The Annual General Meeting decides on the remuneration and other financial benefits of the members of Kesko’s Board of Directors and its Committees’ members annually. The remuneration of the members of the Board and its Committees is paid in cash. The Board members do not have share remuneration or share-based remuneration plans. Nor do they participate in the other compensation plans or pension plans of the Company.
Principles and decision-making procedure concerning remuneration
Based on the Remuneration Committee's preparatory work, Kesko's Board of Directors makes decisions on the personal remuneration, other financial benefits, the performance bonus system criteria and the performance bonuses paid to the President and CEO and the Group Management Board members responsible for lines of business. As for the other Group Management Board members, Kesko's Board of Directors makes decisions on the performance bonus principles.
The President and CEO makes decisions on the remuneration and other financial benefits of the Group Management Board members other than those responsible for lines of business within the limits set by the Chair of the Board's Remuneration Committee.
The remuneration scheme of the President and CEO and the other members of the Group Management Board consists of a fixed monetary salary (monthly salary), fringe benefits (free car and mobile phone benefit), a performance bonus based on criteria decided annually (short-term compensation scheme), a share compensation plan (long-term compensation scheme) and management's retirement benefits.
The Board of Directors monitors the implementation of the remuneration schemes of the President and CEO and the other Group Management Board members.
Performance bonus scheme (short-term remuneration scheme)
The Board of Directors confirms the terms and conditions of management's performance bonuses and the Group level performance bonus criteria annually. The scheme covers around 6,000 employees, including the Group Management Board and the Managing Director. The possible performance bonus is based on the financial targets set for the scheme in advance. The performance bonuses determined annually are paid after the completion of the annual financial statements by the end of April following the year of determination.
The maximum performance bonus of Kesko's President and CEO corresponds to his 8 months' monetary salary excluding fringe benefits, and that of the other Group Management Board members, the monetary salary of 4–5 months, depending on the profit impact of their duties. The criteria have been the Group’s or division’s operating profit excluding non-recurring items and taxes, the operating profit of the executive’s area of responsibility excluding non-recurring items, as well as indicators of sales and market shares, as well as the achievement of personal targets.The performance bonus criteria and their weights vary depending on the duties. The fulfilment of the performance and profit criteria and their impact on long-term financial success are monitored and evaluated by Kesko's Board and Remuneration Committee.
If exceptional events and events with significant impacts on operations take place during the financial year, or if the market situation or the Company’s productivity trend requires, the application, target setting and payment rules of the performance bonus scheme can be changed by a decision of Kesko Corporation’s Board also in individual cases.
According to the rules of the performance bonus scheme, the period of service or comparable activity in a Group company shall have lasted continuously for at least four calendar months during the calendar year for which the bonus is paid. A performance bonus is not paid to a person whose employment relationship or service contract terminates before the date of payment.
At its discretion, the Board may decide not to pay a performance bonus, or decide to recover a bonus that has already been paid, if the bonus recipient has been found guilty of malpractice or an action in breach of Kesko’s ethical or responsibility principles or guidance that, as a whole, cannot be considered insignificant, or if there are weighty grounds for assuming that he/she is guilty of such acts.
Share-based remuneration scheme (long-term remuneration scheme)
In February 2017, Kesko’s Board of Directors made a decision on management’s new, long-term share-based remuneration scheme for the years 2017–2020. The new share-based remuneration scheme includes three share plans, under which the Board of Directors can annually decide on starting new share plans. The primary plan is the Performance Share Plan (PSP), the Bridge Plan covers the transition year 2017, and the Restricted Share Plan (RSP) is applied in special situations. Shares issued under the share-based remuneration plans are given to the grantees after expiry of the transfer restriction period, provided that the grantee is still in the service of a Kesko Group company.
The purpose of the share-based remuneration scheme is to promote Kesko's business and increase the value of the Company by aligning the objectives of shareholders and executives. In addition, the scheme is aimed to make the persons committed to Kesko Group and provide them with the opportunity to receive Company shares, as the targets set in the scheme are achieved.
The primary Performance Share Plan (PSP) consists of rolling four-year share plans, each with a two-year performance period followed by a two-year commitment period. Kesko Corporation’s Board of Directors makes the decisions on new share plans commencing annually. The PSP, which commenced at the beginning of 2017, includes a two-year performance period (from 1 January 2017 to 31 December 2018), after which a two-year commitment period will follow (from 1 January 2019 to 10 February 2021).
The Bridge Plan, covering the transitional year 2017, has a one-year performance period, after which a three-year commitment period follows. In other respects, the rules correspond to the rules of the PSP. The Bridge Plan, which commenced at the beginning of 2017, includes a one-year performance period (from 1 January 2017 to 31 December 2017), after which a three-year commitment period will follow (from 1 January 2018 to 10 February 2021).
The secondary Restricted Share Plan (RSP) for special situations is a share plan applied in special situations decided separately. It has a fixed share allocation, decided individually, the commitment period of which expires after three years from the establishment of the plan.