Fortum's incentive schemes

Fortum wants to recognise high performance and value-based behaviour and aims to offer a competitive remuneration package for senior management and other key employees. The objective is to attract, commit and retain key resources in all countries where the company operates.

Short-term incentives  

Fortum’s short-term incentive programme is designed to support the achievement of the company’s financial and other relevant targets set on an annual level. The individual and team targets are aligned with the targets of the division and the Group through the frequent performance dialogues. All Fortum employees are covered by the STI programme or a comparable local variable pay arrangement.  
 
The Board of Directors decides on the STI performance  criteria – including all performance measures, target values and performance ranges – for senior management. The target incentive for senior management is 20% of the individual’s annual salary including fringe benefits, while the maximum incentive represents 40% of the individual’s annual salary including fringe benefits. 
 
Incentives payable for the members of Fortum Executive Management are determined based on the realisation of the set divisional targets, the Group’s financial performance as well as individual targets. The criteria used to assess the personal performance of an executive are agreed in a performance discussion held at the beginning of the year. The Board of Directors assesses the performance of the President and CEO on a regular basis. 
 
 

Long-term incentives  

The purpose of Fortum’s long-term incentive programme is to support the achievement of the Group’s long-term targets by committing and retaining key individuals. The Board of Directors approves the Fortum management members and key individuals entitled to participate in an LTI Plan. Participation in an LTI Plan precludes the individual from being a member in the Fortum Personnel Fund.  
 
Fortum’s LTI Programme consists of six-year share plans, within which participants have the opportunity to earn company shares. Subject to the decision of the Board of Directors, a new share plan commences yearly. 
 
Each share plan begins with a three-calendar-year period, during which participants may earn share rights if the earning criteria set by the Board of Directors are fulfilled. If all the targets set by the Board of Directors are met, the incentive for senior management is 50% of the individual’s annual salary including fringe benefits. If the targets are exceeded and the performance is exceptionally good the maximum incentive may equal to the participant’s annual salary including fringe benefits.  
 

Share Bonus System 

After the earning period has ended and the relevant taxes and other employment-related expenses have been deducted from the gross value of the earned share rights, participants are paid the net balance of the earned rights in the form of shares. The earning period is followed by a subsequent lock-up period, during which participants cannot transfer or dispose of the shares. If the value of the shares decreases or increases during the lock-up period, the participant will carry the potential loss or gain. 
 

For Fortum Executive Management members, the lock-up period may be shortened from three years to one year on an individual basis if the value of the aggregate ownership of Fortum shares corresponds to a minimum of the executive’s annual base salary. For other participants, the lock-up period was changed to one year from the LTI Plan 2013–2018 onwards.

PCA Corporate Finance, an independent Finnish financial advisor, has provided external advice in matters related to remuneration of senior management.

2/29/2016