UPM Annual Report 2020

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Salaries and benefits paid to the President and CEO and the Group Executive Team President and CEO Jussi Pesonen

PERFORMANCE SHARE PLANS No. of participants at 31 December 2020

PSP 2017–2019 PSP 2018–2020 PSP 2019–2021 PSP 2020–2022

Other members of Group Executive Team 1)

100 %

Actual achievement

71.45 %

—

EUR 1,000

2020 1,093

2019 1,096 1,426 3,025

2020 4,132 1,530 8,231

2019 4,242 1,779 9,421

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

Salaries

92,500 275,500 169,000 537,000

60,089 188,914 112,892 361,895

94,072 313,600 211,350 619,022

85,589 291,500 203,700 580,789

Short-term incentives

888

to other members of GET

Share rewards

2,734

to other selected members of management Total max no. of shares to be delivered

Benefits

134

123

Total

4,747

5,576

14,026

15,565

2020

Share delivery (year)

2021

2022

2023

1) 11 members in 2020 and 2019.

Total shareholder return (100%)

Earning criteria (weighting)

1) For PSP 2017–2019 and PSP 2018–2020, the gross number of shares actually earned.

In 2020, costs under the Finnish statutory pension scheme for the President and CEO amounted to EUR 349,000 (465,000) and payments under the voluntary pension plan amounted to EUR 1,421,000 (1,459,000). In 2020, costs under the Finnish and German statutory pension schemes for Group Executive Team (GET) members (excluding the President and CEO) amounted to EUR 785,000 (924,000) and payments under the voluntary pension plan amounted to EUR 964,000 (947,000). 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. In 2020 and 2019, the short-term incentives are based on the company's Short-Term Incentive Plan and they are paid annually in cash. The amount of the incentive is linked to the executive's position and achievement of annually set targets. The maximum incentives amount to a total of 100% of the annual base salary to the Business Area Executives and to a total of 70% of annual base salary to the other members of 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 3.4 million (3.4 million). According to the service agreement, the President and CEO would have been entitled to retire in November 2020 at the age of 60 but at the request of the company's Board of Directors, the President and CEO has decided to continue in his position. The President and CEO has a voluntary pension benefit in addition to the Finnish statutory pension scheme. The President and CEO's

voluntary pension benefit was arranged through a defined benefit plan until the end of November 2020. The last contribution to the defined benefit plan was made in 2020. Under the defined benefit plan, the target pension was 60% of the average indexed earnings from the last ten full calendar years of employment calculated according to the Finnish statutory pension scheme. The income of the President and CEO’s defined benefit pension plan in 2020 was EUR 1.6 million (1.0 million expense in 2019). The plan assets amounted to EUR 17.3 million (14.9 million) and the obligation amounted to EUR 14.9 million (15.0 million). As of December 2020 the voluntary pension benefit is arranged through a defined contribution plan. First contribution to the defined contribution plan will take place in 2021. The retirement age of other members of the Group Executive Team is 63. Other Group Executive Team members are under defined contribution plans. Should the company or the President and CEO give notice of termination of the service agreement, no severance pay will be paid in addition to the salary for the 12-month notice period. For GET members, 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 a GET member 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 service agreement within three months and each GET member within one month from closing the takeover and shall receive compensation equivalent to 24 months' base salary. Performance Share Plan The Performance Share Plan (PSP) is targeted at the President and CEO and other Group Executive Team (GET) members as well as other selected members of the management. Under the ongoing plans UPM shares are awarded based on 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.

Deferred Bonus Plan The Deferred Bonus Plan (DBP) is targeted at other selected key employees 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 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.

DEFERRED BONUS PLANS No. of participants (at grant)

DBP 2017

DBP 2018

DBP 2019

DBP 2020

360 304

370 316

390 355

393 384

No. of participants (at 31 December 2020) Max no. of shares to be delivered (at grant)

525,000 291,340

450,000 300,478

460,000 183,315

429,558 139,600

Estimated no. of shares to be delivered at 31 December 2020 1)

Share delivery (year)

2020

2021

2022

2023

Group/Business Area EBITDA

Earning criteria

1) For DBP 2017 and DBP 2018, the gross number of shares actually earned

The indicated actuals and estimates of the share rewards under the Performance Share Plan and the Deferred Bonus Plan represent the gross amount of the rewards of which the applicable taxes will be deducted before the shares are delivered to the participants.

Accounting policies

The group’s long-term share incentive plans are recognised as equity settled or cash-settled share-based payment transactions depending on the settlement. The group classifies the transactions with net settlement features for tax obligations as equity-settled in its entirety. Shares are valued using the market rate on the grant date. The settlement is a combination of shares and cash. The group may obtain the necessary shares by using its treasury shares or may purchase shares from the market. PSP and DBP share deliveries are executed by using already existing shares and the plans, therefore, have no dilutive effect.

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 schemes: the Performance Share Plan (PSP) for senior executives and the Deferred Bonus Plan (DBP) for other key employees.

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