The Finnish Corporate Governance Code 2010 requires that Fortum Corporation issues a remuneration statement regarding the salaries and other remuneration paid by company. Furthermore, in September 2009, the Cabinet Committee on Economic Policy, representing the State owner, issued guidelines on remuneration and pension benefits of management in companies with State ownership. Fortum takes into account both the Code and the guidelines in its remuneration.
Remuneration at Fortum is directed by the Group’s remuneration principles and Fortum’s general remuneration and benefits practices. When determining remuneration, the company’s financial performance and external market data, particularly the remuneration for similar positions among peer companies, are taken into consideration. The Board of Directors approves the remuneration principles at the Group level and decides on the bonus targets and the remuneration of senior management. Remuneration of the members of the Board of Directors is decided by the Annual General Meeting of Fortum Corporation.
Fortum offers a competitive compensation package for senior executives and other management. The aim is to attract, commit and retain key resources in all countries where Fortum operates. The package offers employees a competitive base salary. In addition to a salary, other relevant benefits, challenging short-term incentives and longterm incentive schemes are also offered.
Short-term incentives
Fortum’s short-term incentive scheme, i.e. bonus system, supports the realisation of the Group’s financial performance 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 Board of Directors decides on the bonus criteria for senior management (the President and CEO and other members of the Fortum Management Team). The amount of each senior executive’s bonus is dependent on the Group’s financial performance and on their own success in reaching personal targets. The maximum bonus for senior management is 40% of the executive’s annual salary including fringe benefits.
The bonuses of the division heads, who are all members of the Fortum Management team, are determined on the basis of the division’s performance and the Group’s financial performance. During the annual performance discussion held at the beginning of the year,the division head and his/her superior agree on the criteria used to assess the personal performance of the executive. The Board of Directors assesses the performance of the President and CEO on an annual basis. In 2011, the bonuses paid to the Fortum Management Team (FMT), including the President and CEO, amounted to EUR 1,087,190 (2010: 819,253), which is 0.29% (2010: 0.23%) of the total remuneration paid by the Fortum Group.
Long-term incentives
The purpose of Fortum’s long-term incentive system, i.e. share bonus system, is to support the achievement of the Group’s long-term targets by committing key individuals. The Board of Directors chooses the Fortum management members entitled to participate in the share bonus system. The Board of Directors can also exclude individual participants from the system. Participation in the system precludes the individual from being a member in the Fortum Personnel Fund.
Fortum’s share bonus system is divided into six-year share plans, within which participants have the opportunity to earn company shares. A new plan commences yearly, if the Board of Directors so decides.
Each share plan begins with a three calendar- year period, during which participants may earn share rights if the earnings criteria set by the Board of Directors are fulfilled. 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 decrease or increase during the lock-up period, the potential loss or gain is carried by the participants. The maximum value of shares (before taxation) to be delivered to a participant after the earning period cannot exceed the participant’s one-year salary.
Fortum’s current long-term incentive system fulfils the recommendations of State-owned companies and the Corporate Governance Code 2010 for listed companies.