Annual Report 2014 | Suomeksi |

12 Employee benefits

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EUR million 2014 2013
Wages and salaries 298 336
Pensions
Defined contribution plans 32 33
Defined benefit plans 7 6
Social security costs 52 59
Share‑based remunerations 8 7
Other employee costs 15 19
Total 413 460
The compensation package for Fortum employees consists of a combination of salaries, fringe benefits, short‑term incentives, profit sharing paid to the Personnel Fund and share‑based long‑term incentives. The majority of Fortum employees are included in a performance bonus system. The long‑term incentive schemes are intended for senior executives and other management of the Fortum Group.
The remuneration policy is determined by the Board of Directors. The Nomination and Remuneration Committee discusses, assesses and makes recommendations and proposals to the Board of Directors on the remuneration policy, pay structures, bonus and incentive systems for the Group and its management, and contributes to the Group's nomination issues.
For further information on pensions see Note 32 Pension obligations.
12.1 Short term incentives
Fortum’s short‑term incentive scheme, i.e. bonus system, supports the realisation of the Group’s financial performance targets, sustainability 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 criteria used in determining the size of the bonus for senior management (the President and CEO and other members of the Fortum Executive Management Team) are decided annually by the Board of Directors on the recommendation of the Board's Nomination and Remuneration Committee. The size of each senior executive's bonus is dependent on the Group's financial performance, as well as on their own success in reaching personal goals. The performance bonus criteria may also include indicators related to sustainability targets. The maximum bonus level for the senior management is 40% of the executive's annual salary including fringe benefits.
For executives with division responsibilities, the bonus system reflects the performance of their division together with the Group’s financial performance. The criteria for evaluating an executive's personal performance are mutually agreed between the executive and his/her superior in an annual performance discussion at the beginning of each year. The performance of the President and CEO is evaluated annually by the Board of Directors.
12.2 Long‑term incentives
Accounting policies + -
Fortum's share bonus system is a performance‑based, long‑term incentive (LTI) arrangement. A new plan commences annually if the Board of Directors so decides. The potential reward is based on the performance of the Group and its divisions.
In the LTI arrangement each share plan begins with a three‑year earning period during which participants may earn share rights if the earnings criteria set by the Board of Directors are fulfilled. The value of the share participation is defined after the three‑year earning period when the participants are paid the earned rights in the form of shares. After the earning period, income tax and statutory employment related expenses are deducted from the reward and the net reward is used to acquire Fortum shares in the name of the participant. The maximum value of shares, before taxation, to be delivered to a participant after the earning period cannot exceed the participant’s annual salary.
The earning period is followed by a three‑year lock‑up period. During the lock‑up period the shares may not be sold, transferred, pledged or disposed in any other way. Dividends and other financial returns paid on the shares during the lock‑up period are, however, not subject to restrictions. From plan 2013‑2018 onwards the lock‑up period may be shortened to one year for the Fortum Executive Management Team members on individual basis if the value of the aggregate ownership of Fortum shares corresponds to a minimum of annual base salary. For other participants the lock‑up period is changed into one year from plan 2013‑2018 onwards. The shares are released from the lock‑up after publishing of the Company’s financial results for the last calendar year of the lock‑up period, provided that the participant remains employed by the Group.
The share plans under the new LTI arrangement are accounted for as partly cash‑ and partly equity‑settled arrangements. The portion of the earned reward that the participants receive in shares is accounted for as an equity settled transaction, and the portion of the earned reward settled in cash covering the tax and other charges, is accounted for as cash settled transaction. For participants receiving cash only, the total arrangement is accounted for as cash‑settled transaction. The reward is recognised as an expense during the vesting period with a corresponding increase in the liabilities and for the transactions settled in shares in the equity. The social charges related to the arrangement payable by the employer are accrued as a liability.
At present, approximately 120 managers, all of whom have been elected by the Board of Directors, are participants in at least one of the five on‑going annual LTI plans (plans 2010‑2015, 2011‑2016, 2012‑2017, 2013‑2018 and 2014‑2019).
The expense recorded as employee costs for the period was EUR 8 million (2013: 7). The LTI liability including social charges at the end of the year 2014 was EUR 9 million (2013: 8), including EUR 1 million (2013: 1) recorded in equity.

Share bonus system

Shares granted
Plan
2011‑2016
Plan
2010‑2015
Plan
2009‑2013
Grant date 14.2.2014 13.2.2013 8.2.2012
Grant price, EUR 16.62 13.90 18.16
Number of shares granted 101,753 187,493 165,132
Number of shares subsequently forfeited or
released from lock‑up
‑9,667 ‑19,107 ‑165,132
Number of shares under lock‑up at the end of the year 2014 92,086 168,386 0
Fortum share price at the end of the grant year, EUR 17.97 16.63 14.15
In addition to the shares granted above, share rights have been granted to participants that will receive cash payments instead of shares after the lock‑up period. The gross amount of share rights outstanding at the end of the year 2014 for plan 2011‑2016 was 63,402 share rights and for plan 2010‑2015 99,228 share rights.
In addition 16,423 shares were delivered for plan 2008‑2012 in 2014.
12.3 Fortum Personnel Fund
The Fortum Personnel Fund (for employees in Finland only) has been in operation since year 2000. The Board of Directors determines the criteria for the fund's annual profit‑sharing bonus. Persons included in Fortum's long‑term incentive schemes are not eligible to be members of this fund. Members of the personnel fund are the permanent and fixed‑term employees of the Group. The membership of employees joining the company starts at the beginning of the next month after the employment relationship has been ongoing for five months. An employee is entitled to make withdrawals right from the beginning of the membership.The membership in the fund terminates when the member has received his/her share of the fund in full.
The profit‑sharing received by the fund is distributed equally between the members. Each employee's share is divided into a tied amount and an amount available for withdrawal. It is possible to transfer a maximum of 15% of capital from the tied amount to the amount available for withdrawal each year.
The amount available for withdrawal (maximum 15% of the tied amount) is decided each year by the council of the fund and it is paid to members who want to exercise their withdrawal rights.
The fund's latest financial year ended at 30 April 2014 and the fund then had a total of 2,635 members (2013: 2,722). At the end of April 2014 Fortum contributed EUR 0.4 million (2013: 2.8) to the personnel fund as an annual profit‑sharing bonus based on the financial results of 2013. The combined amount of members' shares in the fund was EUR 22 million (2013: 23).
The contribution to the personnel fund is expensed as it is earned.
12.4 The President and CEO and the management team remuneration
The Fortum Executive Management Team (FEM) consists of twelve members (previously nine members), including the President and CEO. The following table presents the total remuneration of the President and CEO and the Fortum Executive Management Team and takes into account the changes in FEM during the year. The expenses are shown on accrual basis.
Additional information about cash based remuneration is available in section Remuneration.
Management remuneration
2014 2013
EUR thousands The President and CEO Other FEM
members
The President and CEO 1) Other FEM
members 2)
Salaries and fringe benefits 1,005 3,321 795 2,860
Performance bonuses 3) 127 511 22 197
Share‑based remuneration 235 1,018 448 1,122
Pensions (statutory) 188 594 137 494
Pensions (voluntary) 255 803 204 695
Social security expenses 57 219 48 337
Total 1,867 6,465 1,654 5,705
1) Amount is impacted by the sick leave during 2013.
2) Including compensation of EUR 80,000 paid to former CFO Rauramo for assuming the duties of the President and CEO during March‑November 2013.
3) Performance bonuses are based on estimated amounts.
The annual contribution for the President and CEO's pension arrangement is 25% of the annual salary. The annual salary consists of a base salary, fringe benefits and bonus. The President and CEO Tapio Kuula's retirement age is 63. In case his assignment is terminated before the retirement age, the President and CEO is entitled to retain the benefits accrued in the arrangement for his benefit.
For other management team members the retirement age is 60 ‑ 65 depending on the arrangement. The pension paid is maximum 66% or 60% of the remuneration upon retirement. In the first case they are defined benefit pension plans and are provided by Fortum's pension fund. In the latter, pensions are either defined benefit or defined contribution schemes and insured by an insurance company.
A pension liability of EUR 2,514 thousand (2013: 1,566) related to the defined benefit plans for management team members has been recognised in the balance sheet.The additional pension arrangement for the President and CEO is a defined contribution pension plan and thus no liability has been recognised in the balance sheet.
In the event that Fortum decides to give notice of termination to the President and CEO, he is entitled to salary of the notice period (6 months) and to severance pay equal to 18 months’ salary. Other FEM members’ termination compensation is equal to 12 to 24 months’ salary.
Additional information about the terms and conditions of the remuneration of the President and CEO is available online at www.fortum.com/en/corporation/corporate‑governance/remuneration‑board/employment‑terms‑conditions‑president‑ceo/pa
and in section Remuneration.
Number of shares delivered to the management
The table below shows the number of shares delivered during 2014 and 2013 to the President and CEO and other FEM members under the LTI arrangements. Shares delivered under the plans are subject to a lock‑up period under which they cannot be sold or transferred to a third party.
2014 2) 2013
FEM members at 31 December 2014
Tapio Kuula 15,187 35,152
Helena Aatinen 909 519
Alexander Chuvaev 1) 13,793 35,783
Mikael Frisk 6,463 10,079
Esa Hyvärinen (member of the FEM as of 1 March 2014) 1,382 n/a
Timo Karttinen 6,639 9,563
Kari Kautinen (member of the FEM as of 1 March 2014) 1,739 n/a
Per Langer 5,517 8,550
Markus Rauramo 1,679 756
Matti Ruotsala 3,463 12,395
Sirpa‑Helena Sormunen (member of the FEM as of 1 September 2014) 0 n/a
Tiina Tuomela (member of the FEM as of 1 March 2014) 1,156 n/a
Kaarina Ståhlberg (member of the FEM until 31 March 2014) 210 n/a
Total 58,137 112,797
1) Share rights will be paid in cash instead of shares after the three‑year lock‑up period due to local legislation.
2) Share delivery based on share plans 2008‑2012 and 2011‑2016.
12.5 Board of Directors and management shareholding
On 31 December 2014, the members of the Board of Directors owned a total of 10,950 shares (2013: 10,950), which corresponds to 0.00% (2013: 0.00%) of the company’s shares and voting rights.
Number of shares held by members of the Board of Directors
2014 2013
Board members at 31 December 2014
Sari Baldauf, Chairman 2,300 2,300
Kim Ignatius, Deputy Chairman (from 8 April 2014) 2,400 2,400
Minoo Akhtarzand
Heinz‑Werner Binzel
Ilona Ervasti‑Vaintola 4,000 4,000
Christian Ramm‑Schmidt (Deputy Chairman until 8 April 2014) 2,250 2,250
Petteri Taalas (member of the Board from 8 April 2014) n/a
Jyrki Talvitie (member of the Board from 8 April 2014) n/a
Total 10,950 10,950
The President and CEO and other members of the Fortum Executive Management Team owned a total of 430,457 shares (2013: 346,106) which corresponds to approximately 0.05% (2013: 0.04%) of the company's shares and voting rights.
Number of shares held by members of the Fortum Executive Management Team
2014 2013
FEM members at 31 December 2014
Tapio Kuula 168,742 153,555
Helena Aatinen 1,528 619
Alexander Chuvaev 14,713 12,093
Mikael Frisk 46,591 42,128
Esa Hyvärinen (member of the FEM from 1 March 2014) 15,156 n/a
Timo Karttinen 76,430 69,791
Kari Kautinen (member of the FEM from 1 March 2014) 22,276 n/a
Per Langer 30,784 25,267
Markus Rauramo 15,435 13,756
Matti Ruotsala 32,360 28,897
Sirpa‑Helena Sormunen (member of the FEM from 1 September 2014) n/a
Tiina Tuomela (member of the FEM from 1 March 2014) 6,442 n/a
Total 430,457 346,106
12.6 Board remuneration
The Board of Directors comprises five to eight members who are elected at the Annual General Meeting for a one‑year term of office, which expires at the end of the first Annual General Meeting following the election. At the 2014 Annual General Meeting eight members were elected.
The Annual General meeting confirms the yearly compensation for the Board of Directors. Board members are not offered any long‑term incentive benefits or participation in other incentive schemes. There are no pension arrangements for the Board members. Social security costs EUR 12 thousand (2013: 13) have been recorded for the fees in accordance with local legislation in respective countries.
Fees for the Board of Directors
EUR thousands 2014 2013
Chairman 75 75
Deputy Chairman 57 57
Chairman of the Audit and Risk Committee 1) 57 57
Members 40 40
1) If not Chairman or Deputy Chairman simultaneously.
In addition, a fee of EUR 600 is paid for each Board and Board Committee meeting. The fee is doubled for Board members living outside of Finland in Europe, and tripled for Board members living outside of Europe. The members are entitled to travel expense compensation in accordance with the company's travel policy.
Compensation for the Board of Directors
EUR thousands 2014 2013
Board members at 31 December 2014
Sari Baldauf, Chairman 83 84
Kim Ignatius, Deputy Chairman (from 8 April 2014) 67 67
Minoo Akhtarzand 57 58
Heinz‑Werner Binzel 60 60
Ilona Ervasti‑Vaintola 48 49
Christian Ramm‑Schmidt (Deputy Chairman until 8 April 2014) 53 66
Petteri Taalas (member of the Board from 8 April 2014) 37
Jyrki Talvitie (member of the Board from 8 April 2014) 53
Former Board member
Joshua Larson (member of the Board until 8 April 2014) 19 71
Total 477 455

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