Remuneration

Decision-making order in remuneration

Lemminkäinen Corporation's Annual General Meeting elects the members of the Board of Directors on an annual basis and also determines their fees based on the proposal of the Nomination Committee of the Board of Directors.

On the basis of a proposal submitted by the HR Committee of the Board of Directors, Lemminkäinen's Board of Directors decides on the salaries, short- and long-term incentives and other benefits received by the President and CEO and the Group Executive Team.

Lemminkäinen's Board of Directors annually approves a remuneration policy, in which the key remuneration principles, for example, are determined.

The Board of Directors has the authorisation of the Annual General Meeting to decide on the issuing of a maximum of 4,643,980 shares and/or special rights entitling to shares and on the re-purchase of a maximum of 2,321,990 treasury shares. Both the authorisations can also be used for management remuneration arrangements. The Board of Directors has not used these authorisations.

Key remuneration principles

Members of the Board of Directors

The fees of the members of the Board of Directors are paid entirely as monetary compensation. The Board members' terms of office end upon the conclusion of the first Annual General Meeting held after their election.

Members of Lemminkäinen's Board of Directors do not fall within the scope of the company's share scheme, nor do they have an employment contract with Lemminkäinen.

President and CEO and Members of the Group Executive Team

According to the remuneration policy adopted by the Board of Directors, the remuneration of the President and CEO and the members of the Group Executive Team consists of a fixed basic salary, other benefits, annual short-term incentives (a performance bonus), and long-term incentives and pension schemes.

The fixed basic salary denotes monthly monetary compensation, which is determined by the nature of the position and the person's experience and performance.

The benefits available to the President and CEO and the Group Executive Team include the use of a company car and mobile phone, the meal benefit and extended insurance coverage for accidents and travel during their leisure time.

Each year, Lemminkäinen's Board of Directors decides on indicators and targets for short- and long-term incentives for the President and CEO and the Group Executive Team. These seek to support the achievement of the company's strategic targets. On the basis of a proposal by the President and CEO, the Board decides on the targets to be reached and the size of the incentives.

Short-term incentives

Management's short-term incentives are based on the opportunity to receive an annual performance bonus. The size of this reward depends on whether or not the financial and operational targets specified at the beginning of each year have been achieved. Lemminkäinen's senior management is divided into two performance bonus groups, which determine the maximum percentage applicable to each individual. Individuals are allocated to these groups on the basis of the nature and commercial value of their position.

75 per cent of the performance bonus is based on financial targets and 25 per cent on operational targets. In addition, the precondition for paying performance bonuses is that the Group's operating profit exceeds the annually agreed level. The realisation of the performance bonus targets is monitored quarterly in the Group Executive Team.

In 2016, the size of the performance bonus for the President and CEO and the members of the Group Executive Team was based e.g. on the Group's or segment's operating profit, return on operating capital as percentage and the achievement of targets associated with the improvement of efficiency or other development-related targets.

The maximum performance bonus payable to the President and CEO is 80 per cent of the annual monetary salary and 60 per cent for other members of the Group Executive Team.

The performance bonus is paid annually as monetary compensation.

Long-term incentives

Shared-based incentive plan for 2013–2015

At the end of 2012, Lemminkäinen Corporation's Board of Directors decided to introduce a share-based incentive plan for the Group's President and CEO, the Group Executive Team and other key personnel. The plan consists of both a performance-based and a conditional reward. The conditional reward seeks to encourage the Group's key personnel to increase their holding in the company. The Board of Directors recommends that the President and CEO and members of the Group Executive Team retain ownership of half of all the shares they receive through the plan until the value of their holding corresponds to half of their annual salary. They should maintain this holding during the validity of employment or service.

The reward paid through this plan may correspond to the value of a maximum of 700,000 Lemminkäinen Corporation shares (including the monetary portion). The value of the reward will be determined by the market price of the reward shares on the payment date. The Lemminkäinen Corporation shares handed over as rewards will be bought from the stock market. Therefore, the incentive plan will not have a diluting effect on the value of the shares. The purchase of shares is outsourced to a business partner.

Performance-based reward

The plan consists of three earning periods: the calendar years 2013, 2014 and 2015. The company's Board of Directors decides on the plan's earning criteria and the targets to be set at the beginning of each earning period.

A possible performance-based reward for the earning period will be paid out partly in company shares and partly in cash. The cash portion will cover any taxes and tax-related costs arising from the reward. The shares may not be transferred during the two-year commitment period. If a key person's employment or service contract ends during the commitment period, they will generally have to return any reward shares to the company without compensation.

About 35 people fell within the scope of the performance-based remuneration system during the 2015 earning period. The reward for the earning period 2015 was paid out in 2016 partly in company shares and partly in cash. The cash portion will cover any deferred taxes and tax-related costs arising from the reward. The performance-based reward paid in 2016 was based on Lemminkäinen Group's equity ratio and its return on investment.

Conditional reward

In addition to the performance-based reward, the above-mentioned individuals also have the opportunity to receive a conditional reward based on share ownership and a continuation of their employment or service contract. In order to receive the conditional reward, a key person must already own or acquire a specified number of company shares, or a percentage thereof, by a specified date. The number and date are set by the Board of Directors. If they do so, key personnel will then be granted one share for each share acquired, as long as their employment or service contract remains valid and they retain ownership of these shares until the conditional reward is paid. The earning period for the conditional reward is the calendar years 2013– 2015. The conditional reward will be paid by the end of April 2016, partly in shares and partly in cash. The cash portion will cover any taxes and tax-related costs arising from the reward.

Conditional reward was paid to 6 persons. In order to receive the conditional reward, a key person had to own or acquire a specified number of company shares, or a percentage thereof, by 30 June 2013. The number was set by the Board of Directors. The conditional reward was paid by the end of April 2016, partly in shares and partly in cash. The cash portion will cover any deferred taxes and tax-related costs arising from the reward.

Shared-based incentive plan for 2016–2018

At the end of 2015, Lemminkäinen Corporation's Board of Directors decided to introduce a new share-based incentive plan for the Group's President and CEO, the Group Executive Team and other key personnel. The plan aims to combine the objectives of the shareholders and key personnel in order to increase the value of the company, while committing the participants of the plan to the company and increasing their ownership in the company.

The plan consists of three earning periods: the calendar years 2016, 2017 and 2018. At the beginning of each earning period, the company's Board of Directors decides on the plan's earning criteria, the targets to be set, the number of shares to be allocated and the plan's participants. The potential reward for each earning period will be paid in four instalments, each of them 25 per cent of the total reward. The reward payment will take place during the four years following the earning period. If a participant's employment or service contract ends during the earning or payment period, they will not, as a rule, be entitled to any unpaid rewards.

The reward will be paid as a combination of shares and cash. The aim is that the cash portion will cover any taxes and tax-related costs arising from the reward. In paying rewards, Lemminkäinen Corporation may, at its discretion, use one or more of the following: new issued shares, the company's own existing shares, shares purchased from the market or cash. Possible purchase of the shares from the market can be outsourced to a business partner.

A reward paid through this plan may correspond to the value of a maximum of 1,200,000 Lemminkäinen Corporation shares (including the monetary portion).

The Board of Directors recommends that the President and CEO and members of the Group Executive Team retain ownership of 50 per cent of the shares they receive through the plan until the value of their holding corresponds to their six months' salary. They should maintain this holding during the validity of employment or service.

In the 2016 earning period, the share-based incentive plan covers about 110 persons, and the reward is based on Lemminkäinen Group's return on capital employed (ROCE). The President and CEO's maximum share-based reward was 38,000 gross shares and that of the other members of the Group Executive Team 12,500 gross shares.

Other long-term incentives

In 2015, an agreement was made on a performance bonus payable to the President and CEO, the members of the Group Executive Team and other key personnel for 2016–2018. The aim of the bonus was to ensure the continuity and profitability of the business over the long term. Due to rearrangements, the bonus system was adjusted in 2016 so that the bonus, if any, will be paid in 2018 if the person is still in employment relationship, and it is equivalent to a maximum of 12 months' monetary salary. The criteria for the payment of the bonus include the Group's financing arrangements succeeding as planned. The bonus is payable to the President and CEO and the members of the Group Executive Team who were members in June 2016.

Pension plan

As of 1 January 2010, additional pension plans for the President and CEO and the Group Executive Team have been based on a defined contribution plan and obtaining a paid-up policy. The pension fee is 20 per cent of the annual salary.

The President and CEO and other members of the Group Executive Team are entitled to retire upon reaching 63 years of age.

Dismissal-related remunerations

The President and CEO's contract of service may be terminated with six months' notice. Upon termination of the contract by the company, the President and CEO shall be entitled to receive a one-off severance payment equivalent to 12 months' salary in accordance with his or her salary rate at the time of termination.

The contract of service of the members of the Group Executive Team may be terminated with six months' notice. Upon termination of the contract by the company, the member of the Group Executive Team shall be entitled to receive a one-off severance payment equivalent to 6 months' salary in accordance with his or her salary rate at the time of termination.

The realized fees and remuneration of the Board of Directors and the Executive Team are published annually in the Corporate Governance Statement.

 

Updated 23 February 2017