UPM Annual Report 2019

3. Employee rewards 3.1 Employee costs

Other operating income Other operating income mainly includes gains on the disposal of non-current assets and rental income. Further, other operating income includes foreign exchange gains and losses in respect of UPM’s normal business activities. Gains and losses on derivatives not qualifying hedge accounting are also recognised in other operating income. Emission rights The group participates in the European Emissions Trading Scheme aimed at reducing greenhouse gas emissions. Emission rights received from governments free of charge to emit a fixed tonnage of carbon dioxide in a fixed period of time give rise to an intangible asset for the emission rights, a government grant and a liability for the obligation to deliver emission rights equal to the emissions that have been made during the compliance period. Emission rights are initially recognised as intangible assets based on market value at the date of initial recognition. Emission rights are not amortised. If the market price of emissions rights at the balance sheet date is less than the recognised costs, any surplus emission rights that are not required to cover actual and estimated emissions during the financial year, are impaired to the market price. Government grants are recognised as deferred income in the balance sheet at the same time as emission rights and are recognised in other operating income in the income statement, systematically, over the compliance period to which the corresponding emission rights relate. The liability to deliver emission rights is recognised based on actual emissions. The emissions realised are expensed under other operating costs and expenses in the income statement and presented as a provision in the balance sheet. The liability is settled using emission rights on hand, measured at the carrying amount of those emission rights. Emission rights and associated provisions are derecognised when disposed. Any profit or loss represents the costs of purchasing additional rights to cover excess emissions, the sale of unused rights in the case realised emission are under emission rights received free of charge or the impairment of unused emission rights. 2.4 Earnings per share and dividend According to UPM dividend policy, the company aims to pay an attractive dividend amounting to 30–40% of the group annual operating cash flow per share. The dividend paid in 2019 were EUR 693 million (EUR 1.30 per share) which is 52% of the operating cash flow per share and in 2018 EUR 613 million (EUR 1.15 per share). The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 693 million, EUR 1.30 per share, will be paid in respect of 2019. The proposed dividend represents 38% of UPM’s operating cash flow per share for the year 2019.

Accounting policies

Earnings per share Earnings per share (EPS) is the amount of profit for the period attributable to each ordinary share. The basic earnings per share are computed using the weighted average number of shares outstanding during the period. Diluted earnings per share are computed using the weighted average number of shares outstanding during the period plus the dilutive effect of share options. The group did not have share-option schemes at the end of 2019 and 2018. Dividend Dividend distribution to the owners of the parent company is recognised as a liability in the group’s consolidated financial statements in the period in which the dividends are approved by the parent company’s shareholders.

In 2019 and 2018, the Chair of the Board of Directors received an annual base fee of EUR 190,000, the Deputy Chair of the Board EUR 135,000 and other members of the Board EUR 110,000. The annual base fee was paid in company shares and cash so that approximately 40% of the fee was paid in the company shares to be purchased on the Board members’ behalf, and the rest in cash. The company paid any costs and transfer tax related to the purchase of the company shares. The Chair of Audit Committee received annual committee fee of EUR 35,000 and Chair of Remuneration Committee as well as Chair of Nomination and Governance Committee EUR 20,000. The members of Audit Committee received annual committee fee of EUR 15,000 and members of other committees EUR 10,000. The annual committee fees were paid in cash. No annual fees were paid to the President and CEO for his role as a member of the Board. In 2019, 2,911 (2,539) company shares were purchased to the Chair, 2,068 (1,804) to the Deputy Chair and 1,685 (1,470) to other members of the Board.

EURm

2019 964

2018 936

Salaries and fees

Share-based payments

14

13

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

25

29

105 107

105 110

Other indirect employee costs 1)

Total 1,194 1) Other indirect employee expenses primarily include other statutory social expenses, excluding pension expenses. 3.2 Key management personnel The Annual General Meeting 2019 resolved that the remuneration of the members of the Board of Directors remain unchanged. No changes have taken place in the directors' remuneration since 2017. 1,214

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

Shareholdings 31 December

Annual base fee (EUR 1,000) Annual committee fee (EUR 1,000)

2019

2018

2019

2018

2019

2018

Board members Björn Wahlroos, Chair

265,194 312,533

262,283 310,465

190 135 110 110 110 110 110 110 110 —

190 135 110 110 110 110 110 110 110 —

20 10 10 35 15 10 20 10 15 —

20 10 10 35 15 10 20 10 15 —

Earnings per share Dividend per share (2019: proposal)

Berndt Brunow, Deputy Chair

Henrik Ehrnrooth Piia-Noora Kauppi Marjan Oudeman

9,506 19,391

7,821

17,706 1,470

3,155

Jussi Pesonen, President and CEO

466,472

418,859

Ari Puheloinen

11,531 44,327 9,506 21,305

9,846

Veli-Matti Reinikkala

42,642

Suzanne Thoma

7,821

Kim Wahl

19,620

1,162,920 1,098,533

1,095

1,095

145

145

Total

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

President and CEO Jussi Pesonen

Other members of Group Executive Team 1)

EUR 1,000

2019

2018

2019

2018 3,971 2,387 9,014

Salaries

1,096 1,426 3,025

1,094 1,416 2,966

4,242 1,779 9,421

Short-term incentives

Share rewards

Benefits

29

31

123

131

Earnings per share EURm

5,576

5,507

15,565

15,502

Total

2019

2018

1) 11 members in 2019 and 2018.

Profit attributable to owners of the parent company, EURm Weighted average no. of shares (1,000)

1,061

1,495

533,324 533,324

Basic earnings per share, EUR Diluted earnings per share, EUR

1.99 1.99

2.80 2.80

162

163

UPM ANNUAL REPORT 2019

UPM ANNUAL REPORT 2019

CONTENTS

ACCOUNTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS