UPM Annual Report 2016

118-119 / 176

ACCOUNTS
UPM Annual Report 2016 UPM Annual Report 2016 118 119
In brief Strategy Businesses Stakeholders Governance Accounts
CONTENTS
President and CEO Jussi Pesonen Other members of group executive team 1)
EUR 1,000 2016 2015 2016 2015
Salaries 1,049 1,052 3,564 3,455
Incentives 888 856 1,779 1,733
Share rewards 3,098 824 6,269 1,805
Benefits 30 27 231 238
Total 5,065 2,759 11,843 7,231
1) 11 members in 2016 and 2015.
In 2016, costs under the Finnish statutory pension scheme for the
President and CEO amounted to EUR 370,000 (353,000) and
payments under the voluntary pension plan were EUR 1,000,000
(1,000,000).
In 2016, costs under the Finnish and German statutory pension
schemes for Group Executive Team (GET) members (excluding the
President and CEO) amounted to EUR 881,000 (900,000) and costs
under the voluntary pension plan were EUR 818,000 (651,000).
The total remuneration of the President and CEO and the members
of the Group Executive Team consists of base salary and benefits,
short-term incentives and long-term share-based incentives.
The short-term incentive plan for the President and CEO and the
members of the Group Executive Team has been linked with
achievement of the predetermined financial targets of the group or
business areas and individual targets. The incentives amount to a
total maximum of 100% of annual base salary to the business area
executives and to a total maximum 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 9.2 million
(5.4 million).
In accordance with his service contract, the retirement age of the
President and CEO Jussi Pesonen, is 60. For the President and CEO,
the target pension is 60% of the average indexed earnings from the
last ten years of employment calculated according to the Finnish
statutory pension scheme. The costs 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 earned pension (pro rata) will be applied.
The retirement age of the other members of the Group Executive Team
is 63. The expenses of the President and CEO’s defined benefit pension
plan in 2016 were EUR 0.5 million (0.6 million), and the plan assets
amounted to EUR 2.6 million (1.6 million) and obligation to EUR 1.8
million (0.9 million). Other Group Executive Team members are under
defined contribution plans.
In case the notice of termination is given to the President and CEO,
a severance pay of 24 months' base salary will be paid in addition to
the salary for six months' notice period. Should the President and CEO
give a notice of termination to the company, no severance pay will be
paid in addition to the salary for the notice period. For other members
of the Group Executive Team, the period for additional 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 in the control over the company, the President
and CEO may terminate his service contract within three months and
each member of the Group Executive Team may terminate his/her
service contract within one month from the date of the event that
triggered the change of control and shall receive compensation
equivalent to 24 months' base salary.
PERFORMANCE SHARE PLANS PSP 2013-2015 PSP 2014-2016 PSP 2015-2017 PSP 2016-2018
No. of participants at 31 December 2016 33 24 24 24
Actual achievement 90.4% 100% – –
Max no. of shares to be delivered 1)
to the President and CEO 197,976 116,785 125,000 112,500
to other members of GET 397,760 352,689 380,000 360,000
to other key individuals 402,280 280,284 295,000 263,000
Total max no. of shares to be delivered 998,016 749,758 800,000 735,500
Share delivery (year) 2016 2017 2018 2019
Earning criteria (weighting) Operating cash
flow (60%) and
EPS (40%)
Total shareholder
return (100%)
Total shareholder
return (100%)
Total shareholder
return (100%)
1) For PSP 2013–2015 and PSP 2014–2016, the gross amount of the actual no. of shares earned.
3.3 Share-based payments
UPM offers reward and recognition with an emphasis of high
performance. All UPM’s employees belong to a unified annual Short
Term Incentive (STI) scheme. In addition, UPM has two long-term
incentive plans: 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 Group Executive Team
members and other selected members of the management. Under the
ongoing plans the UPM shares are awarded based on the 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.
Salaries, fees and other benefits to the President and CEO and the Group Executive Team
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
2016 2015
EURm FINLAND UK GERMANY
OTHER
COUNTRIES TOTAL FINLAND UK GERMANY
OTHER
COUNTRIES TOTAL
Present value of funded
obligations 327 563 34 39 963 314 504 29 41 888
Fair value of plan assets –396 –426 –3 –33 –858 –406 –409 –2 –34 –851
Deficit (+)/surplus (-) –70 137 31 6 104 –92 95 27 7 37
Present value of unfunded
obligations – – 520 90 610 – – 490 92 582
Net defined benefit liability (+)/
asset (-) –70 137 552 96 714 –92 95 517 99 619
Net retirement benefit asset in the
balance sheet –70 – – –1 –71 –92 – – –1 –93
Net retirement benefit liability in
the balance sheet 1) – 137 552 95 784 – 95 517 100 712
1) Net retirement benefit liability in the balance sheet includes other long-term employee benefits of EUR 33 million (35 million) in 2016.
DEFERRED BONUS PLANS DBP 2013 DBP 2014 DBP 2015 DBP 2016
No. of participants (at grant) 560 395 350 340
No. of participants (at 31 December 2016) 505 367 339 335
Max no. of shares to be delivered (at grant) 1,640,000 950,000 800,000 770,000
Estimated no. of shares to be delivered at 31 December 2016 1) 255,451 317,125 386,432 323,017
Share delivery (year) 2016 2017 2018 2019
Earning criteria (weighting) Group/Business
area EBITDA
Group/Business
area EBITDA
Group/Business
area EBITDA
Group/Business
area EBITDA
1) For DBP 2013 and DBP 2014, the gross amount of the actual no. of shares 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. The
amount of estimated payroll tax accruals accounted for as share-
based payment liabilities at 31 December 2016 were EUR 22.7
million (14.7 million).
Deferred Bonus Plan
The Deferred Bonus Plan (DBP) is targeted at other selected key
employees of the group and it consists of annually commencing plans.
Deferred Bonus Plan share incentives are based on achievement of
group and /or business area EBITDA targets. Each plan consists of
a one-year earning period and a two-year restriction period. 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.
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. 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.
medical care. 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:
About 90% 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 90% of group´s Finnish employees are insured with
an insurance company and these arrangements qualify as defined
contribution plans. Approximately 10 % of employees are insured
with TyEL foundation (Kymin 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