Remuneration for the President and CEO and the Executive Management

Salary and Fringe Benefits

The following table includes the annual salaries and fringe benefits as well as STI and LTI programme payments to the President and CEO and to the Fortum Executive Management.

The STI and LTI programme payments to Fortum Executive Management members, including the President and CEO, amounted to a total of EUR 4.1 million (EUR 2.4 million in 2018), which corresponds to 1.13% (0.69% in 2018) of the total  compensation in the Fortum Group. The table also includes payments made to supplementary pension arrangements for the
President and CEO and for Fortum Executive Management.

The base salary levels are set taking into account the nature of the role, local and international market conditions, as well as individual experience and performance.

Thousands of euros President and CEO Other Members of Executive Management
  2019 2018 2017 2016 2019 2018 2017 2016
Salaries and fringe benefits 1,057 1,048 998 982 3,382 3,101 3,387 3,581
Short-term incentive 228 313 271 30 631 926 962 233
Long-term incentive 928 233 136 - 2,360 885 877 1,694
Supplementary pensions 265 252 229 356 586 533 636 560
Total 2,478 1,846 1,634 1,368 6,958 5,445 5,862 6,068

The figures include actual payments and shares delivered during the calendar year. The amounts differ from those presented in the consolidated financial statements (Note 11.4). The financial statements include costs accrued for the year, part of which will be paid later.

Short-term incentives

Short-term incentives for 2018 (paid in 2019)

The STI for 2018 for the members of Fortum Executive Management was based on:

Weighting Measure Outcome
40% Comparable operating profit + share of profits from associates and joint ventures Between minimum and target
20% Operational free cash flow Between target and maximum
10% Lost workday injury frequency 1) Between target and maximum
30% Individual targets Individually assessed

1) In some cases, other relevant sustainability measures have been used

The outcome of the Group level comparable operating profit was slightly below the target level and the operational free cash flow slightly above the target. The Group level lost workday injury frequency (LWIF) improved clearly and was above the target level. Due to four severe accidents including two fatalities during 2018, the management proposed and the Board of Directors approved a 20% cut of the LWIF achievement rate for the Fortum Executive Management and the division and function management team members.

The achieved performance based on the individual targets is evaluated in connection with the individual performance review at the beginning of the year. The accrued incentives for the year 2018 were paid out in April 2019.

Short-term incentives for 2019 (payable in 2020)

The STI for 2019 for the members of Fortum Executive Management was based on:

Weighting Measure Outcome
60% Comparable operating profit + share of profits from associates and joint ventures Between target and maximum
10% Lost workday injury frequency On target
30% Individual targets Individually assessed

The outcome of the Group level comparable operating profit was close to the target. Fortum’s Lost Workday Injury Frequency (LWIF) for own personnel and contractors improved from the previous year and was 1.7, achieving the set target level (≤ 1.7).

The achieved performance based on the individual targets is evaluated in connection with the individual performance review and confirmed together with the evaluation of the joint team target by the Board of Directors at the beginning of the year. The accrued incentives for the year 2019 will be paid in April 2020.

Short-term incentives for 2020 (payable in 2021)

As in 2019, the STI targets for the Fortum Executive Management in 2020 are based on the achievement of Group financial performance, divisional targets, as well as individual or team targets. The STI performance measures and weighting are 60% comparable operating profit, 10% LWIF (or other relevant sustainability measures), and 30% individual or team targets.

Long-term incentives

The Board of Directors approved the amended LTI programme in December 2016. The share awards will not be subject to a minimum lock-up period but members of the Fortum Executive Management will be required to retain 50% of the shares until they have achieved their required shareholding level of 100% of the annual salary. For other key employees included in the new LTI plan no lock-up period will be applied. Under the 2019–2021 LTI plan, the Board-approved earnings criteria is relative
total shareholder return (100%) measured against the European utilities peer group. Under the plan, the maximum gross number of shares to be delivered after the earnings period in 2022 is 605,551 shares (based on the participant status as of 31 December 2019). In December 2019, the Board of Directors approved the 2020–2022 LTI plan. The earnings criteria for the plan are the relative total shareholder return (80%) and total CO2 emissions in energy production (20%).

Due to extraordinarily strong performance in the 2016–2018 LTI plan as well as a good performance in 2018, the combined outcomes of the LTI and STI reached more than 120% of the annual salary for some managers and other key employees. In accordance with Fortum’s Remuneration Policy the LTI payments were, in such cases, cut to limit the total variable compensation to a maximum of 120% of the individual’s base salary.

Due to strong performance in the 2017–2019 LTI plan as well as a good performance (in some divisions) in 2019, the combined outcomes of the LTI and STI might reach more than 120% of the annual salary for some managers and other key employees. In accordance with Fortum’s Remuneration Policy the LTI payments will, in such cases, be cut to limit the total variable compensation to a maximum of 120% of the individual’s annual base salary.

The table sets out the pipeline of recently granted LTI awards, including details of the shares delivered in the reporting period. No recovery or clawback actions were carried out in 2019 for the Fortum Executive Management. After the publishing of the table, the following awards from 2017-2019 LTI plan were granted to the members of Fortum Executive Management:  Pekka Lundmark 28,527 shares; Arun Aggarval 4,012; Per Langer 5,656; Risto Penttinen 6,612; Markus Rauramo 12,273; Arto Räty 5,392; Mikael Rönnblad 6,787; Sirpa-Helena Sormunen 6,230 ja Tiina Tuomela 7,239.

Long-term incentives in table

 

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