3. PRINCIPLES OF REMUNERATION OF THE CEO AND THE GROUP LEADERSHIP TEAM
Remuneration at HKScan Group is based on the principles of remuneration approved by the Board, and attention is paid to the Group’s strategic objectives and financial performance. A motivating remuneration scheme is used as a tool to elicit the commitment to the Group of core expertise and key employees. Matters pertaining to remuneration are prepared by the Compensation Committee of the Board. The principles of the remuneration schemes are decided by the Board of Directors on the basis of the Compensation Committee’s proposal.
The remuneration and terms of employment of the CEO are decided by the Board of Directors. The remuneration and terms of employment of the Group Leadership Team are decided by the Board of Directors on the basis of a proposal from the CEO. HKScan Corporation’s remuneration scheme consists of a base salary, benefits, as well as short-term and long-term incentive schemes.
SHORT-TERM INCENTIVE SCHEME
In 2016, the Group had in place an extensive short-term incentive scheme. It covered the Group’s CEO, the other members of the Group Leadership Team, as well as upper and middle management. Awards are based on a combination of Group, business unit, functional and individual targets. Possible fees earned on the basis of the scheme are paid solely in cash.
The earning criteria of the incentive scheme and the possible performance fees are set for each year by the Board of Directors on the proposal of the Compensation Committee.
LONG-TERM INCENTIVE SCHEMES
1) The Board of Directors of HKScan Corporation approved a new share based incentive plan for the Group key personnel in The aim of the Plan is to combine the objectives of the shareholders and the key personnel in order to develop the value of the Company, to commit the key personnel to the Company, to increase their share ownership in the Company, and to offer them a competitive reward plan based on earning and holding the Company’s shares.
The Plan includes three one-year performance periods, calendar years 2013, 2014 and 2015. The Board of Directors of the Company decides on the performance criteria and their targets for a performance period at the beginning of each performance period. The potential reward from 2015 is based on the HKScan Group´s Earnings per Share (EPS) and Return on Capital Employed (ROCE).
Furthermore, the Plan includes one three-year performance period, calendar years 2013–2015. The prerequisite for receiving reward on basis of this performance period is, among other things, that a key employee previously owns or acquires the Company´s series A shares up to the number determined by the Board of Directors. Furthermore, receiving of reward is tied to the continuance of employment or service upon reward payment.
Rewards from performance periods 2013 and 2013–2015 will be paid partly in the Company’s A series shares and partly in cash in 2016. The cash proportion is intended to cover taxes and tax-related costs arising from the rewards to the key personnel. No reward will mainly be paid, if the key employee’s employment or service ends before reward payment.
The rewards to be paid are a maximum approximate total of 300 000 HKScan Corporation series A shares and cash payment corresponding to the value of such shares. The Plan can include new shares as well as the Company’s own shares. At the end of 2015, 23 people were included in the Plan.
The Board of Directors recommends that the members of the Leadership Team would hold 50 per cent of all of the shares received on the basis of the Plan until the value of their share ownerships correspond to their gross annual salaries. This share ownership should be held during the validity of employment or service.
In accordance with the above, the Board of Directors of HKScan Corporation resolved on a directed share issue without consideration according to the Group’s share based incentive plan 2013, payment of the rewards for the performance period 2013–2015.
On 8 April 2016, in total 44 885 HKScan Corporation’s A shares owned by the Group were gratuitous been transferred to the participants of the share based incentive plan according to its terms.
2) The Board of Directors of HKScan Corporation approved a share based incentive plan for the Group key personnel for the year 2016 on 18 December The plan covers one performance period, year 2016. The potential reward from the performance period will be based on the HKScan Group´s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and Earnings per Share (EPS).
Rewards from the performance period will be paid partly in the Company’s A series shares and partly in cash as follows: 50 per cent pay-out in 2017 and 50 per cent pay-out in 2018. The cash proportion is intended to cover taxes and tax-related costs arising from the rewards to the key personnel. No reward will be paid, if the key employee’s employment or service ends before reward payment.
The plan was initially directed to 37 people. The rewards to be paid on basis of the performance period are a maximum approximate total of 366 000 HKScan Corporation series A shares and cash payment corresponding to the value of such shares. After the relevant taxes and other employment-related expenses have been deducted, the participants are paid the net balance in the form of shares.
ADDITIONAL PENSION BENEFITS
The Finnish Members of the Group Leadership Team are covered by a contribution-based additional pension insurance. The contribution is 20 per cent of the insured person’s annual pay. The retirement age according to the pension agreements is 63 years.
REMUNERATION OF THE CEO JARI LATVANEN
The remuneration and terms of employment of the CEO are decided by the Board of Directors.
CEO Jari Latvanen’s remuneration consists of a fixed base salary, benefits, supplementary pension benefits and possible incentive awards under the Group’s short- and long-term incentive schemes. Under the terms of the CEO’s executive agreement Jari Latvanen can retire at the age of 63.
Under the terms of the CEO’s executive agreement, the agreement can be terminated by both the Group and the CEO. The period of notice for the CEO is six months. In the event that HKScan terminates the agreement, the CEO will be paid a sum corresponding to his 12 months’ salary. In addition he will be paid the salary for the termination period. In 2016, Jari Latvanen was paid a total salary of EUR 0.36 million.