Fortum's incentive schemes
Fortum wants to recognise high performance and value-based behaviour and aims to offer a competitive remuneration package for senior management and other key employees. The objective is to attract, commit and retain key resources in all countries where the company operates.
Fortum’s STI programme is designed to support the achievement of the company’s financial and other relevant targets on an annual basis. All employees are covered by the programme or alternatively by a business specific or a comparable local variable pay arrangement.
The Board of Directors determines the performance criteria and award levels for the Fortum Executive Management. The target incentive opportunity is 20% and the maximum incentive opportunity is 40% of the annual base salary.
The awards for the members of the Fortum Executive Management are based on the achievement of divisional targets, Group financial performance as well as individual targets. The performance criteria used are agreed upon in a performance discussion held at the beginning of the year. The Board of Directors assesses the performance of the President and CEO and the members of the Fortum Executive Management on a regular basis.
Awards for other employees are based on a combination of Group, divisional, functional and personal targets. The targets are set in annual performance discussions held at the beginning of the year. Awards under the STI programme are paid solely in cash.
Long-term incentives (LTI)
The purpose of Fortum’s long-term incentive programme is to support the delivery of sustainable, long-term performance, align the interests of management with those of shareholders and assist in committing and retaining key individuals.
Fortum’s LTI programme provides participants with the opportunity to earn company shares. Subject to the decision of the Board of Directors, a new LTI plan commences annually.
The Board of Directors approves the Fortum management members and key individuals entitled to participate in each annually commencing LTI plan. Participation in the LTI plan precludes the individual from being a member in the Fortum Personnel Fund.
Each LTI plan begins with a three year earnings period, during which participants may earn share rights if the performance criteria set by the Board of Directors are fulfilled.
If the minimum performance criteria are not exceeded, no shares will be awarded. If performance is exceptionally good and the targets approved by the Board of Directors are achieved, the combined gross value of all variable compensation cannot exceed 120% of the person’s annual salary in any calendar year.
After the earnings period has ended and the relevant taxes and other employment-related expenses have been deducted, participants are paid the net balance in the form of shares.
For LTI plans commencing in 2013 onwards, any shares awarded to Fortum Executive Management members are subject to a three-year lock-up period in accordance with the State-Ownership Guidelines in force at the time the LTI plan was introduced. Subject to a decision by the Board of Directors, the lock-up period can be reduced to one year for those Fortum Executive Management members whose aggregate ownership of Fortum shares is greater than or equal to their annual salary. For other participants (i.e. below the Fortum Executive Management), the lock-up period is one year. For LTI plans commencing prior to 2013, the lock-up period is three years for all LTI plan participants.
If the value of the shares decreases or increases during the lock-up or retention period, the participant will carry the potential loss or gain.
To reflect the recent changes in the State-Ownership Guidelines, for LTI plans commencing in 2017 and beyond, no lock-up period will be applied for any participants. However, Fortum Executive Management members whose aggregate ownership of Fortum shares does not yet fulfil the shareholding requirement are required to retain at least 50% of the shares received until the required level of shareholding is met.
Remuneration that has been paid out without grounds shall be reclaimed in accordance with the regulations on returning an unjust enrichment and remuneration. A payment which has been influenced by the recipient’s unethical conduct, may be recovered based on the terms of the LTI Programme.
Aon Hewitt and PCA Corporate Finance acted as advisers for the Nomination and Remuneration Committee in planning the amended LTI programme valid from 2017 onward.