Remuneration

Remuneration at Fortum is directed by the Group’s remuneration principles and Fortum’s general compensation and benefits practices as well as guidance set out in the Government Resolution on State-Ownership Policy

Remuneration Governance

The Shareholders’ Nomination Board, the Annual General Meeting of Shareholders (AGM), the Board of Directors and the Nomination and Remuneration Committee are all involved in the preparations and decision-making regarding remuneration at Fortum.

In accordance with the Finnish Corporate Governance Code 2020, the Nomination and Remuneration Committee prepares the Remuneration Policy and the Remuneration Report for Governing Bodies. The Shareholders’ Nomination Board is involved in preparing the Remuneration Policy for the Board of Directors. The Board of Directors submits the Remuneration Policy at least every four years and Remuneration Report annually, starting in 2021, to the AGM.

Upon the recommendation of the Nomination and Remuneration Committee, the Board of Directors approves annually the compensation of the President and CEO within the confines of the Remuneration Policy for the President and CEO. The
composition and duties of the Nomination and Remuneration Committee have been described in detail in the Corporate Governance Statement. In order to avoid any conflicts of interest, the Nomination and Remuneration Committee shall consist of non-executive members only. The Nomination and Remuneration Committee has the power in its sole discretion to retain external advisors in assisting in the evaluation of the executive remuneration.

Remuneration Principles

At Fortum, we strive for a performance-focused culture where our people understand:

  • the company, its strategy and performance targets,
  • how they as individuals can impact the results,
  • the link between business performance and remuneration, and
  • the importance of delivering sustainable business results.

This philosophy underpins our remuneration principles which are designed to encourage and recognise high performance and behaviour in line with Fortum’s values. Fortum follows a total compensation approach where all remuneration elements are taken into account when setting and reviewing salaries; base salaries, short- and long-term incentive opportunities as well as different benefits.

Remuneration of the Board of Directors in 2020

The board members were not in an employment relationship or service contract with Fortum and they were not given the opportunity to participate in Fortum’s STI or LTI programmes, nor did Fortum have a pension plan that they could opt to take part in. Travel expenses were compensated to the members of the Board of Directors in accordance with Fortum’s travel policy.

On 23 April 2020, the 2020 AGM confirmed the following annual fees for the members of the Board of Directors:

EUR 2020
Chair 77,200
Deputy Chair 57,500
Chair of the Audit and Risk Committee 1) 57,500
Members 40,400
1) If not Chair or Deputy Chair simultaneously

Every member of the Board of Directors receives a fixed yearly fee and a meeting fee.

In addition, a fee of EUR 600 will be paid for each board meeting and board committee meeting. For members living outside Finland in Europe, the fee for each meeting will be doubled, and for members living outside Europe, the fee for each meeting will be tripled. For members living in Finland, the fee for each board and board committee meeting will be doubled for meetings held outside Finland and tripled for meetings held outside Europe. For board and committee meetings held as a telephone conference, the basic fee will be paid to all members.

Fees paid to the members of the Board of Directors in 2020

EUR thousand Fixed annual fee Meeting fees Total remuneration Board service 2020 Fortum shares owned 31 Dec 2020
Eva Hamilton 40 15 55 1 Jan-31 Dec 40
Essimari Kairisto, Chair of the Audit and Risk Committee (since 23 Apr) 52 20 72 1 Jan-31 Dec 0
Matti Lievonen, Chair 77 24 101 1 Jan-31 Dec 4 500
Klaus-Dieter Maubach, Deputy Chair until 23 Apr) 46 19 65 1 Jan-31 Dec 0
Anja McAlister 40 17 57 1 Jan-31 Dec 0
Teppo Paavola 30 15 45 23 Apr-31 Dec 0
Veli-Matti Reinikkala, Deputy Chair (since 23 Apr) 52 25 77 1 Jan-31 Dec 5 000
Philipp Rösler 41 16 57 1 Jan-31 Dec 0
Annette Stube 30 12 42 23 Apr-31 Dec 0
Former Board members:
Kim Ignatius Chair of the Audit and Risk Committee (until 23 Apr) 19 2 21 1 Jan-23 Apr Not disclosed
Total 427 166 593   9,540

In addition to the information provided in the above table, Klaus-Dieter Maubach received compensation of EUR 117,355 for acting as the Chairman of the Supervisory Board of Uniper SE as of April 2020. Compensation for acting in Uniper’s Supervisory Board was paid according to the policies in force at Uniper, the annual fee for the Chairman being EUR 210,000 out of which 20% is variable remuneration, which is determined as described in Uniper’s Annual report and is paid as virtual shares.

Fees paid to the members of the Board of Directors 2016-2020

EUR thousand 2020 2019 2018 2017 2016
Eva Hamilton 55 54 54 54 56
Essimari Kairisto, Chair of the Audit and Risk Committee (since 23 Apr) 72 56 42 - -
Matti Lievonen, Chair (since 4 Apr 2017 ) 101 89 80 49 -
Klaus-Dieter Maubach, Deputy Chair (28 Mar 2018-23 Apr 2020) 65 71 54 - -
Anja McAlister 57 59 60 47 -
Teppo Paavola (since 23 Apr) 45 - - - -
Veli-Matti Reinikkala, Deputy Chair (since 23 Apr) 77 58 54 58 44
Philipp Rösler 57 44 - - -
Annette Stube (since 23 Apr) 42        
Former Board members:
Minoo Akhtarzand (until 4 Apr 2017 ) - - - 16 61
Sari Baldauf (until 28 Mar 2018 ) - - 20 84 87
Heinz-Werner Binzel (until 26 Mar 2019 ) - 12 54 57 61
Kim Ignatius (Chair of the Audit and Risk Committee until 23 Apr 2020 ) 21 67 65 67 70
Tapio Kuula (until 7 Nov 2017 ) - - - 43 52
Marco Ryan (26 Mar-1 Aug 2019) - 19 - - -
Petteri Taalas (until 5 Apr 2016 ) - - - - 17
Jyrki Talvitie (4 Apr 2017 ) - - - 17 70
Remuneration of the President and CEO in 2020

The Board of Directors considers various factors when determining the fixed compensation of the President and CEO, including individual contribution, business performance, role, employee pay across Fortum, and alignment with external market levels.

The terms of the service agreement of the President and CEO Markus Rauramo, effective as of 1 July 2020, are in line with Fortum’s Remuneration policy for the governing bodies. The former President and CEO Pekka Lundmark forfeited his unvested rewards due to his departure. In 2020, malus and clawback provisions for the President and CEO were not utilised. As decided by the Board of Directors, the variable elements (STI and LTI pay-outs) were limited to a maximum of 120% of the individual’s annual fixed compensation. Read more about the Remuneration and Terms of the Service Contract of the President and CEO

EUR thousand Markus Rauramo, accrued 2020, payable in 2021   Markus Rauramo, Jul-Dec 2020   Pekka Lundmark, Jan-Jun 2020
Fixed compensation - 808 84 % 521 26 %
Supplementary pension - 158 16 % 132 6 %
Short-term incentives 163 - 0 % 200 10 %
Long-term incentives 1,099 - 0 % 1,178 58 %
Total remuneration -   965   2 033
LTI Plan 2018-2020   2017-2019   2017-2019
Max. number of shares granted (gross) *   *   68,000
Grant date *   *   10.3.2017
Share price at grant *   *   14.36
No of shares earned (gross) 48 770   *   53,181
No of shares delivered (net) 25,921   *   28,527
Share delivery date 22 March 2021   *   17.2.2020
Share price at delivery 22.54   *   22.16
Shareholding requirement 100 % of individual annual fixed compensation   100 % of individual annual fixed compensation   100 % of individual annual fixed compensation
Shares owned 31 Dec 2020     72,949   *

* Not disclosed; not acting as the President and CEO of Fortum when the event occurred

In addition to the information provided in the table above, President and CEO Markus Rauramo received compensation of EUR 56,102 as of July 2020 for acting as the Deputy Chairman of the Supervisory Board of Uniper SE. The compensation for acting on Uniper’s Supervisory Board is paid according to the policies in force at Uniper. The annual fee for the Deputy Chairman is EUR 140,000, out of which 20% is variable remuneration which is determined as described in Uniper’s Annual report and is paid as virtual shares.

Performance outcomes

Short-term incentives for 2019, paid in 2020

The outcome of the 2019 Group-level comparable operating profit + share of profits from associates and joint ventures (CompOP) was between the minimum and the target. Fortum’s 2019 LTIF for own personnel and contractors improved and was 1.7, achieving the set target level (≤ 1.7).

The achieved performance based on the individual or team targets (Individual/team) was evaluated in connection with the individual performance review and confirmed at the beginning of 2020. In 2019, the President and CEO Pekka Lundmark had one individual target related to the co-operation with Uniper and one joint Fortum Executive Management target related to operational excellence. The combined outcome of President and CEO Pekka Lundmark’s individual and team targets was between the target and the maximum. The accrued incentives for the year 2019 were paid in April 2020.

Short-term incentives for 2020, payable in 2021

The outcome of the 2020 Group-level CompOP was between the minimum and the target. Fortum’s 2020 LTIF for own personnel and contractors declined from the previous year and was 2.0 and did not reach the set minimum level.

In 2020, the President and CEO Pekka Lundmark had one individual target related to the co-operation with Uniper and two joint FEM targets related to operational excellence and the progress in strategic priorities. The President and CEO Pekka Lundmark resigned and therefore forfeited his right to a short-term incentive for the year 2020.

The President and CEO Markus Rauramo’s individual targets were related to the preparation of the updated strategy for the Fortum Group including Uniper, as well as the launch of intensive cooperation across the companies. The results of this work were presented at the Capital Markets Day in December and included the updated strategy, new financial, climate, and safety targets, as well as targeted cooperation benefits. The STI outcome of these targets reached the maximum level. The accrued incentives for the year 2020 will be paid in April 2021.

2017–2019 Long-term incentive plan (paid in 2020)

The performance measures for the 2017–2019 LTI plan were TSR measured against a European utilities peer group and EPS. Due to the strong performance of 93% of the maximum in the 2017–2019 LTI plan as well as a good performance in the 2019 STI plan, the combined outcomes of the LTI and STI would have exceeded the set cap of 120% of the President and CEO Pekka Lundmark’s annual salary. In accordance with the decision of maximum variable compensation made by the Board of Directors, the LTI payment was cut to limit the total variable compensation to a maximum of 120% of the individual’s annual base salary.

2018–2020 Long-term incentive plan (payable in 2021)

The performance measures for the 2018–2020 LTI plan were TSR measured against a European utilities peer group and EPS. The outcome of the 2018–2020 LTI plan was 67% of the maximum mainly due to strong EPS results.

Remuneration of other Fortum Executive Management in 2020

Remuneration of other Fortum Executive Management (excl. the President and CEO) in 2016-2020

EUR thousand 2020 2019 2018 2017 2016
Fixed compansation 3,195 3,382 3,101 3,387 3,581
Supplementary pension 527 586 533 636 560
Short-term incentives 657 631 926 962 233
Long-term incentives 3,598 2,360 885 877 1,694
Total remuneration 7,977 6,958 5,445 5,862 6,068
Shareholding requirement is 100% of individual annual fixed compensation

The figures include Markus Rauramo for the period he was a member of the Fortum Executive Management until 30 June 2020, but not for his period as the President and CEO from 1 July 2020 onwards.

In 2020, in addition to the information provided in the above table, Markus Rauramo before starting as the President and CEO, Tiina Tuomela, and Sirpa-Helena Sormunen received compensation amounting to a total of EUR 126,740 for their roles in the Supervisory Board of Uniper SE as of April 2020. Compensation for acting in Uniper’s Supervisory Board was paid according to the policies in force at Uniper. As described in Uniper’s Annual report, 20% of the compensation is variable and paid as virtual shares.

Information on incentive plans

The Group level metrics and outcomes of the short-term incentive plans 2019 and 2020 are described in the Remuneration report for the governing bodies 2020.

For 2021, the Group level STI targets are based on the achievement of Group financial performance, divisional targets, as well as individual or team targets (as in 2020). The STI performance measures are comparable operating profit + share of profits from associates and joint ventures (60% weight), LTIF for own personnel and contractors (10% weight), and individual or team targets (30% weight). For the members of FEM, the financial measure is comparable operating profit (Fortum excluding Uniper) + share of profits from associates, and joint ventures added with Uniper’s adjusted EBIT.

In the 2020–2022 LTI plan, Fortum introduced an ESG related target for the first time. The ESG target is related to actions driving the reduction of Fortum’s CO2 emissions and reduction of coal generation capacity aligned with Fortum’s strategy. The relative TSR measured against a peer group of European utilities has remained as a measure in the LTI plan. Reported EPS was a performance measure in the 2017–2019 and 2018–2020 LTI plans.

LTI Plan 2017-2019 2018-2020 2019-2021 2020-2022 2021-2023
Earnings period 2017-2019 2018-2020 2019-2021 2020-2022 2021-2023
Share delivery year 2020 2021 2022 2023 2024
Measures TSR 50%/EPS 50% TSR 50%/EPS 50% TSR 100% TSR 80%/ESG 20% TSR 80%/ESG 20%
Outcome 93 % 67 %      
No of shares granted 595,064 607,620 608,051 626,475 754,000
No of shares forfeited 111,878 104,420      
No of shared delivered 196,864 180,175      
No of participants 95 105      
Grant date 10.3.2017 28.2.2018 28.2.2019 28.2.2020 28.2.2021
Share price at grant 14.36 18.05 19.52 19.28 20.69
Share price at delivery 22.16 22.54      

Number of shares delivered to the Fortum Executive Management

LTI Plan 2017-2019 2018-2020
Arun Aggarwal 4,012 5,304
Alexander Chuvaev 36,417* 20,484
Per Langer 5,656 4,555
Risto Penttinen 6,612 4,906
Markus Rauramo 12,273 **
Arto Räty 5,392 4,476
Mikael Rönnblad 6,787 5,985
Sirpa-Helena Sormunen 6,230 4,992
Tiina Tuomela 7,237 7,482
Total 90,618 58,184

* The estimated number of shares after deduction of local taxes and tax-related expenses. Due to local legislation, share rights will be paid in cash instead of shares
** Disclosed in the remuneration report for the governing bodies

The figures include Markus Rauramo for the period he was a member of the FEM until 30 June 2020, but not for his period as the President and CEO from 1 July 2020 onwards.

Pensions

Members of Fortum Executive Management in Finland participate in the Finnish TyEL pension system, which provides for a retirement benefit based on earnings in accordance with the prescribed statutory system.

In the Finnish pension system earnings are based on base pay, annual bonuses, and taxable fringe benefits, but gains realised from the LTI plans are not included. Members of the Fortum Executive Management outside Finland participate in pension systems based on statutory pension arrangements and market practices in their local countries.

In addition to the statutory pensions, the members of the Fortum Executive Management have supplementary pension arrangements. The Group principle is that all new supplementary pension arrangements for the President and CEO as well as the Fortum Executive Management are defined contribution plans.

The retirement age for the President and CEO is determined in accordance with the Finnish Employees’ Pension Act. For the other members of the Fortum Executive Management, the retirement age varies between 62 and 65. For the members of the Fortum Executive Management, the maximum supplementary pension premium is 25% of the annual base salary. For members joining the Fortum Executive Management after the end of the year 2016 as well as for those current members to whom the premium has been below 20% of the annual salary, the pension premium is 20% of the annual base salary as of 1 January 2017. For the President and CEO, the pension premium is 20% of the annual base salary. Finnish members of the Fortum Executive Management, who joined Fortum prior to 1 January 2009, are entitled to a supplementary defined benefit pension plan. This currently applies to only one member of the Fortum Executive Management and in this case, the pension is provided by Fortum’s Pension Fund.

Incentive schemes

Short-term incentives (STI)

Fortum’s STI programme is designed to support the achievement of the company’s financial and other relevant targets on an annual basis. As the main principle, all employees are covered by the programme or alternatively by a business-specific or a comparable local variable pay arrangement.

The Board of Directors determines the performance criteria and award levels for the Fortum Executive Management. The awards are based on the achievement of Group financial performance, divisional targets, and individual targets. The target incentive opportunity is 20% and the maximum incentive opportunity is 40% of the annual base salary. The Board of Directors assesses the performance of the President and CEO and the members of the Fortum Executive Management on a regular basis.

Awards for other employees are based on a combination of Group, divisional or functional, and personal or team targets. The targets are set in annual performance discussions held at the beginning of the year. Awards under the STI programme are paid solely in cash.

In addition to the STI programme, other variable pay mechanisms may be used to reward employees for limited specific purposes, e.g. projects with significant importance and impact on Fortum level or to reward for extraordinary commitment and effort.

Long-term incentives (LTI)

The purpose of Fortum’s long-term incentive programme is to support the delivery of sustainable long-term performance, align the interests of management with those of shareholders, and support in committing and retaining key individuals.

Fortum’s LTI programme provides participants with the opportunity to earn company shares. Under the LTI programme and subject to the decision of the Board of Directors, a new LTI plan commences annually.

The Board of Directors approves the participation of the Fortum Executive Management members in each annually commencing LTI plan. Subject to a decision by the Board of Directors the President and CEO is authorised to decide on individual participants and potential maximum awards for other participants than the Fortum Executive Management in accordance with the nomination guidelines approved by the Board of Directors. Participation in the LTI plan precludes the individual from being a member in the Fortum Personnel Fund.

Employee share savings programme – forShares

The purpose of Fortum’s employee share savings programme, forShares, is to motivate employees to invest and retain ownership in the company. The programme consists of annually commencing savings periods, during which the employees can save a proportion of their salaries to be used for the purchase of Fortum shares with the accrued savings. After a holding period, the participants will be granted matching shares for the purchased savings shares.
Based on the decision by the Board of Directors, the matching ratio for the 2020 and 2021 savings periods was 2:1. The participation rate in the 2020 savings period was 41% and in the 2021 savings period 43% of the eligible employees.

Fortum Personnel Fund

Fortum employees in Finland, who are not participating in the long-term incentive programme, are eligible for the Fortum Personnel Fund. The amount paid annually to the Personnel Fund is based on the achievement of annual targets. The payments to the fund in 2020 totalled EUR 1.7 million (EUR 2.4 million in 2019).

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