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Management remuneration
The objective of remuneration at Metso is to encourage employees as individuals and as team members to achieve the set financial and operational targets and to strive for excellent performance. Remuneration is aligned with Metso’s financial performance, internal and external references and observing remuneration levels for similar positions among peer companies. Metso’s remuneration package for key personnel and executives includes a competitive salary and employee benefits according to local market practices, short-term incentives based on predefined annual performance indicators and long-term incentives that align the interests of the key executives and shareholders.
Remuneration of the Board
The Annual General Meeting decides on the remuneration to the members of the Board for one term of office at a time. According to the decision of the 2013 Annual General Meeting, the annual fees paid to Board members are:
The Nomination Board had further proposed that as a condition for the annual remuneration the members of the Board of Directors are obliged, directly based on the Annual General Meeting 2013 decision, to use 40% of the fixed annual remuneration for purchasing Metso Corporation shares from the market at a price formed in public trading and that the purchase will be carried out within two weeks from the publication of the interim review for the period January 1, 2013 to March 31, 2013.
Shareholding of Metso Board members can be found in the insider register. Link to the insiders register >>
The Board members, none of whom are employees of Metso, were paid annual remuneration and meetings fees totaling EUR 514,200 during the financial year that ended December 31, 2012. The Board members are not covered by Metso’s bonus plans, share-based incentive schemes or pension plans.
Decision-making process and main principles of remuneration of the CEO and other Executive Team members
The Board of Directors decides on the remuneration, benefits and other terms of employment of the President and CEO. The Board’s Remuneration and HR Committee decides on the compensation and benefits of the other Executive Team members based on the President and CEO’s proposal and general principles approved by the Board.
The remuneration of Executive Team members, including the President and CEO, comprises a monthly total salary (including monthly salary and customary fringe benefits, such as a car and a mobile phone) as well as both short- and long-term incentives. Short-term incentives are annual performance bonuses decided by the Board. As long-term incentives, the Executive Team members are included in share ownership plans that are decided and implemented by the Board and for which share repurchase and share issue authorizations are obtained from the Annual General Meeting. There are no options outstanding or available from any of Metso’s prior option programs.
Additionally, executive management benefits include a supplementary defined contribution pension plan for all members of the Executive Team, with the exception of President and CEO Matti Kähkönen, who had already earlier been in a supplementary defined benefit pension plan. Metso’s Board has outlined that no new supplementary defined benefit pension plans will be introduced.
Performance bonuses
The Board annually confirms the terms and targets of our performance bonuses on the Group level. The amount of bonus payment, if any, is based on achieving set financial performance targets, such as EBITA and cash flow, of Metso and/or the business in question. In addition to these, also individual and/or team targets are used. The Remuneration and HR Committee evaluates the achievement of the predefined targets of the President and CEO. For the President and CEO and for other Executive Team members, the maximum annual performance bonus is currently 40–60 percent of their annual total salary.
Share-based incentive plans
The Board decides and implements Metso’s share-based incentive plans, which are part of the remuneration program for Metso management. The purpose of the plans is to align the goals of Metso’s shareholders and management to enhance the value of the company. The plans also aim to ensure commitment of management and to offer them a competitive, ownership-based reward scheme. The plans that started in 2009, 2010 and 2011 required participants to make a personal investment in Metso shares. In the share-based incentive plans that started in 2012 and 2013, shares will be allocated to participants based on the achievement of predefined targets and the personal investment in Metso shares is not required. Any shares to be potentially rewarded are acquired through public trading, and therefore the incentive plans will have no diluting effect on the share value.
Share Ownership Plan 2009–2011
In the share-based incentive plan for management approved by the Board in October 2008, the plan included a three-year earning period and required participants to make a personal investment in Metso shares. The plan’s performance criteria (total shareholder return and earnings per share) achieved 69 percent of the maximum. In April 2012, the reward of a total 127,356 shares was paid to 82 individuals. The Executive Team’s portion was 19,359 shares. The total reward, which includes the cash share used to cover taxes, corresponded to about 264,836 shares. The share transfer was carried out with a direct free share issue. Any shares earned must be held for a minimum of one year after the reward payment.
Share Ownership Plan 2010–2012
In October 2009, the Board approved a similar share-based incentive plan for management, Metso Share Ownership Plan 2010–2012. The plan included one three-year earning period, which began on January 1, 2010, and ended on December 31, 2012. The plan was initially targeted to about 100 Metso managers, of which 80 were participating at the end of 2012. The participants have invested in 45,600 shares (initial investment) and the rewards that can be paid on the basis of the plan correspond to a maximum total of 308,800 Metso shares. The reward from the plan consists of grants of the base matching shares and performance shares. The amount of base matching shares is based on Metso share price development and it can be 2.5 or 1.25 times the number of shares in the initial investment. The potential reward in the form of performance shares is based on the combination of Metso’s Total Shareholder Return (TSR) over the three-year period and on the annual earnings per share (EPS) in 2010–2012. If the TSR is zero or negative over the three-year period, no performance shares shall be distributed. The maximum ratio of the performance shares for the President and CEO is six, for the other MET members five and for other participants four times of the number of shares in the initial investment. In addition to meeting the performance targets, receiving the reward requires that the participant holds the initial investment for the entire earning period and is employed by Metso until the reward payment. The amount of the potential reward will be determined in April 2013, and it will be paid in Metso shares in the first half of 2013. In countries where the employer has a payroll tax withholding obligation, Metso can pay a maximum of 60 percent of the reward in cash instead of shares, which is aimed to cover taxes and related payments. Any shares earned must be held for a minimum of one year after the reward payment. Members of the current Metso Executive Team can receive a maximum total of 51,325 shares as share rewards.
Share Ownership Plan 2011–2013
In September 2010, the Board approved a third, similar share-based incentive plan for management, Metso Share Ownership Plan 2011–2013. The plan includes one three-year earning period, which began on January 1, 2011, and will end on December 31, 2013. The plan was initially targeted to about 100 of Metso’s key personnel, of which 68 were participating at the end of 2012. The participants initially invested in 34,515 shares, and the rewards that can be paid on the basis of the plan correspond to a maximum total of 236,748 Metso shares. The criteria for the reward payment and the terms and conditions of the plan are essentially the same as in the plans for 2009–2011 and for 2010–2012 described above. The amount of the potential reward will be determined in April 2014, and it will be paid in Metso shares, or partly in cash, in the first half of 2014. Members of the current Metso Executive Team can receive a maximum total of 77,400 shares as share rewards.
The participant’s annual reward payments (valued at the share’s market price at the transfer date) from these ownership plans cannot exceed in any year the participant’s annual total salary, defined as taxable annual gross income without bonus and long-term incentives, multiplied by 1.5 at the record date.
Long-term Incentive Plan 2012–2014
In December 2011, Metso’s Board decided to establish a new share-based incentive plan that has three performance periods, which are calendar years 2012, 2013 and 2014. The Board shall decide on the performance criteria targets and participants in the beginning of each performance period. In the 2012 performance period, 93 Metso management members were participating in the plan in the end of 2012, and the reward was based on the net sales growth of the services business, return on capital employed (ROCE) before taxes and earnings per share. The rewards to be paid on the basis of the 2012 performance period correspond to a maximum of 414,880 Metso shares. The Executive Team’s share of the 2012 earnings period can be a maximum of 95,132 shares.
The reward from the 2012 performance period will be paid at the end of an approximately two-year vesting period in 2015, partly in company shares and partly in cash. The proportion to be paid in cash is intended to cover taxes and tax-related costs arising from the reward to the participants.
In December 2012, the Board decided to continue the share-based incentive plan approved one year earlier. The plan for the 2013 performance period covers about one hundred Metso managers, and the potential reward generated will be based on the same criteria as the 2012 performance period, i.e. net sales growth of Metso’s services business, return on capital employed (ROCE) before taxes and earnings per share. The potential rewards to be paid on the basis of the 2013 performance period will correspond to a maximum total of 460,000 Metso shares. The Executive Team can receive a maximum reward of 92,392 shares. The potential reward from the 2013 performance period will be paid at the end of an approximately two-year vesting period in 2016, partly in company shares and partly in cash.
The reward for each performance period of the long-term incentive plan 2012-2014 may not exceed 120 percent of a participant’s annual total base salary. If a participant’s employment or service ends for reasons relating to the participant before the reward payment, no reward will be paid.
