The Finnish Corporate Governance Code 2010 requires that Fortum Corporation issues a remuneration statement regarding the salaries and other remuneration paid by company. Furthermore, in September 2009, the Cabinet Committee on Economic Policy, representing the State owner, issued guidelines on remuneration and pension benefits of management in companies with State ownership. Fortum takes into account both the Code and the guidelines in its remuneration.
Remuneration at Fortum is directed by the Group’s remuneration principles and Fortum’s general remuneration and benefits practices. When determining remuneration, the company’s financial performance and external market data, particularly the remuneration for similar positions among peer companies, are taken into consideration. The Board of Directors approves the remuneration principles at the Group level and decides on the bonus targets and the remuneration of senior management. Remuneration of the members of the Board of Directors is decided by the Annual General Meeting of Fortum Corporation.
Fortum offers a competitive compensation package for senior executives and other management. The aim is to attract, commit and retain key resources in all countries where Fortum operates. The package offers employees a competitive base salary. In addition to a salary, other relevant benefits, challenging short-term incentives and long-term incentive schemes are also offered.
Fortum’s short-term incentive scheme, i.e. bonus system, supports the realisation of the Group’s financial performance targets, values and structural changes. The system ensures that the performance targets of individual employees align with the targets of the division and the Group. All Fortum employees, with the exception of certain personnel groups in Poland and Russia, are covered by the bonus system.
The Board of Directors decides on the bonus criteria for senior management (the President and CEO and other members of the Fortum Management Team). The amount of each senior executive’s bonus is dependent on the Group’s financial performance and on their own success in reaching personal targets. The maximum bonus for senior management is 40% of the executive’s annual salary including fringe benefits.
The bonuses of the division heads, who are all members of the Fortum Management team, are determined on the basis of the division’s performance and the Group’s financial performance. During the annual performance discussion held at the beginning of the year, the division head and his/her superior agree on the criteria used to assess the personal performance of the executive.
The Board of Directors assesses the performance of the President and CEO on an annual basis.
In 2011, the bonuses paid to the Fortum Management Team (FMT), including the President and CEO, amounted to EUR 1,087,190 (2010: 819,253), which is 0.29% (2010: 0.23%) of the total remuneration paid by the Fortum Group.
The purpose of Fortum’s long-term incentive system, i.e. share bonus system, is to support the achievement of the Group’s long-term targets by committing key individuals. The Board of Directors chooses the Fortum management members entitled to participate in the share bonus system. The Board of Directors can also exclude individual participants from the system. Participation in the system precludes the individual from being a member in the Fortum Personnel Fund.
Fortum’s share bonus system is divided into six-year share plans, within which participants have the opportunity to earn company shares. A new plan commences yearly, if the Board of Directors so decides.
Each share plan begins with a three-calendar-year period, during which participants may earn share rights if the earnings criteria set by the Board of Directors are fulfilled. After the earning period has ended and the relevant taxes and other employment-related expenses have been deducted from the gross value of the earned share rights, participants are paid the net balance of the earned rights in the form of shares. The earning period is followed by a subsequent lock-up period, during which participants cannot transfer or dispose of the shares. If the value of the shares decrease or increase during the lock-up period, the potential loss or gain is carried by the participants. The maximum value of shares (before taxation) to be delivered to a participant after the earning period cannot exceed the participant’s one-year salary.
Fortum’s current long-term incentive system fulfils the recommendations of State-owned companies and the Corporate Governance Code 2010 for listed companies.
|COMPENSATION FOR THE PRESIDENT AND CEO AND THE FORTUM MANAGEMENT TEAM|
|EUR||Salaries and fringe benefits 2011||Salaries and fringe benefits 2010||Performance
|Total 2011||Total 2010|
|President and CEO ¹)||952,323||911,545||337,696||237,510||1,290,019||1,149,055|
|Other Management Team members ¹)||2,799,609||2,481,935||749,494||581,743||3,549,103||3,063,678|
|¹) Additionally, the President and CEO had a calculatory gross income of EUR 886,467 from share deliveries of share plans (2005–2010 and 2008–2012) during spring 2011. The corresponding aggregated figure for the other members of the Fortum Management Team was EUR 1,590,643. The shares from share plan 2008–2012 cannot be transferred or sold before the end of the two-year lock-up period.|
|REMUNERATION AND TERMS OF EMPLOYMENT OF PRESIDENT AND CEO TAPIO KUULA|
|Salary and fringe benefits||Base salary EUR 74,283/month. Additionally free car benefit and mobile phone benefit as fringe benefits.|
|Short-term incentive system (bonus)||The bonus can be earned annually based on the criteria approved by the Board of Directors. The maximum level is 40% of the annual salary including fringe benefits. Annual salary = 12 times the salary paid in December of the year in question.|
|Long-term incentive system (share bonus)||According to Fortum management’s current share bonus system. The maximum value of shares (before taxation) cannot exceed the annual salary of the President and CEO.|
|Pension||Retirement age is 63. The President and CEO’s supplementary pension is a defined contribution pension plan, and the annual contribution is 25% of the annual salary. The annual salary consists of the base salary, fringe benefits and bonus. If the President and CEO’s contract is terminated before retirement age, he/she is entitled to retain the funds that have accrued in the pension fund.|
|Termination of contract||The notice period for both parties is six months. If the company terminates the contract, the President and CEO is entitled to the salary of the notice period and to severance pay equal to 18 months’ salary.|
|SHARE RIGHTS DELIVERED OR TO BE DELIVERED TO THE MANAGEMENT|
|Alexander Chuvaev ¹)||12,960||18,749|
|¹) Share rights will be paid in cash instead of shares after two years due to local legislation.|
Fortum’s Finnish executives participate in the Finnish TyEL pension system, which provides for a retirement benefit based on years of service and earnings and in accordance with the prescribed statutory system. Under the Finnish pension system, earnings are defined as base pay, annual bonuses and taxable fringe benefits, but gains realised from the share bonus system are not included in that definition. Finnish pension legislation offers a flexible retirement from age 63 to age 68 without full-pension restrictions.
Fortum’s executives outside Finland participate in pension systems based on collective agreements and market practise in their local countries.
Retirement age for Fortum’s President and CEO is 63 and for other members of the Fortum Management Team 60–63. For the President and CEO and for some other executives, the maximum pension can be 60% of the salary, with the pension insured by an insurance company, and for some executives the maximum is 66% of the salary, with the pension insured and paid by Fortum’s Pension Fund. The Fortum Pension Fund was closed in 1991.
Remuneration of Supervisory Board
In Fortum’s Annual General Meeting 2011, the State of Finland and the Finnish Shareholders Association (Osakesäästäjien keskusliitto) proposed to dissolve the Supervisory Board and accordingly to amend the Articles of Association of Fortum. The proposal was accepted and the changes to the Articles of Association entered into force on 4 April 2011. The table below presents the total compensation of the Supervisory Board for the period 1 January to 4 April 2011.
Remuneration of the Board of Directors
Every member of the Board of Directors receives a fixed monthly fee and a meeting fee. The meeting fee is also paid for committee meetings and is paid in double to a member who lives outside Finland in Europe and triple to a member who lives outside Europe. The members are entitled to travel expense compensation in accordance with the company’s travel policy.
Members of the Board of Directors are not paid a salary by Fortum and they are not given the opportunity to participate in Fortum’s bonus or share bonus schemes, nor does Fortum have a pension plan that they can opt to take part in. The compensation is not tied to the sustainability performance of the Group.
The Annual General Meeting on 31 March 2011 confirmed the following compensation for the members of the Board of Directors:
|TOTAL COMPENSATION FOR SUPERVISORY BOARD SERVICE|
|EUR||1 Jan–4 April 2011 ¹)||2010|
|Markku Laukkanen, Chairman||3,200||13,000|
|Sanna Perkiö, Deputy Chairman||2,000||8,000|
|Jukka Mäkelä ²)||N/A||5,800|
|¹) All members were present in the meeting held in February 2011.|
|²) Member until 19 October 2010.|
|FEES OF THE BOARD OF DIRECTORS|
|TOTAL COMPENSATION FOR BOARD OF DIRECTORS|
|EUR||Board service in 2011 ¹)||Total compensation in 2011||Board service in 2010 ¹)||Total compensation in 2010|
|Sari Baldauf, Chairman ²)||1 Jan.–31 Dec.||70,261||1 Jan.–31 Dec.||58,800|
|Christian Ramm-Schmidt, Deputy Chairman ³)||1 Jan.–31 Dec.||54,800||1 Jan.–31 Dec.||45,600|
|Esko Aho||1 Jan.–31 Dec.||43,800||1 Jan.–31 Dec.||45,000|
|Minoo Akhtarzand||31 March–31 Dec.||34,478||N/A||N/A|
|Heinz-Werner Binzel||31 March–31 Dec.||37,478||N/A||N/A|
|Ilona Ervasti-Vaintola||1 Jan.–31 Dec.||43,800||1 Jan.–31 Dec.||45,000|
|Joshua Larson||1 Jan.–31 Dec.||56,400||25 March–31 Dec.||46,391|
|Matti Lehti, former Chairman||1 Jan.–31 March||19,500||1 Jan.–31 Dec.||75,600|
|Birgitta Johansson-Hedberg||1 Jan.–31 March||11,250||1 Jan.–31 Dec.||52,800|
|¹) Meeting attendance are presented on page 118.|
|²) Chairman from 31 March 2011, before that Deputy Chairman.|
|³) Deputy Chairman from 31 March 2011.|