The Annual General Meeting decides on the remuneration and other financial benefits of the members of Kesko Corporation's Board and its Committees annually. The remuneration of the members of the Board and its Committees is paid in cash. The Board members do not have share compensation or share-based compensation schemes. Nor do they participate in the other remuneration schemes or pension plans of the Company.
Principles of remuneration and the decision-making procedure
Based on the Remuneration Committee's preparatory work, Kesko's Board of Directors makes decisions on the personal compensation, other financial benefits, the performance bonus system criteria and the performance bonuses paid to the President and CEO and the Group Management Board members responsible for lines of business. As for the other Group Management Board members, Kesko's Board of Directors makes decisions on the performance bonus principles.
The President and CEO makes decisions on the compensation and other financial benefits of the Group Management Board members other than those responsible for lines of business within the limits set by the Chair of the Board's Remuneration Committee.
The remuneration scheme of the President and CEO and the other members of the Group 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 decided annually (short-term remuneration scheme), a share-based compensation (long-term remuneration scheme) and management's retirement benefits.
The Board of Directors monitors the implementation of the remuneration schemes of the President and CEO and the other Group Management Board members.
Performance bonus scheme (short-term remuneration scheme) in 2015
Kesko operates a management's performance bonus scheme. In addition to the Group Management Board, approximately 150 people in Kesko Group's management participate in the performance bonus scheme. The performance bonuses determined annually are paid after the completion of the annual financial statements by the end of April following the year of determination. Kesko's Board makes decisions on management's performance bonus criteria annually.
The maximum performance bonus of Kesko's President and CEO corresponds to his 8 months' monetary salary excluding fringe benefits, and that of the other Group Management Board members, to the monetary salary of 4—5 months, depending on the profit impact of their respective positions. The criteria have been the Group's, or each respective division’s operating profit before non-recurring items and tax, the operating profit before non-recurring items and tax of the executive's area of responsibility, sales and market share indicators and the achievement of personal targets. The performance bonus criteria and their weightings vary depending on the duties of the position. The fulfilment of the performance and profit criteria and their impact on long-term financial success are monitored and evaluated by Kesko's Board and the Remuneration Committee.
If exceptional events and events with significant impacts on operations take place during the financial year, or if the market situation or the Company's productivity trend so requires, the application, target setting and payment rules of the performance bonus scheme can be changed by a decision of Kesko Corporation's Board also in individual cases.
According to the rules of the performance bonus scheme, the period of service or comparable activity in a Group company shall 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 relationship or service contract terminates before the date of payment.
At its discretion, the Board may decide not to pay a share award, or decide to recover an award that has already been paid, if the award recipient has been found guilty of malpractice or an action in breach of Kesko’s ethical or responsibility principles or guidance that, as a whole, cannot be considered insignificant, or if there are weighty reasons for assuming that he/she is guilty of such acts.
Share-based compensation plan (long-term remuneration scheme)
In addition to the performance bonus scheme, Kesko operates the 2014 - 2016 share-based compensation plan decided by the Company’s Board and intended for the Group's management and certain other key persons. This plan is a continuation of the 2011 – 2013 share-based compensation plan.
The purpose of the share-based compensation plan is to promote Kesko's business and increase the Company's value by combining the objectives of the shareholders and management personnel. The plan also aims to commit the grantees to 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 has three vesting periods:
calendar years (2014-2016 share-based compensation plan)
and calendar years (2011-2013 share-based compensation plan)
Kesko's Board decides the target group and the vesting criteria separately for each vesting period based on the Remuneration Committee's proposal, and the award possibly paid after the end of each vesting period is based on the fulfilment of the vesting criteria decided for the vesting period by the Board. The criteria for the 2015 vesting period were the same as the criteria for the 2014 vesting period, i.e. the growth percentage of Kesko Group's sales exclusive of tax, Kesko's basic earnings per share (EPS) excluding non-recurring items and the percentage by which the total shareholder return of a Kesko B share exceeds the OMX Helsinki Benchmark Cap GI index.
The award 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-like charges incurred under the award.
At its discretion, the Company may decide not to pay a share award, or decide to recover an award that has already been paid, if the award recipient has been found guilty of malpractice or an action in breach of Kesko’s ethical or responsibility principles or guidance that, as a whole, cannot be considered insignificant, or if there are weighty reasons for assuming that he/she is guilty of such acts.
Commitment period of share awards
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.
A key person must, immediately and for no consideration, return the shares received as an award to the Company or its designate, if a Group company or the key person terminates or cancels the key person's employment or service contract, or the parties agree on its termination in the commitment period. The Board may, in individual cases, decide that the grantee is entitled to keep the shares that are subject to the return obligation, or some of them.
In the case that the grantee's employment or service relationship with a Kesko Group company ends due to company restructuring or business transfer, or if the grantee retires or dies prior to payment of the award, the Board decides, at its discretion, on the grantee's or his/her legal beneficiaries' right to the award.
Even if the criteria are met, the Board always has discretion over whether to pay a share award to any given grantee in full, in part or not at all.
Under the share-based compensation plan, a maximum total of 600,000 own B shares held by the company as treasury shares can be granted in three years.