UPM Annual Report 2022

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ACCOUNTS FOR 2022

UPM

BEYOND FOSSILS

BUSINESSES

RESPONSIBILITY

GOVERNANCE

3. Employee rewards 3.1 Employee costs

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

Other members of Group Executive Team 1)

EUR 1,000

2022 1,153 1,309 2,997

2021 1,093

2022 4,140 2,739 9,347

2021 3,958 2,054 5,979

Salaries

Short-term incentives

708

EURm

2022 2021

Share rewards

1,902

Salaries and fees

901

877

Benefits

135

142

Share-based payments

Total

5,486

3,734

16,361

12,132

Pension and other post-employment benefits, defined benefit plans 1) Pension costs, defined contribution plans

1) 11 members in 2022 and 2021.

93 94

95 93

Other indirect employee costs 2)

Total

1,181

1,094

In 2022, costs under the Finnish statutory pension scheme for the President and CEO amounted to EUR 458,000 (329,000) and payments under the voluntary pension plan amounted to EUR 1,000,000 (1,200,000). In 2022, costs under the Finnish and German statutory pension schemes for Group Executive Team (GET) members (excluding the President and CEO) amounted to EUR 941,000 (860,000) and payments under the voluntary pension plan amounted to EUR 987,000 (1,035,000). 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 2022 and 2021, 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 110% of the annual base salary to the Business Area Executives and to a total of 90% 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 3.6 million (3.8 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. However, UPM’s President and CEO Jussi Pesonen has announced that he will exercise his right to retire from UPM during 2024. 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. 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 PSP 2020–2022 and 2021–2023 UPM shares are awarded based on total shareholder return during a three-year earning period. Total shareholder return takes into account share price appreciation and paid dividends. The performance measures for the PSP 2022–2024 comprise the total shareholder return (80% weighting) and selected environmental, social and governance related (ESG) measures, which are reduction of fossil

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 2022 was EUR 0.5 million (1.3 million in 2021). The plan assets amounted to EUR 10.8 million (15.0 million) and the obligation amounted to EUR 9.6 million (12.8 million). As of December 2020, the voluntary pension benefit is arranged through a defined contribution plan. First contribution to the defined contribution plan took 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.

1) 2022 includes EUR 69 million settlement loss related to replacement of a defined benefit pension plan in Finland with defined contribution plan. 2) Other indirect employee expenses primarily include other statutory social expenses, excluding pension expenses. 3.2 Key management personnel The remuneration of the Chair of the Board of Directors was resolved to be raised so that the Chair of the Board was paid an annual base fee of EUR 200,000. The remuneration of the Deputy Chair of the Board and the other members of the Board remained unchanged, and the Deputy Chair of the Board was paid an annual base fee of EUR 140,000 and other members of the Board EUR 115,000. The annual base fee was paid in company shares and cash so that approximately 40% of the fee was paid in the company shares 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 Nomination and Governance Committee EUR 20,000. The remuneration of the Chair of Remuneration Committee was resolved to be raised to EUR 27,500. 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 2022, 2,489 (2,383) company shares were purchased to the Chair, 1,742 (1,710) to the Deputy Chair and 1,431 (1,405) to other members of the Board.

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)

2022

2021

2022

2021

2022

2021

Board members Björn Wahlroos, Chair

273,189

270,700 316,462 12,719

200

195 140 115 115 115 115 115 115 115 —

20 10 20 25 15 10 15 10 35 —

Berndt Brunow, Deputy Chair 1) Henrik Ehrnrooth, Deputy Chair

—

14,461

140 115 115 115 115 115 115 115

10 10 15 10 10 15 28 35

Emma FitzGerald Jari Gustafsson Piia-Noora Kauppi

4,644 2,836

8,213 1,405

CO2 emissions from UPM’s own combustion and purchased electricity by 65% by 2030 from 2015 level (10% weighting), achievement of a net positive impact on biodiversity in the Company’s own forests in Finland (5% weighting) and achievement of gender pay equity (5% weighting). In all plans, the earned shares are delivered after the earning period has ended.

24,035

22,604

Topi Manner 2)

1,431 9,594

—

Marjan Oudeman

8,163

Martin à Porta

24,844 25,949 380,983

20,413 24,518 685,197

Kim Wahl

Total

1,145

1,140

153

160

1) Berndt Brunow stepped down from the Board in 2022 2) Topi Manner was elected as a new director to the Board in 2022