Remuneration of the President and CEO and the Board of Management
The remuneration paid to the President & CEO and other members of the Board of Management, and the principles underlying it, are determined by the Board of Directors. The remuneration paid to the President & CEO and to the other members of the Board of Management consists of a monthly salary and a bonus. The Board of Directors determines on a yearly basis the terms for the bonus payment. The bonus payments for the President & CEO and the Board of Management are paid based on the achievement of the company's profitability and other financial targets for the financial year. The variable salary can be at most 43% of the maximum total salary for the President & CEO and one third of the maximum total salary for the other members of the Board of Management. Additionally, the Group has a long-term incentive scheme for senior management tied to the development of the company's share price.
The base salary of the President & CEO is EUR 780,000 p.a. He is entitled to participate in the short- and long-term incentives schemes according to the terms and conditions described above. The President & CEO is eligible to take retirement upon reaching the age of sixty-three. His pension scheme is determined according to a defined contribution based system. The retirement pension contribution is a relative part of his annual salary. Remuneration paid to the President & CEO if dismissed by the company corresponds to 18 months' salary plus a six months' period of notice salary.
The members of the Board of Management have a company specific pension scheme. Additional pension schemes and retirement ages vary and are generally based on the retirement scheme of the national social security system to which the person in question belongs, and is either defined benefit or defined contribution based.
Financial benefits of President & CEO Jaakko Eskola, 1 January - 31 December 2016:
- Salary and other short term benefits: EUR 781 thousand
- Bonuses: 179 thousand
- Bonus schemes based on share price development: 216 thousand
- Optional retirement age: 63
- Period of notice: 6 months
- Compensation paid if dismissed by the company: 18 months' salary + 6 months' period of notice salary
Further information on Board of Management remunerations can be found in the Consolidated Financial Statements, Note 29 Related party disclosures.
The Board of Directors determines the incentive schemes for the President & CEO and other members of the Board of Management and the principles underlying them. The Board of Directors also decides on other possible long-term incentive schemes for senior management, unless they are by law determined by the Annual General Meeting. The Board of Management decides on bonus schemes for other directors and managers.
Short-term incentive schemes
The Group operates a bonus scheme, which is implemented globally in all Businesses. The bonus is based on the Group's profitability and agreed personal targets. Some 3,000 directors and managers are covered by this bonus scheme.
The Group's white- and blue-collar employees are covered by various bonus or profit-based incentive schemes. These are applied in each country according to that country's legislation, or to agreements concerning profit-sharing schemes. All in all, some 80% of the company's employees are covered by the Group's bonus schemes and various other profit-related incentive schemes.
Long-term incentive scheme
The Board of Directors has decided on a long-term incentive scheme for senior management tied to the development of the company's share price. The yearly bonus scheme applies to approximately 100 directors. The size of the bonus is based on the share price development during a pre-determined timeframe, and an upper limit is set for the bonus.
The objective of the incentive scheme is to align the interests of the senior management with those of Wärtsilä’s shareholders by creating a long-term equity-related interest for the participants and, thus, to promote shareholder value creation, to drive long-term performance culture in Wärtsilä and to commit Wärtsilä’s valuable key resources to the company.
Each Board of Management member is expected to accumulate and, once achieved, maintain a share ownership in Wärtsilä which at least corresponds to the individual’s annual gross base salary. Board of Management members shall acquire Wärtsilä shares with 50% of the net bonuses received under the company’s long-term bonus scheme until the above share ownership level has been achieved. The shares shall be acquired by a third party stock broker from the stock market during the ten consecutive trading days following the publication of Wärtsilä’s financial results for the final year of the individual bonus scheme.
The 2013 bonus scheme comprises 1,846,000 bonus rights. The bonus payment is based on the share price development during a three-year period on the basis of a share price of EUR 37.05. The bonus cannot exceed EUR 10.00 per bonus right and it takes into account 50% of dividends paid. The 2013 bonus scheme will be due for payment in February 2017.
The 2014 bonus scheme comprises 2,076,000 bonus rights. The bonus payment is based on the share price development during a three-year period on the basis of a share price of EUR 44.25. The bonus cannot exceed EUR 10.60 per bonus right and it takes into account 100% of dividends paid. The 2014 bonus scheme will be due for payment in February 2018.
The 2015 bonus scheme comprises 1,962,000 bonus rights. The bonus payment is based on the share price development during a three-year period on the basis of a share price of EUR 47.47. The bonus cannot exceed EUR 13.84 per bonus right and it takes into account 100% of dividends paid. The 2015 bonus scheme will be due for payment in February 2019.
The Board of Directors monitors the Group’s short- and long-term incentive schemes and evaluates the achievement of the targets on which they are based. The incentive schemes for 2016 were found to be well balanced and in accordance with market practices.
Salary and remuneration report