UPM Annual Report 2020

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 2020 were EUR 693 million (EUR 1.30 per share) which is 38% of the operating cash flow per share and in 2019 EUR 693 million (EUR 1.30 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 2020. The proposed dividend represents 69% of UPM’s operating cash flow per share for the year 2020.

Earnings per share

EURm

2020 2019

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

560

1,061

533,324

533,324

EURm

2020 2019

1.05 1.05

1.99 1.99

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

Salaries and fees

979

964

Share-based payments

12

14

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

13 89 94

25

105 107

Accounting policies

Other indirect employee costs 1)

Total

1,188 1,214 1) Other indirect employee expenses primarily include other statutory social expenses, excluding pension expenses.

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 2020 and 2019. 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.

3.2 Key management personnel The Annual General Meeting 2020 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. In 2020 and 2019, 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. In 2020, 3,123 (2,911) company shares were purchased to the Chair, 2,219 (2,068) to the Deputy Chair and 1,808 (1,685) to other members of the Board.

Earnings and dividend per share

0.00 0.50 1.00 1.50 2.00 2.50 3.00

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

Annual committee fee (EUR 1,000)

Shareholdings 31 December

Annual base fee (EUR 1,000)

EUR

2020

2019

2020

2019

2020

2019

Board members Björn Wahlroos, Chair

268,317 314,752 11,314

265,194 312,533

190 135 110 110 110 110 110 110 110 —

190 135 110

20 10 10 15 35 15 10 10 20 —

20 10 10

2020

2019

2018

2017

2016

Berndt Brunow, Deputy Chair

Henrik Ehrnrooth Emma FitzGerald 2) Piia-Noora Kauppi Marjan Oudeman

9,506

Earnings per share Dividend per share (2020: proposal)

6,808

—

—

—

21,199

19,391

110 110

35 15

5,363

3,155

Jussi Pesonen, President and CEO 1)

—

466,472

— —

— —

Martin à Porta 2) Ari Puheloinen

6,008

—

13,339 46,135

11,531 44,327

110 110 110 110

10 20 10 15

Veli-Matti Reinikkala Suzanne Thoma 1)

—

9,506

—

—

Kim Wahl

23,113 716,348

21,305

110

15

Total

1,162,920

1,205

1,095

160

145

1) Suzanne Thoma and Jussi Pesonen stepped down from the Board in 2020 2) Emma FitzGerald and Martin à Porta were elected as new directors to the Board in 2020

162

UPM ANNUAL REPORT 2020 UPM FINANCIAL REPORT 2020 47 163

UPM ANNUAL REPORT 2020

UPM FINANCIAL REPORT 2020 46