Share-based compensation schemes

Share-based commitment and incentive scheme

In February 2017, Kesko’s Board of Directors decided on a new long-term share-based commitment and incentive scheme for top management and selected key persons. The scheme consists of three share-based compensation plans, under which the Board can annually decide on the initiation of new share plans. The primary share-based compensation plan is the Performance Share Plan (PSP). There is also a transitional Bridge Plan for 2017 and an RSP (Restricted Share Pool) plan for special situations. Share awards based on the plans are paid in Kesko B shares. The recipient of the shares is free to use them once the commitment period of the share plan ends, provided that the person is still employed by Kesko Group.

The purpose of the share-based compensation scheme is to promote Kesko's business and increase the Company's value by aligning the objectives of the shareholders and executives. The plan also aims to commit people to Kesko Group and give them the opportunity to receive Company shares upon fulfilling the objectives set in the share-based compensation scheme.

The maximum gross amount of share award paid for each performance period is 400% of the monetary salary of the last calendar year of the performance period for which the award is paid.

Kesko applies a share ownership recommendation policy to the members of Kesko's Group Management Board. According to the recommendation, each Group Management Board member shall maintain a holding of at least 50% of the net shares they have received under the Company's share-based compensation schemes until their holding of Kesko shares corresponds to at least their fixed gross annual salary.

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.

The primary share plan (PSP) consists of individual annually commencing share plans, each with a two-year performance period and a two-year commitment period following the payment of the potential share award. Kesko’s Board decides annually whether to initiate a new plan.  The PSP initiated at the start of 2019 consists of a two-year performance period (1 Jan. 2019–31 Dec. 2020) followed by a two-year commitment period (1 Jan. 2021–10 Feb. 2023). During the commitment period, the shares cannot be pledged or transferred, but the other rights attached to the shares remain in force. If a person's employment or service relationship terminates prior to the expiry of a commitment period, the person must, as a rule, return the shares under transfer restriction to Kesko or its designate for no consideration. In individual cases, the Board may decide that the person can keep the shares under return obligation, or some of them. If the grantee retires during the commitment period, he/she is entitled to keep the shares and other securities already received. Kesko Group's tax free sales (%), Kesko Group's comparable return on capital employed (ROCE,%) and the absolute total shareholder return (TSR, %) of a Kesko B share are the performance criteria for the PSPs initiated in 2017, 2018 and 2019.

The one-off transitional Bridge Plan for 2017 had a one- year performance period (1 Jan. 2017 – 31 Dec. 2017) followed by a three-year commitment period (1 Jan. 2018 – 10 Feb. 2021). Apart from that, the rules of the plan are the same as for the PSP. The Bridge Plan aimed at covering the transitional phase from Kesko's previous long-term commitment and incentive scheme, which was based on one-year performance periods, to the new commitment and incentive scheme adopted in 2017 with two-year performance periods.

RSP (Restricted Share Pool) is a secondary share plan for special situations, to be decided upon separately. The plan consists of annually commencing individual share plans that each have a three-year commitment period, after which the potentially promised share awards for an individual plan will be paid to the participants, provided that their employment or service relationship with Kesko Group continues until the payment of the awards.

In RSP plans, share promises have not been given to the President and CEO or the other Group Management Board members. The maximum number of shares to be granted is 20,000 shares in plans 2017, 2018 and 2019. The commitment period for the 2017 RSP will end on 15 March 2020, the commitment period for the 2018 RSP on 15 March 2021 and the commitment period for the 2019 RSP will end on 15 March 2022.

Share-based compensation scheme 2014-2016

In 2014-2016, Kesko operated a share-based compensation scheme decided by the Board and intended for the Group's management personnel and other named key personnel. Under the scheme, a total maximum of 600,000 own B shares held by the Company as treasury shares could be granted over the three-year period.

The share-based compensation scheme had three performance periods: the calendar years 2014, 2015 and 2016. Kesko's Board decided the target group and the performance criteria separately for each performance period based on the Remuneration Committee's proposal. The award possibly paid after each performance period was based on the fulfilment of the performance criteria decided by the Board for the performance period.

The criteria for the 2014-2016 performance periods were Kesko's basic earnings per share (EPS) excluding non-recurring items, the growth percentage of Kesko Group's sales exclusive of tax, and the percentage by which the total shareholder return of a Kesko B share exceeded the OMX Helsinki Benchmark Cap index.

The award possibly paid for a performance period was paid partly in Kesko B shares and partly in cash. The cash component was used to pay the taxes and tax-like charges incurred by the award.

A commitment period of three calendar years following each performance period is attached to the shares awarded as remuneration, during which the shares must not be transferred. If a person's employment or service relationship terminates prior to the end of the commitment period, they must return the shares subject to transfer restriction to Kesko or its designate without consideration. The return obligation does not apply if the grantee retires or dies during the commitment period.

Further information on treasury shares held by the company is available in section "Own shares".

The company has not issued options or other special rights entitling to shares.

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