Decision-making process and main principles of remuneration
Sanoma's Annual General Meeting (AGM) determines remuneration of the members of the Board of Directors and Board committees. The remuneration and fringe benefits (total salary), short term incentives and pension benefits payable to the President and CEO and Executive Management Group (EMG) members as well as long term incentives granted for senior executives are approved by the Board of Directors, in accordance with the Human Resources Committee's proposal.
President and CEO and EMG members do not receive separate remuneration for their management group membership or other internal management positions, such as Board memberships in the Group companies. President and CEO Susan Duinhoven has continued to receive remuneration regarding her Board membership in Sanoma after her appointment as President and CEO until the AGM 12 April 2016.
Short-term incentive plans
The short term incentives are determined on the basis of achieving financial and non-financial objectives set annually. The weighting of the objectives and the maximum amount of the incentives vary according to the position of the person in question. Part of the Group also maintains a personnel profit-sharing system, annual payments from which are based on yearly operational results. Short term incentives are paid in March-April following the year of determination. In 2016 the maximum short term incentive for the President and CEO is 66.7% of her salary at target level and 100% at maximum level. For other EMG members the short term incentive varies from 40% to 60% of salary at target level and from 60% to 90% at maximum level.
The criteria in the short-term incentive plan for 2016 are based on achieving financial targets of EBIT and cash flow as well as Sanoma's employee satisfaction objective.
Long-term incentive plans
Restricted Share Plan
Sanoma has adopted in 2014 Restricted Share Plan. The conditions and the issuance of the Restricted Shares are decided on by the Sanoma Board of Directors in accordance with the Human Resources Committee’s proposal. In general, Restricted Shares vest over 2- and 3-year periods after which the allocated shares will be delivered to the participants provided that their employment with Sanoma continues uninterrupted throughout the duration of the plan until the shares are delivered. The first plan commenced at the beginning of 2014 and the shares based on the first plan will be delivered in the spring 2016. The second plan commenced at the beginning of 2015 and 50% of the shares based on it will be delivered in 2017 and 50% of the shares in 2018. The third plan commenced at the beginning of 2016 and 50% of the shares based on it will be delivered in 2018 and 50% of the shares in 2019. EMG members are part of Sanoma’s Restricted Share Plan, which commenced in 2014 and 2015.
Performance Share Plan
Sanoma has adopted in 2013 Performance Share Plan. The conditions and the issuance of the Performance Shares are decided on by the Sanoma Board of Directors in accordance with the Human Resources Committee’s proposal. In general, Performance Shares vest over 3-year period and vesting is subject to meeting Group performance targets set by the Board of Directors for annually commencing new plans. The performance measures for the Performance Share Plan 2014–2016 are based on the earnings per share (excluding non-recurring items), and the development of digital and other new media sales in 2014. The performance measures for the Performance Share Plan 2015–2017 are net sales growth adjusted for structural changes and earnings per share (excluding non-recurring items) in 2015. The performance measures for the Performance Share Plan 2016–2018 are cash flow and earnings per share (excluding non-recurring items) in 2016. The President and CEO and EMG members are part of Sanoma’s Performance Share Plan.
Shares conditionally granted to the President and CEO and EMG members under the Performance Share Plans and Restricted Share Plans are subject to share ownership requirement that is determined by the Board of Directors in accordance with the Human Resources Committee’s proposal. Until the required shareholding is achieved, the President and the CEO and EMG members are required to hold (and not sell) at least 25% of shares received. Information on shares held by Sanoma’s President and CEO and other members of the EMG are presented in Note 33 of the Financial Statements. Daily updated information about their holdings is presented in the Insiders section.
Stock Option Schemes
Stock option schemes continue to run until their respective expiration dates with no new option grants being made as of 2013. The subscription period of each stock option scheme begins about three years after the granting and runs for three years. If the option holder's employment with Sanoma ends before the subscription period begins, the stock options will be returned to the Company.
Starting from Stock Option Scheme 2009, an obligation to own Company shares has been included in granting part of the stock options to the EMG members. In order to be entitled to the granted stock options EMG members must own the amount of Company shares that is determined by the Board of Directors. Information on stock options held by the members of the EMG are presented in Note 33 of the Financial Statements. Daily updated information about their holdings is presented in the Insiders section.
Remuneration of the President and the CEO and EMG members
The remuneration of the President and CEO and other EMG members are decided on by Sanoma’s Board of Directors in accordance with the Human Resources Committee’s proposal. In addition to the total salary, the remuneration also comprises short term incentives, stock options, performance shares (as of 2013), restricted shares (as of 2014) and pension benefits.
President and CEO Susan Duinhoven started in her position 1 October 2015. Harri-Pekka Kaukonen was the President and CEO from1 January 2011 until 18 September 2015. From 1 January until 18 September 2015, Harri-Pekka Kaukonen was paid a total salary of EUR 504,180. In addition he was paid EUR 373,680 based on the 2014 short term incentive plan. Susan Duinhoven was paid a total salary of EUR 135,060, including the value of housing. As a member of the Board of Directors, Susan Duinhoven was paid EUR 48,000 for her Board membership in Sanoma. Other members of the EMG received in 2015 EUR 5.4 million including bonuses as per the short-term incentive plan.
The criteria in the short-term incentive plan were based on achieving financial targets of sales, EBIT*, cash flow* as well as objectives related to supporting Sanoma’s strategic transformation.
*) excluding non-recurring items
An itemised statement on remuneration paid can be found in Note 33 of the Financial Statements. More detailed information on the management's relationships and connections to the Sanoma Group is provided in Note 32.
Daily updated information about the holdings of the President and CEO and other members of the EMG are presented in the Insiders section at the Sanoma.com website.
The notice period and severance package of the President and the CEO
The President and CEO Susan Duinhoven's and Harri-Pekka Kaukonen's (CEO until 18 September 2015) period of notice is six months either from the CEO's or the Company's part. If the executive contract is terminated by the company, a severance payment equaling to 12 month’s salary in addition to the salary for the notice period will be paid to the President and CEO. The severance pay is accompanied by a fixed-term non-competition clause.
Pension benefits for the President and the CEO and EMG members
Sanoma has a host of different pension arrangements to cover the pension security of its personnel. The additional pension benefits of the President and CEO and other EMG members are currently based on defined contribution. Contracts made prior to 2009 are based on defined benefit. President and CEO is entitled to an additional pension benefit contribution, which amounts to 20% of her salary subject to statutory pension cover. President and CEO's and part of the EMG members’ retirement age is the usual retirement age in their home country. Some EMG members have a lower than statutory retirement age in the range of 61–63 years. The pensions of the EMG members whose additional pension benefits are based on defined benefit plan, amount to approximately 60% of their pensionable salary applicable in their home country, together with the statutory pension cover.