Remuneration statement describes Stora Enso’s main principles of remuneration and the remuneration paid to members of the Board of Directors, Chief Executive Officer (CEO) and other members of the Group Leadership Team (GLT). First part of the report describes Stora Enso’s remuneration decision-making procedure and remuneration policy. The second part describes the implementation in 2017 (Remuneration Report).
The Remuneration statement has been prepared in accordance with the Finnish Corporate Governance Code (the “Code”). The Code is available at cgfinland.fi. Stora Enso also complies with the Swedish Corporate Governance Code (“Swedish Code”), with the exception of the deviations listed in Appendix 1 of the Corporate Governance Report. The deviations are due to differences between the Swedish and Finnish legislation, governance code rules and practices, and in these cases Stora Enso follows the practice in its domicile. The Swedish Code is issued by the Swedish Corporate Governance Board and is available at corporategovernanceboard.se.
The shareholders at the AGM decide annually on the remuneration of the Board members (including the remuneration of the members of Board committees). The proposals for the AGM concerning the remuneration for the Chairman, Vice Chairman and members of the Board as well as the remuneration for the Chairman and members of the committees of the Board are prepared by the Company’s Shareholders’ Nomination Board, which is composed of representatives of the main shareholders of the Company as well as Board member representatives and described in more detail in the Corporate Governance Report.
The Board appoints the CEO and approves his/her remuneration as well as the compensation of other GLT members. The Board’s Remuneration Committee prepares remuneration related matters and proposals for the Board and is further responsible for ensuring that management compensation policies are aligned with the Company’s objectives and shareholder interest.
Stora Enso aims to provide a level of remuneration that motivates, encourages, attracts and retains employees of the highest calibre. To maximise the effectiveness of the remuneration policy, careful consideration will be given to aligning the remuneration package with shareholder interests and best market practice.
A fundamental element in the remuneration principles is the concept of pay-for-performance, and an important aspect of Stora Enso’s approach to remuneration is to look at the total remuneration provided to employees. Stora Enso’s total remuneration mix consists of:
Regular external benchmarking is crucial to ensure that compensation levels are competitive with the external marketplace. The marketplace is defined as those peer companies with whom Stora Enso competes for recruiting talents and retention of current employees for similar positions. The market will vary depending on functional area and level of the positions concerned.
Compensation Review is an annual process with the aim to ensure that Stora Enso employees are being rewarded in accordance with our Remuneration Policy and local regulations, such as labour laws and collective agreements.
The Group Leadership Team annually reviews the performance and potential ratings, as well as the succession planning of its top management in order to secure global principles with local applications.
Remuneration of the Board of Directors is decided annually by the shareholders at the AGM. The AGM in 2018 resolved in accordance with the proposal of the Shareholders' Nomination Board that the members of the Board of Directors be paid the following annual remuneration for their term of office expiring at the end of the AGM 2019
The Board members shall use approximately 40% of their annual Board member remuneration to purchase Stora Enso’s R shares from the public market and the purchases shall be carried out during the two weeks following the AGM. The Company has no formal policy requirements for the Board members to retain shares received as remuneration. In addition, the AGM decided that the following annual remuneration be paid to the members of the Board Committees:
The CEO has been employed since 1 August 2012 and assumed the position as CEO on 1 August 2014. He has a notice period of six months with a severance payment of twelve months salary on termination by the company but with no contractual payments on any change of control. The CEO's benefits include pension provisions. The CEO’s pension plan consists of collectively agreed pension plan in Sweden (ITP2) and a defined contribution (DC) top up pension plan. Contributions to the DC plan in the interval 20–30 Income Base Amounts (IBA; one IBA was 61 500 SEK in 2017) is 23%, contributions above 30 IBA is 35% for the salary the CEO had prior to assuming this position and 39% on the salary increase amount received when assuming the position as CEO. The retirement age is sixty-five years.
The CEO is entitled to a STI programme decided by the Board each year giving a maximum of 75% of annual fixed salary. The STI for 2016 and 2017 was based 70% on financial measures and 30% on Individual Key Targets.
The CEO participates in 2015, 2016 and 2017 share based LTI programmes. The programmes have three year targets and vest in one portion after three years. Three quarters (75%) of the opportunity is in Performance Shares, where shares will vest in accordance with performance criteria proposed by the Remuneration Committee and approved by the Board of Directors. One quarter (25%) of the opportunity is in Restricted Shares, for which vesting is only subject to continued employment.
GLT members in Stora Enso receive a monthly salary, which in addition to a salary payment includes customary fringe benefits, such as mobile phones and cars. GLT members further have the possibility to receive yearly awards in the Company’s short term and long term incentive programmes for management. In accordance with their respective pension arrangements, GLT members may retire at sixty-five years of age with pensions consistent with local practices in their respective home countries. Contracts of employment provide for notice of six months prior to termination with severance compensation of twelve months basic salary if the termination is at the Company’s request.
GLT members have STI programmes with up to a maximum 40% or 50% of their annual fixed salary, payable the year after the performance period. 70% of the STI for 2016 and 2017 was based on financial measures and 30% on Individual Key Targets. The financial performance metrics in the STI programme are EBITDA and Working Capital Ratio. The Individual Targets are based on a balanced scorecard approach within the categories of Customer, People, Sustainability and Special Projects.
Since 2014, the LTI programmes have had three-year targets and vest in one portion after three years. The absolute maximum vesting level is 100% of the number of shares granted. Three quarters (75%) of the opportunity under the 2017 programme is in Performance Shares, where the shares are vested in accordance with performance criteria proposed by the Remuneration Committee and approved by the Board of Directors. One quarter (25%) of the opportunity under the 2017 programme is in Restricted Shares, for which vesting is only subject to continued employment. The financial success metric in the Performance Share programme is 3-year EVA (Economic Value Added) for the Stora Enso group.