Decision-making procedure concerning remuneration
The Annual General Meeting decides on the remuneration and other financial benefits of the members of Kesko Corporation's (“Kesko”) Board of Directors and its Committees annually. Significant shareholders prepare proposals concerning the Board of Directors, including the proposal for the remuneration of Board members.
Based on the Remuneration Committee's preparatory work, Kesko's Board of Directors makes decisions on the personal remuneration, other financial benefits and performance bonuses 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 remuneration and financial benefits of the Group Management Board members other than those responsible for lines of business, based on preparatory work by the head of HR, within the limits set by the Chairman of the Board's Remuneration Committee.
The Board of Directors monitors the implementation of the remuneration schemes of the President and CEO and the other Group Management Board members.
Main principles of remuneration
The remuneration of the members of the Board of Directors and its Committees comprises annual fees decided by the General Meeting and potential other financial benefits. The Annual General Meeting held on 11 April 2018 decided that the payments of the annual fees of the Board members will be made in Kesko Corporation’s B shares and in cash, with approximately 30% of the fees paid in shares. After the transfer of shares, the remaining remuneration amount is paid in cash. Up until the 2018 Annual General Meeting, the fees were paid in cash in their entirety. Board members do not participate in other compensation plans or pension plans of the Company.
The remuneration scheme of the President and CEO and the other members of the Group Management Board consists of a fixed monetary salary (monthly salary), fringe benefits (free car and mobile phone benefit), a performance bonus based on criteria decided annually (short-term incentive scheme), a share-based compensation scheme (long-term commitment and incentive scheme) and management's retirement benefits.
Commitment and incentive schemes
Performance bonus scheme (short-term incentive scheme)
The Board of Directors confirms the terms and conditions of performance bonuses and the Group level performance bonus criteria annually. The scheme covers around 8,000 employees, including the Group Management Board and the Managing Director. The possible performance bonus is based on the financial targets set for the scheme in advance. 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.
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 Remuneration Committee.
The performance bonus criteria for all members of the Group Management Board comprise the Group’s comparable operating profit, return on capital employed (%) (at group and division level), and business-specific sales or market share indicator. In addition, each member of the Group Management Board has individual targets. The performance bonus criteria and their weights vary depending on duties.
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, the monetary salary of 4–6 months, depending on the profit impact of their duties. The performance bonus of a Group 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.
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 four 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 performance bonus, or decide to recover a bonus that has already been paid if the bonus 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 grounds for assuming that the recipient is guilty of such acts.