UPM annual report 2014

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SHARES AND STOCK OPTIONS HELD BY THE GET MEMBERS

SALARIES, INCENTIVES AND OTHER BENEFITS OF THE GET (EXCLUDING THE PRESIDENT AND CEO)

directors’ independence and availability for board work. When preparing its proposal to the AGM regarding board remuneration, the committee considers, among other things, the development of director remuneration and the level of direc- tor remuneration in peer companies. The com- mittee has underlined the importance of align- ing the interests of directors with those of shareholders and prefers payment of board remuneration in the form of shares. President and CEO The Board of Directors appoints the President and CEO of the company. Jussi Pesonen has served as the company’s President and CEO since January 2004. The Board has approved his service contract, including financial benefits and other terms of service. Mr Pesonen has also been a member of UPM’s Board of Directors since March 2007. He receives no financial benefit for his role as a member of the board. Remuneration of the President and CEO The Board of Directors resolves on the remu- neration of the President and CEO based on the proposal by the Board of Directors’ Remu- neration Committee. The President and CEO’s annual salary and other financial benefits in 2014 are shown in the table below. Information on the President and CEO’s shareholding in the company is provided on pages 61 and 64.

pension plan were EUR 0.7 million (EUR 0.7 million). In addition, a single premium of EUR 0.3 million was paid into the President and CEO’s voluntary pension plan (EUR 1.1 million) to cover past service pension liabili- ties. If notice of termination is given to the President and CEO, severance pay of 24 months’ base salary will be paid, in addition to the salary for the six-month notice period. Should the President and CEO 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 termi- nate his service contract within three months from the date of the event that triggered the change of control and will receive compensa- tion equivalent to 24 months’ base salary. Group Executive Team The Group Executive Team (GET) consists of the business area and function heads. GET members are presented in the illustration below. Their personal details, career histories and other significant engagements are avail- able on pages 67-68 and on the corporate website. Remuneration of the GET The Remuneration Committee reviews GET members’ performance annually based on the evaluation and proposal by the President and CEO. On the basis of this review, the Remu- neration Committee recommends the total compensation of the GET members to the board for approval. The annual salaries and other financial benefits of the GET members in 2014 are shown in the table above. Infor- mation on their shareholdings in the company is provided on the following page.

2007C options **)

31 December

EUR 1,000

2014

2013

Name

2014

2013

2014

2013

Salaries and benefits Salaries

195,280

195,294

200,000

Jussi Pesonen *)

3,457

3,396

10,000

21,536

–

Bernd Eikens *)

Short-term incentives

869

1,067

Pirkko Harrela

35,488

70,000

Share rewards

10,000

–

Tapio Kolunsarka *)

Benefits

249

137

45,792

30,000

Tapio Korpeinen *)

Total 4,600 Since 1 November 2013, the GET (excluding the President and CEO) comprises 11 members, prior to that 8 members. 4,575 GET members participate in the Short-term Incentive Plan and the Performance Share Plan. Information on these plans is available in the Remuneration Statement on the corporate website. GET members are covered by the statutory pension plan in the country of residence, sup- plemented by voluntary defined contribution pension plans. The retirement age is 63. Execu- tives belonging to the GET before 1 January 2010 have fully vested rights corresponding to 100% of the accumulated account. Executives who have become GET members after 1 Janu- ary 2010 are entitled to fully vested rights five years after becoming a member. In 2014, costs under the Finnish and Ger- man statutory pension schemes for the mem- bers of the GET (excluding the President and CEO) amounted to EUR 0.8 million (EUR 0.7 million in 2013) and payments under the volun- tary pension plan were EUR 0.7 million (EUR 0.5 million). GET members receive severance pay in the event that their service contract is terminated by the company prior to the retirement age. 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.

Juha Mäkelä

32,068

50,000

Jyrki Ovaska

64,612

60,000

–

Kim Poulsen *)

Riitta Savonlahti

16,570

5,000

10,117

9,000

10,000

Mika Sillanpää *)

Kari Ståhlberg

4,212

20,875

10,000

–

Heikki Vappula *)

*) Executives belonging to UPM’s public insiders. Their shareholdings above include shares held by their closely associated persons and controlled entities. **) Stock option programme 2007 expired on 31 October 2014.

If there is a change of control in the company, each GET member may terminate his/her employment contract within one month from the date of the event that trig- gered the change of control, and will receive compensation equivalent to 24 months’ base salary. Internal control, risk management and internal audit The purpose of internal control is to ensure that the company’s operations are effective, and that financial and other information is reliable and that the company complies with the relevant regulations and operating princi- ples. The company’s Board of Directors, assisted by the Audit Committee, is responsi- ble for monitoring the company’s internal control system. The company has developed and implemented a comprehensive internal control system that covers business and finan- cial reporting processes. Internal control pertaining to financial reporting is described in the Corporate Governance Statement available on the corporate website. The Risk Management function of UPM is responsible for communicating and enforc- ing the Risk Management Policy and risk limits approved by the Board of Directors. In addition, it develops group-wide risk manage- ment procedures and guidelines, and meas- ures and monitors risk management perfor- mance. Aggregating and reporting risk exposure and risk management results col- lected from the business areas and functions are part of the risk management process. A description of the company’s strategic, opera- tional, financial and hazard risks is included in the Report of the Board of Directors on pages 70–79.

Each business area, function and unit is responsible for the management of risks related to its own operations. The Risk Management Committee, chaired by the CFO, is responsible for recommending risk tolerances and profiles to the President and CEO and the Group Execu- tive Team, which is responsible for defining risk management priorities and tolerances, and aligning business and risk management strate- gies and policies. The Audit Committee oversees risk management activities and procedures. The Internal Audit function assists the Board of Directors with its supervisory respon- sibility by ensuring that the group’s control measures have been planned and set up effec- tively. The Internal Audit function is administra- tively subordinate to the President and CEO, but has direct access to the Audit Committee and reports to it quarterly on the adequacy and effectiveness of the group’s control systems. The basic operating principles for internal auditing are defined in the Internal Audit Charter, which has been confirmed by the Board of Directors. The internal audit operations cover all aspects of the group’s business operations, units, com- panies, processes and functions. Insider administration The company complies with the securities laws and regulations applicable to it. UPM also follows the Guidelines for Insiders issued by NASDAQ OMX Helsinki Ltd. The company’s Insider Policy complements the statutory regula- tions and sets out company-specific guidelines for the company’s insiders and for the manage- ment and administration of insider matters at UPM. UPM’s public insiders include the members of the Board of Directors, the President and CEO, the Chief Financial Officer, the business

area heads and the auditor in charge. Public insider holdings in the company are in the public domain and up-to-date information on these holdings is available on the corporate website. It can also be obtained from Euroclear Finland Ltd. Public insider shareholdings as at 31 December 2014 are presented in the tables on this page and on page 61. Trading restrictions Certain trading procedures apply to both public insiders and permanent insiders (i.e. employees who regularly have access to inside information) of the company. Insiders are not allowed to trade in the company’s securities during closed window periods. The closed window periods are four-week periods preceding and including the date on which the company’s annual or quar- terly results are disclosed. Trading is allowed during the open window periods, which are three-week periods commencing on the first business day following the disclosure of the company’s annual or quarterly results. Periods between the open and closed window periods are referred to as clearance periods. Trading during clearance periods requires prior permis- sion from the company’s Insider Administra- tion. When necessary, project-specific insider registers are set up and related trading restric- tions imposed. Persons possessing inside infor- mation are not allowed to trade in the com- pany’s securities. The company’s Insider Administration monitors compliance with trading restrictions. To avoid any suspicion related to the use of inside information, the company’s public insid- ers are advised to employ trading plans in accordance with the Trading Guidelines for Insiders issued by the Finnish Financial Super- visory Authority.

SALARIES, INCENTIVES AND OTHER BENEFITS OF THE PRESIDENT AND CEO

EUR 1,000

2014

2013

Salaries and benefits Salary

1,052

1,059

Short-term incentives

627

553

Share rewards

–