Annual Report 2013 | Suomeksi |

12 Employee benefits

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EUR million 2013 2012
Wages and salaries 380 377
Pensions
Defined contribution plans 36 33
Defined benefit plans 15 15
Reduction due to insured defined benefit obligation -5 -
Social security costs 75 73
Share-based remunerations 7 8
Other employee costs 21 37
Total 529 543
The compensation package for Fortum employees consists of a combination of salaries, fringe benefits, short-term incentives, profit sharing paid to the Personnel Fund and share-based long-term incentives. The majority of Fortum employees are included in a performance bonus system. The long-term incentive schemes are intended for senior executives and other management of the Fortum Group.
The remuneration policy is determined by the Board of Directors. The Nomination and Remuneration Committee discusses, assesses and makes recommendations and proposals to the Board of Directors on the remuneration policy, pay structures, bonus and incentive systems for the Group and its management, and contributes to the Group's nomination issues.
For further information on pensions see Note 32 Pension obligations.
12.1 Short term incentives
Fortum’s short-term incentive scheme, i.e. bonus system, supports the realisation of the Group’s financial performance targets, sustainability targets, values and structural changes. The system ensures that the performance targets of individual employees align with the targets of the division and the Group. All Fortum employees, with the exception of certain personnel groups in Poland and Russia, are covered by the bonus system.
The criteria used in determining the size of the bonus for senior management (the President and CEO and other members of the Fortum Management Team) are decided annually by the Board of Directors on the recommendation of the Board's Nomination and Remuneration Committee. The size of each senior executive's bonus is dependent on the Group's financial performance, as well as on their own success in reaching personal goals. The performance bonus criteria may also include indicators related to sustainability targets. The maximum bonus level for the senior management is 40% of the executive's annual salary including fringe benefits.
For executives with division responsibilities, the bonus system reflects the performance of their division together with the Group’s financial performance. The criteria for evaluating an executive's personal performance are mutually agreed between the executive and his/her superior in an annual performance discussion at the beginning of each year. The performance of the President and CEO is evaluated annually by the Board of Directors.
12.2 Long-term incentives
Accounting policies + -
Fortum's share bonus system is a performance-based, long-term incentive (LTI) arrangement. The share bonus system is divided into six-year share plans, within which participants have the possibility to earn rights to company shares. A new plan commences annually if the Board of Directors so decides. The arrangement was launched in 2003 and was further developed in 2008. The potential reward is based on the performance of the Group and its divisions.
In the LTI arrangement each share plan begins with a three-year earning period during which participants may earn share rights if the earnings criteria set by the Board of Directors are fulfilled. The value of the share participation is defined after the three-year earning period when the participants are paid the earned rights in the form of shares. After the earning period, income tax and statutory employment related expenses are deducted from the reward and the net reward is used to acquire Fortum shares in the name of the participant. The maximum value of shares, before taxation, to be delivered to a participant after the earning period cannot exceed the participant’s annual salary.
The earning period is followed by a three-year lock-up period. During the lock-up period the shares may not be sold, transferred, pledged or disposed in any other way. Dividends and other financial returns paid on the shares during the lock-up period are, however, not subject to restrictions. The shares are released from the lock-up after publishing of the Company’s financial results for the sixth calendar year of an individual plan, provided that the participant remains employed by the Group.
The share plans under the new LTI arrangement are accounted for as partly cash- and partly equity-settled arrangements. The portion of the earned reward that the participants receive in shares is accounted for as an equity settled transaction, and the portion of the earned reward settled in cash covering the tax and other charges, is accounted for as cash settled transaction. For participants receiving cash only, the total arrangement is accounted for as cash-settled transaction. The reward is recognised as an expense during the vesting period with a corresponding increase in the liabilities and for the transactions settled in shares in the equity. The social charges related to the arrangement payable by the employer are accrued as a liability.
Under the previous LTI arrangement (before 2008) the reward as share rights was determined after the three year earning period, however the settlement of the plan occurred only after the lock-up period. The fair value changes arising from the changes in Fortum share price were accrued over the remaining vesting period. The Group had entered into share forward transactions to hedge this exposure. The forward transactions did not qualify for hedge accounting and therefore the periodic changes in their fair values were recorded in the income statement. Last plan under the previous LTI arrangement was settled in spring 2013.
At present, approximately 140 managers, all of whom have been elected by the Board of Directors, are participants in at least one of the five on-going annual LTI plans (plans 2009–2013, 2010-2015, 2011-2016, 2012-2017 and 2013-2018).
The expense recorded as employee costs for the period was EUR 7 million (2012: 8). Estimated departures 5% have been taken into account when determining the expense. The LTI liability including social charges at the end of the year 2013 was EUR 8 million (2012: 15), including EUR 1 million (2012: 2) recorded in equity.

Share bonus system

Shares granted
Plan 2010-2015 Plan 2009-2013 Plan 2008-2012
Grant date 13.2.2013 8.2.2012 9.2.2011
Grant price, EUR 13.90 18.16 21.85
Number of shares granted 187,493 165,132 150,436
Number of shares subsequently forfeited -3,671 -18,988 -22,735
Number of shares released from lock-up -127,701
Number of shares under lock-up at the end of the year 2013 183,822 146,144 0
Fortum share price at the end of the grant year, EUR 16.63 14.15 16.49
In addition to the shares granted above, share rights have been granted to participants that will receive cash payments instead of shares after the lock-up period. The gross amount of share rights outstanding at the end of the year 2013 for plan 2010-2015 was 97,842 share rights and for plan 2009-2013 49,289 share rights.
In spring 2013 the plan 2007-2012 was settled and 299,766 share rights were paid to the participants.
12.3 Fortum Personnel Fund
The Fortum Personnel Fund (for employees in Finland only) has been in operation since year 2000. The Board of Directors determines the criteria for the fund's annual profit-sharing bonus. Persons included in Fortum's long-term incentive schemes are not eligible to be members of this fund. Members of the personnel fund are the permanent and fixed-term employees of the Group. The membership of employees joining the company starts at the beginning of the next month after the employment relationship has been ongoing for five months. The membership in the fund terminates when the member has received his/her share of the fund in full.
New rules for the Fund were registered by the Ministry of Employment and the Economy, and approved by the Annual General Meeting of the Fortum Personnel Fund in 2013. The rules were amended in order to be aligned with the law for the personnel funds effective from the beginning of 2011. The main change concerns the members' right to withdraw funds. An employee is entitled to make withdrawals right from the beginning of the membership. The membership in the fund starts at the beginning of the next month after the employment relationship has been ongoing for five months.
The profit-sharing received by the fund is distributed equally between the members. Each employee's share is divided into a tied amount and an amount available for withdrawal. It is possible to transfer a maximum of 15% of capital from the tied amount to the amount available for withdrawal each year.
The amount available for withdrawal (maximum 15% of the tied amount) is decided each year by the council of the fund and it is paid to members who want to exercise their withdrawal rights.
The fund's latest financial year ended at 30 April 2013 and the fund then had a total of 2,722 members (2012: 2,727). At the end of April 2013 Fortum contributed EUR 2.8 million (2012: 2.5) to the personnel fund as an annual profit-sharing bonus based on the financial results of 2012. The combined amount of members' shares in the fund was EUR 23 million (2012: 22).
The contribution to the personnel fund is expensed as it is earned.
12.4 The President and CEO and the management team remuneration
The Fortum Management Team (FMT) consists of nine members, including the President and CEO. The following table presents the total remuneration of the President and CEO and the Fortum Management Team and takes into account the changes in FMT during the year. The expenses are shown on accrual basis.
Additional information about cash based remuneration is available in section Remuneration.
Management remuneration
2013 2012
EUR thousands The President and CEO Other FMT
members 1)
The President and CEO Other FMT
members
Salaries and fringe benefits 795 2,860 980 2,803
Performance bonuses 22 197 27 170
Share-based remuneration 448 1,122 637 1,455
Pensions (statutory) 137 494 172 479
Pensions (voluntary) 204 695 252 613
Social security expenses 48 337 60 333
Total 1,654 5,705 2,128 5,853
1) Including compensation of EUR 80,000 paid to CFO Rauramo for assuming the duties of the President and CEO during March-November 2013.
A pension liability of EUR 1,566 thousand (2012: 1,078) related to the defined benefit plans for management team members has been recognised in the balance sheet.The additional pension arrangement for the President and CEO is a defined contribution pension plan and thus no liability has been recognised in the balance sheet.
The annual contribution for the President and CEO's pension arrangement is 25% of the annual salary. The annual salary consists of a base salary, fringe benefits and bonus. The President and CEO's retirement age is 63. In case his assignment is terminated before the retirement age, the President and CEO is entitled to retain the benefits accrued in the arrangement for his benefit.
For other management team members the retirement age is 60 or 65 depending on the arrangement. The pension paid is maximum 66% or 60% of the remuneration upon retirement. In the first case they are defined benefit pension plans and are insured and paid by Fortum's pension fund. In the latter, pensions are either defined benefit or defined contribution schemes insured by an insurance company.
In the event that Fortum decides to give notice of termination to the President and CEO, he is entitled to salary of the notice period (6 months) and to severance pay equal to 18 months’ salary. Other FMT members’ termination compensation is equal to 12 to 24 months’ salary.
Additional information about the terms and conditions of the remuneration of the President and CEO Tapio Kuula is available online at www.fortum.com/en/corporation/corporate-governance/remuneration-board/employment-terms-conditions-president-ceo/pages/def
and in section Remuneration.
Number of shares delivered to the management
The table below shows the number of shares delivered in 2013 and 2012 to the President and CEO and other FMT members under the LTI arrangements. In spring 2013 there were deliveries of LTI plans 2007-2012 and 2010-2015. Shares delivered under the plan 2010-2015 are subject to a lock-up period under which they cannot be sold or transferred to a third party.
2013 2012
FMT members at 31 December 2013
Tapio Kuula 35,152 17,171
Helena Aatinen (from 1 November 2012) 519 -
Alexander Chuvaev 1) 35,783 18,749
Mikael Frisk 10,079 4,576
Timo Karttinen 9,563 5,213
Per Langer 8,550 3,966
Markus Rauramo (from 1 September 2012) 756 -
Matti Ruotsala 12,395 7,283
Kaarina Ståhlberg (from 1 September 2013) - -
Former FMT members
Anne Brunila (until 31 October 2012) - 3,983
Juha Laaksonen (until 31 August 2012) - 6,840
Maria Paatero-Kaarnakari (until 31 January 2012) - 3,367
Total 112,797 71,148
1) Share rights will be paid in cash instead of shares after the lock-up period due to local legislation.
12.5 Board of Directors and management shareholding
On 31 December 2013, the members of the Board of Directors owned a total of 10,950 shares (2012: 11,950), which corresponds to 0.00% (2012: 0.00%) of the company’s shares and voting rights.
Number of shares held by members of the Board of Directors
2013 2012
Board members at 31 December 2013
Chairman, Sari Baldauf 2,300 2,300
Deputy Chairman, Christian Ramm-Schmidt 2,250 2,250
Ilona Ervasti-Vaintola 4,000 4,000
Joshua Larson - -
Minoo Akhtarzand - -
Heinz-Werner Binzel - 1,000
Kim Ignatius 2,400 2,400
Total 10,950 11,950
The President and CEO and other members of the Fortum Management Team owned a total of 346,106 shares (2012: 268,992) which corresponds to approximately 0.04% (2012: 0.03%) of the company's shares and voting rights.
Number of shares held by members of the Fortum Management Team
2013 2012
FMT members at 31 December 2013
Tapio Kuula 153,555 118,403
Helena Aatinen 519 -
Alexander Chuvaev 12,093 12,093
Mikael Frisk 42,128 32,049
Timo Karttinen 69,791 60,228
Per Langer 25,267 16,717
Markus Rauramo 13,756 13,000
Matti Ruotsala 28,897 16,502
Kaarina Ståhlberg - -
Total 346,006 268,992
12.6 Board remuneration
The Board of Directors comprises five to eight members who are elected at the Annual General Meeting for a one-year term of office, which expires at the end of the first Annual General Meeting following the election. At the 2013 Annual General Meeting seven members were elected.
The Annual General meeting confirms the yearly compensation for the Board of Directors. In addition, a EUR 600 meeting fee is paid. The meeting fee is also paid for committee meetings and is paid in double to a member who lives outside Finland in Europe and triple to a member who lives outside Europe. The members are entitled to travel expense compensation in accordance with the company's travel policy. Board members are not offered any long-term incentive benefits or participation in other incentive schemes. There are no pension arrangements for the Board members. Social security costs EUR 13 thousand (2012: 12) have been recorded for the fees in accordance with local legislation in respective countries.
Compensation for Board service
EUR/year/meeting 2013 2012
Chairman 75,000 75,000
Deputy Chairman 57,000 57,000
Chairman of the Audit and Risk Committee 1) 57,000 57,000
Members 40,000 40,000
Meeting fee 2) 600 600
1) If not acting as Chairman or Deputy Chairman of the Board of Directors simultaneously.
2) Is paid in double to a member who lives outside Finland in Europe and triple to a member who lives outside Europe.
Total compensation for Board of Directors
EUR 2013 2012
Board members at 31 December 2013
Chairman, Sari Baldauf 84,000 80,353
Deputy Chairman, Christian Ramm-Schmidt 66,000 64,479
Minoo Akhtarzand 58,000 54,349
Heinz-Werner Binzel 60,400 53,149
Ilona Ervasti-Vaintola 49,000 46,549
Kim Ignatius (from 11 April 2012) 67,200 48,100
Joshua Larson 70,600 67,549
Former Board members
Esko Aho (until 11 April 2012) - 13,000
Total 455,200 427,528
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