The principles and governance of the remuneration of the CEO and the rest of the Board of Management

Remuneration at Wärtsilä is guided by the ’Pay for Performance’ principles of being responsive, transparent, competitive, and aligning relevant interests. These principles guide the development of remuneration and related practices throughout the organisation, including for the President & CEO and the rest of the Board of Management. Remuneration principles are designed to attract, retain, and motivate by providing compensation solutions that reward performance delivering business results.

The remuneration of the CEO and the rest of the Board of Management is prepared by the People Committee and approved by the Board of Directors. The People Committee evaluates how Wärtsilä’s remuneration principles are implemented and the competitive­ness of remuneration. Remuneration is benchmarked against relevant peer group, and the benchmark study is reviewed by the People Committee.

Remuneration of the CEO and the rest of the Board of Management

The remuneration of the CEO and the rest of the Board of Management consists of fixed and variable compensation.  The objective is to have a good balance of rewarding elements, with a market competitive level of fixed pay supplemented by short-term incentive (STI) and long-term incentive (LTI) schemes aimed at driving company performance and providing appropriate total compensation.

Remuneration mix for the CEO and the rest of the Board of Management

 
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Fixed pay

The fixed pay of the CEO and the rest of the Board of Management consists of a monthly base salary as well as pension and benefits. The base salary is reviewed annually, taking into consideration company and individual performance, along with relevant market comparison. The review does not necessarily lead to a salary increase. Statutory increases are applied as required based on the applicable regulation. The annual base salary of the CEO is EUR 900,000.

The CEO and the rest of the Board of Management are provided medical as well as life and disability insurance. They are also offered a company car benefit. Taking into consideration Wärtsilä's emphasis on environmental responsibility, hybrid or low-emission cars are recommended.

The CEO and the rest of the Board of Management participate in company specific supplementary pension schemes, in addition to any statutory requirements. The nature of the supplementary pension schemes and retirement ages vary. They are generally based on the retirement scheme of the national social security system to which the person in question belongs and are either defined benefit or defined contribution based. The retirement age of the CEO is sixty-three (63). The supplementary pension contribution for the CEO is equivalent to 30% of the annual salary.

In a situation where the CEO or another member of the Board of Management is recruited from a country other than the country of employment, salary-setting and any additional benefits follow Wärtsilä’s International Mobility framework. The additional benefits considered may include accommodation, relocation support, family related benefits, and taxation services.

Variable pay -  Short-term incentives

The short-term incentive scheme is designed to provide incentives for the achievement of, and to reward the delivery of the short-term business plan. The performance period is one financial year. Targets are set on a sliding scale (min/target/max) or as on/off. When the performance criteria are met at the target level, the pay-out is 2/3 of the maximum. The short-term incentive opportunity is capped at 100% of the annual base salary for the CEO, and 70-80% of the annual base salary for the rest of the Board of Management. The People Committee reviews, and the Board of Directors approves, the scheme realisation against the set targets before pay-out. The pay-out of the STI is made in cash shortly following the year-end.

2021 short-term incentive scheme for the CEO and for the rest of the Board of Management

 

Group financial targets

Respective business financial targets

Strategic or individual targets

CEO

80%

NA

20%

Head of Support Function

80%

NA

20%

Head of Business

20%

60%

20%

Variable pay- Long-term incentives

The objective of the long-term incentive scheme is to align the interests of the participants with those of Wärtsilä’s shareholders. The People Committee reviews, and the Board of Directors approves, the scheme realisation against the set targets before pay-out. The pay-out is made shortly following the performance period and can be made in cash and/or in shares.

In January 2021, the Board of Directors decided on a long-term incentive scheme which comprises a  Performance Share Plan (PSP). The PSP consists of annually commencing individual performance share plans, each with a three-year performance period, followed by the payment of the potential share reward subject to the achievement of the set performance criteria. The potential share reward is paid in listed shares of Wärtsilä. The first plan in the PSP structure covers the years 2021-2023, and the performance criterion applied is Economic Value Added (EVA). The aggregate maximum number of shares payable as a reward based on the first plan is approximately 3,151,000 shares.

Prior to the 2021-2023 long-term incentive scheme, the schemes have been based on Wärtsilä’s share price development. The table below sets out the details of the realised and outstanding awards under Wärtsilä's long-term incentive scheme. The value delivered is based on share price development during the three-year performance period.

Realised and outstanding long-term incentive schemes

 

LTI for performance period 2018-2020

LTI for performance period 2019-2021

LTI for performance period 2020-2022

Number of incentive rights outstanding (on 31.12.2020)

3,150,000

4,585,000

8,400,000

Starting share price, EUR

22.58

16.76

11.01

Measurement period for comparison share price

Q4 2020 + 100% of dividends paid

Q4 2021 + 100% of dividends paid

Q4 2022 + 100% of dividends paid

Maximum value per incentive right, EUR

8.47

6.56

4.31

Final comparison share price, EUR

8.65

 

 

Final value per incentive right, EUR

0.00

 

 

Scheme payment date

February 2021

February 2022

February 2023


Other terms of employment of the CEO and the rest of the Board of Management

Share ownership

The CEO and the rest of the Board of Management are expected to accumulate and, once achieved, maintain a share ownership in Wärtsilä that at least corresponds to the individual’s annual gross base salary.

Notice period and severance pay

The term of notice by the CEO as well as by the company is six months. The remuneration paid to the CEO if dismissed by the company corresponds to 18 months of severance pay. The term of notice for the rest of the Board of Management is six months, and the severance paid if dismissed by the company corresponds to six months.

2020 actualised remuneration of the Board of Management excluding the CEO

The below table presents the actualised remuneration paid out during the financial year 2020 for the Board of Management, excluding the CEO.

TEUR

Salary and short-term benefits

Supplementary pension contributions

Short-term incentives*

Long-term incentives**

Total

Rest of the Board of Management

2,541

247

-

-

2,788


*
Actualised STI pay-out is based on the STI performance period 2019
** Actualised LTI pay-out is based on the LTI performance period 2017-2019


Further information:

Remuneration Policy for Governing Bodies of Wärtsilä
Remuneration report 2020

© 2021 Wärtsilä