Remuneration of the Board and its Committees
The Annual General meeting adopts resolutions on the fees and other financial benefits of the members of Kesko's Board and the Board's Committees annually. The fees of the members of the Board and its Committees are paid in cash. The Board members have no share or share- based compensation plans. Nor do they participate in other remuneration or pension plans of the company.
Remuneration of the President and CEO and other management
Principles of remuneration and the decision-making process
The remuneration plan of the President and CEO and the other members of the Corporate Management Board consists of a non-variable monetary salary (monthly salary), fringe benefits (free car and mobile phone benefit), a performance bonus based on criteria set annually (short-term remuneration plan), share-based payment and share option plans (long-term remuneration plans) and management's retirement benefits.
Based on the Remuneration Committee's preparatory work, Kesko's Board makes decisions on the individual compensation, other financial benefits, the performance bonus plan criteria and the performance bonuses paid to the President and CEO and the Corporate Management Board members responsible for lines of business. Kesko's Board makes decisions on the performance bonus principles of the other Corporate Management Board members. The Board also monitors the implementation of the remuneration plan.
The President and CEO makes decisions on the compensation and other financial benefits of the Corporate Management Board members not responsible for lines of business, within the limits set by the Chair of the Board's Remuneration Committee.
Performance bonus scheme (short-term remuneration plan)
Kesko operates a management's performance bonus scheme. In addition to the Corporate Management Board, the scheme covers about 90 people in the Kesko Group's management. The performance bonuses determined annually are paid after the completion of the annual financial statements in April following the year of determination. Kesko's Board makes decisions on the management's performance bonus criteria annually. Generally speaking, the criteria are the Group's profit before non-recurring items and tax (weighting 20-40%), the economic value added of the director's personal responsibility area, operating profit excluding non-recurring items and net sales performance, customer and personnel indicators (weighting 20-40%), attainment of personal targets, and a component based on the superior's overall evaluation (30-40%). The performance bonus criteria and their weightings vary depending on duties.
The maximum performance bonus of Kesko's President and CEO corresponds to his eight months' monetary salary excluding fringe benefits, and that of the other Corporate Management Board members, the monetary salary of 4-5 months, depending on the profit impact of each position. The performance bonus of a Corporate Management Board member is determined based on the monetary salary of the last month of the calendar year the performance of which is the basis of the bonus.
The attainment of performance and profit criteria and their impact on long-term financial success are monitored and evaluated by Kesko's Board of Directors and the Remuneration Committee.
According to the rules of the performance bonus scheme, the period of service or comparable activity in the Group company which is the present employer must have lasted continuously for at least six calendar months during the calendar year for which the bonus is paid. A performance bonus is not paid to a person whose employment terminates before the date of payment
Share-based compensation and share option plans (long-term remuneration plans)
In addition to the performance bonus scheme, Kesko operatesthe 2011-2013 share-based compensation plan and the 2007 option scheme designed for the Group's management and certain other key personnel.
The purpose of the share-based compensation plan is to promote Kesko’s business and increase Kesko’s value by combining the objectives of the shareholders and the grantees. The plan also aims to commit the grantees to the Kesko Group and give them the opportunity to receive company shares upon fulfilling the objectives set in the share-based compensation plan.
The share-based compensation plan includes three vesting periods: the calendar years 2011, 2012 and 2013. Kesko’s Board of Directors determines the target group and vesting criteria separately for each vesting period based on the Remuneration Committee’s proposal, and the compensation possibly paid after each vesting period is based on the fulfilment of the vesting criteria determined for the vesting period by the Board. The criteria for the 2011 vesting period were, as are the criteria determined for the 2012 vesting period, the growth percentage of the Kesko Group’s sales exclusive of tax, Kesko’s basic earnings per share (EPS) excluding nonrecurring items, and the percentage by which the total shareholder return of a Kesko B share exceeds the OMX Helsinki Benchmark Cap index.
The compensation possibly paid for a vesting period is paid in Kesko B shares. In addition, a cash component is paid to cover the taxes and tax related charges payable on the compensation. A commitment period of three calendar years following each vesting period is attached to the shares issued in compensation, during which shares must not be transferred. If a person’s employment or service relationship terminates prior to the end of the commitment period, he/she must return the shares subject to transfer restriction to Kesko or its designate without consideration. Under the share-based compensation plan, a total maximum of 600,000 own B shares held by the company may be granted within three years.
In addition to the share-based compensation plan, Kesko operates an option scheme resolved by the 2007 Annual General Meeting. A total maximum of 3,000,000 options can be granted under the scheme. The scheme includes an obligation placed by Kesko's Board on option recipients to use 25% of the proceeds from their share options to buy company shares for permanent ownership. Kesko's Board makes decisions on the granting of options on the basis of the Remuneration Committee's proposal and within the terms and conditions of the option scheme resolved by the company's General Meeting.
The plans do not contain terms or conditions that would limit the recipients' income from the shares or the options.
Period of notice and termination benefit
If given notice by the company, the President and CEO and the other Corporate Management Board members are entitled to a monetary salary for the period of notice, fringe benefits and a separate lump sum termination benefit determined on the basis of the executive’s monetary salary and fringe benefits for the month of notice. The termination benefit as well as granted share options, or income from them are not part of the executive’s salary and they are not included in the determination of the salary for the period of notice, termination benefit or, in case of retirement, pensionable salary. If an executive resigns, he/she is only entitled to a salary for the period of notice and fringe benefits. When a service relationship terminates due to retirement, the executive is paid a pension based on his/her service contract without other benefits.
Retirement benefits
The President and CEO and the other Corporate Management Board members, except for three (3), belong to the Kesko Pension Fund’s department A which was closed in 1998, and their pensions are determined based on its rules and their personal service contracts. They have defined retirement benefit plans. Three of the members joined Kesko after 1998, and their pensions are determined based on the Employees’ Pensions Act (TyEL) applied in Finland.