR 413,000 in 2017), and payments under the voluntary pension plan amounted to EUR 923,000 (EUR 1,170,000). In 2018, costs under the Finnish and German statutory pension schemes for GET members (excluding the President and CEO) amounted to EUR 988,000 (EUR 899,000 in 2017) and payments under the voluntary pension plan were EUR 880,000 (EUR 850,000). Auditor and auditor’s fees The AGM 2018 re-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. The latest tendering process for audit services was carried out in 2013. 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 enclosed table.

The AGM2018 resolved that the remuneration of the Board of Directors remain unchanged. 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 previously. 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 approved annual fees and each director’s total remuneration and the number of purchased shares are presented in the tables below. No annual fees are paid to the President

Base salary

Cash

Executive contract Executive contract

Monthly Monthly

Fringe benefits

For example, company car and phone

Short-term incentives

Cash

Short-Term Incentive Plan Performance Share Plan

Annually * )

Long-term incentives

Shares

Annually following a three-year earning period * )

* ) If targets are met.

REMUNERATION OF THE PRESIDENT AND CEO IN 2018

SALARIES AND BENEFITS (EUR 1,000)

2018 1,094 1,416 2,966

2017 1,049

Salary

Short-term incentives

1,119

Share rewards

2,656

Benefits

31

31

Total

5,507 2,739

4,854 2,380

Income tax withholding * )

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

BOARD REMUNERATION AND PAYMENT MECHANISM

ANNUAL BASE FEE (EUR)

2018

2017 PAYMENT MECHANISM

REMUNERATION OF THE GROUP EXECUTIVE TEAM IN 2018 (EXCLUDING THE PRESIDENT AND CEO)

Chairman

190,000 190,000 Approx. 40% in company shares, rest in cash to cover taxes Two-year lock-up period 135,000 135,000 110,000 110,000

Deputy Chairman

SALARIES AND BENEFITS (EUR 1,000)

Members

2018 3,971 2,387 9,014

2017 3,934 2,088 8,174

Salaries

Short-term incentives

Share rewards

COMMITTEE FEES AND PAYMENT MECHANISM

Benefits

131

251

Total

15,502

14,446

ANNUAL COMMITTEE FEES 2017–2018 (EUR)

CHAIRMAN MEMBERS PAYMENT MECHANISM

Audit Committee

35,000 20,000

15,000 10,000

AUDITOR’S FEES

Remuneration Committee

Cash

Nomination and Governance Committee

EUR MILLION

2018 2017 2016

20,000

10,000

Audit fee

2.4 0.0 0.3 0.5

2.3 0.1 0.3 0.5

2.3 0.1 0.7 0.5

Audit-related services

Tax services Other services

BOARD REMUNERATION IN 2018

3.2 3.2 3.6

Total

ANNUAL BASE FEE (EUR)

40% FOR SHARES (EUR)

60% IN CASH (EUR) 114,000 81,000 66,000 66,000 66,000 66,000 66,000 66,000 66,000 657,000 –

ANNUAL COMMITTEE FEE

TOTAL REMUNERA- TION (EUR)

NO. OF PURCHASED SHARES

UPM SHARES 31 DEC. 2018

DIRECTOR

Björn Wahlroos Berndt Brunow Henrik Ehrnrooth Piia-Noora Kauppi Marjan Oudeman

190,000 135,000 110,000 110,000 110,000 110,000 110,000 110,000 110,000 –

76,000​ ​54,000​ ​44,000​ ​44,000​ 44,000 44,000 44,000 44,000 44,000 –

20,000 10,000 10,000 35,000 15,000 10,000 20,000 10,000 15,000 –

210,000 145,000 120,000 145,000 125,000 120,000 130,000 120,000 125,000 –

2,539 1,804 1,470 1,470 1,470 1,470 1,470 1,470 1,470 –

262,283​ ​310,465

7,821

17,706 1,470

Jussi Pesonen Ari Puheloinen

418,859

9,846​

Veli-Matti Reinikkala

42,642

Suzanne Thoma

7,821

Kim Wahl

19,620​

Total

1,095,000

438,000

145,000 1,240,000

14,633 1,098,533

90

91

CONTENTS

UPM ANNUAL REPORT 2018

UPM ANNUAL REPORT 2018