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.
Share-based commitment and incentive scheme 2017–2020 (long-term incentive scheme)
In February 2017, Kesko’s Board of Directors decided on a new long-term share-based commitment and incentive scheme for top management for 2017-2020. The scheme consists of three share-based compensation plans, under which the Board can annually decide on the initiation of new share plans. The primary share-based compensation plan is the Performance Share Plan (PSP). There is also a transitional Bridge Plan for 2017 and an RSP (restricted share pool) plan for special situations. Once the transfer restriction of each share plan ends, the recipient of the shares is free to use them, provided that the person is still employed by Kesko Group.
The purpose of the share-based compensation plan is to promote Kesko's business and increase the Company's value by aligning the objectives of the shareholders and executives. The plan also aims to commit people to Kesko Group and give them the opportunity to receive Company shares upon fulfilling the objectives set in the share-based compensation plan.
The maximum gross amount of share award paid for each performance period is 400% of the monetary salary of the last calendar year of the performance period for which the award is paid.
The PSP consists of rolling four-year share plans, each with a two-year performance period followed by a two-year commitment period. The Board of Directors of Kesko Corporation decides annually whether to initiate a new plan. The PSP that began at the start of 2017 consists of a two-year performance period (1 Jan. 2017–31 Dec. 2018) followed by a two-year commitment period (1 Jan. 2019–10 Feb. 2021).
The transitional 2017 Bridge Plan has a one-year performance period, followed by a three-year commitment period. Apart from that, the rules are the same as for the PSP. The Bridge Plan that began at the start of 2017 consists of a one-year performance period (1 Jan. 2017–31 Dec. 2017) followed by a three-year commitment period (1 Jan. 2018–10 Feb. 2021).
RSP (restricted share pool) is a secondary share plan for special situations, to be decided upon separately. It has a fixed share allocation decided on an individual level, and a commitment period that ends three years after the plan is initiated.
Kesko applies a share ownership recommendation policy to the members of Kesko's Group Management Board. According to the recommendation, each Group Management Board member shall maintain a holding of at least 50% of the net shares they have received under the Company's share-based compensation schemes until their holding of Kesko shares corresponds to at least their fixed gross annual salary.