UPM annual report 2014

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UPM Annual Report 2014 UPM Annual Report 2014 63 64
CONTENTS
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.
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 – –
Benefits 27 26
Total 1,706 1,638
The President and CEO participates in the
Short-term Incentive Plan and the Performance
Share Plan. Information on these plans is avail-
able in the Remuneration Statement on the
corporate website.
In accordance with the service contract, the
retirement age of the President and CEO is 60.
The target pension is 60% of the average
indexed earnings from the last 10 years of
employment calculated according to the Finn-
ish statutory pension scheme. The cost of
lowering the retirement age to 60 is covered by
supplementing the statutory pension with a
voluntary defined benefit pension plan. Should
the President and CEO leave the company
before reaching the age of 60, an immediate
vesting right corresponding to 100% of the
earned pension (pro rata) will be applied.
In 2014, costs under the Finnish statutory
pension scheme for the President and CEO
amounted to EUR 0.3 million (EUR 0.3 mil-
lion in 2013) and payments under the voluntary
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.
SALARIES, INCENTIVES AND OTHER
BENEFITS OF THE GET (EXCLUDING
THE PRESIDENT AND CEO)
EUR 1,000 2014 2013
Salaries and benefits
Salaries 3,457 3,396
Short-term incentives 869 1,067
Share rewards - -
Benefits 249 137
Total 4,575 4,600
Since 1 November 2013, the GET (excluding the
President and CEO) comprises 11 members, prior to
that 8 members.
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.
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.
SHARES AND STOCK OPTIONS HELD BY THE GET MEMBERS
Shares 2007C options **)
31 December 31 December
Name 2014 2013 2014 2013
Jussi Pesonen*) 195,280 195,294 0 200,000
Bernd Eikens *) 10,000 21,536 – –
Pirkko Harrela 35,488 35,488 0 70,000
Tapio Kolunsarka *) 10,000 10,000 – –
Tapio Korpeinen*) 45,792 45,792 0 30,000
Juha Mäkelä 32,068 32,068 0 50,000
Jyrki Ovaska 64,612 64,612 0 60,000
Kim Poulsen*) – – – –
Riitta Savonlahti 16,570 16,570 0 5,000
Mika Sillanpää*) 10,117 9,000 0 10,000
Kari Ståhlberg 4,212 4,212 0 20,875
Heikki Vappula*) 10,000 10,000 – –
*) 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.
GROUP EXECUTIVE TEAM
President and CEO Jussi Pesonen
CFO 1) Tapio Korpeinen Heikki Vappula UPM Biorefining
General Counsel Juha Mäkelä Tapio Korpeinen UPM Energy
Strategy Kari Ståhlberg Tapio Kolunsarka UPM Raflatac
Technology 2) Jyrki Ovaska Kim Poulsen UPM Paper Asia
Human Resources Riitta Savonlahti Bernd Eikens UPM Paper ENA
Stakeholder Relations3) Pirkko Harrela Mika Sillanpää UPM Plywood
1) Incl. Finance & Control, Treasury, IR, IT, Sourcing and Real Estate (incl. Finnish forest assets)
2) Incl. Investment Management, R&D, new business development (biocomposites, biochemicals)
3) Incl. Brand & Communications, Environment & Responsibility, Public Affairs
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