UPM Annual Report 2021

ACCOUNTS FOR 2021

UPM

BEYOND FOSSILS

STRATEGY

BUSINESSES

RESPONSIBILITY

GOVERNANCE

3.4 Retirement benefit obligations The group operates various pension schemes in accordance with local conditions and practices in the countries of operations. Retirement benefits are employee benefits that are payable usually after the termination of employment, such as pensions and post-employment medical care.

PERFORMANCE SHARE PLANS No. of participants at 31 December 2021

PSP 2018-2020 PSP 2019-2021 PSP 2020-2022 PSP 2021-2023

25

26

28

27

The pension plans are generally funded through payments to insurance companies or to trustee-administered funds or foundations and classified as defined contribution plans or defined benefit plans. Defined benefit assets and liabilities recognised in the balance sheet are presented below:

71.45 %

Actual achievement

97.31 %

—

—

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

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

91,541 285,463 180,901 557,905

85,589 272,500 212,700 570,789

83,272 275,700 192,600 551,572

to other members of GET

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

2021

2020

2021

Share delivery (year)

2022

2023

2024

OTHER COUN TRIES TOTAL FINLAND UK GERMANY

OTHER COUN

Total shareholder return (100%)

Total shareholder return (100%)

Total shareholder return (100%)

Total shareholder return (100%)

Earning criteria (weighting)

EURm

FINLAND

UK GERMANY

TRIES TOTAL

Present value of funded obligations

577 -632

542 -565

39

15 -15

1,174 -1,214

581 -606

539 -515

43

16 -16

1,180 -1,140

1) For PSP 2018–2020 and PSP 2019–2021, the gross number of shares actually earned.

Fair value of plan assets Deficit (+)/surplus (–) Present value of unfunded obligations

-2

-3

-55

-23

36

—

-40

-25

24

40

—

39

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.

—

—

548

68

616

—

—

606

74

679

Net defined benefit liability (+)/ asset (–) Net retirement benefit asset in the balance sheet Net retirement benefit liability in the balance sheet 1)

-55

-23

585

68

576

-25

24

646

74

719

-56

-23

—

—

-79

-26

—

—

—

-26

DEFERRED BONUS PLANS No. of participants (at grant)

DBP 2018

DBP 2019

DBP 2020

DBP 2021

2

—

585

68

655

1

24

646

74

745

370 316

390 334

393 366

428 410

1) Net retirement benefit liability in the balance sheet includes other long-term employee benefits of EUR 21 million (25 million) in 2021.

No. of participants (at 31 December 2021) Max no. of shares to be delivered (at grant)

450,000 300,478

460,000 180,334

429,558 149,067

459,912 366,698

Estimated no. of shares to be delivered at 31 December 2021 1)

About 95% of the group’s defined benefit arrangements exist in Finland, in the UK and in Germany. The group has defined benefit obligations also in Austria, Holland, France, Canada and in the US. Approximately a quarter of UPM’s employees are active members of defined benefit arrangement plans. Finland In Finland employers are obliged to insure their employees for statutory benefits, as determined in Employee’s Pension Act (TyEL). TyEL provides the employee with insurance protection for old age, disability and death. The benefits can be insured with an insurance company or the employer can establish a fund or a foundation to manage the statutory benefits. Approximately 79% (81%) of group´s Finnish employees are insured with an insurance company and these arrangements qualify as defined contribution plans. Approximately 21% (19%) of employees are insured with TyEL foundation (UPM Sellutehtaiden eläkesäätiö). The TyEL foundation is administered by the representatives of both the employer and the employees. The foundation has named an authorised representative to take care of its regular operations. The plan is supervised by Financial Supervisory Authority. The foundation is

classified as a defined benefit plan for the benefits that must be funded nationally and is the most significant defined benefit pension plan in Finland for UPM. UK In the UK, the group operates a legacy defined benefit scheme providing benefits that are linked to the salary level near retirement age or an earlier date of leaving service. The scheme is closed both for new members and future accrual for old members. Part of the scheme is a defined contribution plan and is open to all current employees. The UK pension scheme operates under a single trust which is independent from

Share delivery (year)

2021

2022

2023

2024

Group/Business Area EBITDA

Group/Business Area EBITDA

Group/Business Area EBITDA

Group/Business Area EBITDA

Earning criteria

1) For DBP 2018 and DBP 2019, 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.

the group. Germany

In Germany employees within defined benefit arrangements are entitled to annual pensions on retirement based on their service and final salary. All significant defined benefit plans are closed for new employees.

170

UPM FINANCIAL REPORT 2021 171 UPM ANNUAL REPORT 2021 171

UPM ANNUAL REPORT 2021

UPM FINANCIAL REPORT 2021 170