Proposed remuneration principles for Group Executive Management 2017
The Board of Directors proposes that the Annual General Meeting on April 5, 2017, resolves on the following principles for remuneration to Group Executive Management. Group Executive Management is defined as the President and the other members of the Management Team.
Objective of the principles
The objective of the principles is to ensure that the company can attract and retain the best people in order to support the purpose and strategy of the company. Remuneration to Group Executive Management should be built on a total reward approach and be market relevant, but not leading. The remuneration principles should enable international hiring and should support diversity within Group Executive Management. The market comparison should be made against a set of peer group companies with comparable sizes, industries and complexity. The total reward approach should consist of fixed salary, pension benefits, conditions for notice and severance pay and other benefits.
The fixed salary of a Group Executive Management member should be based on competence, responsibility and performance. The company uses an international evaluation system in order to evaluate the scope and responsibility of the position. Market benchmark is conducted on a regular basis. The individual performance is monitored and used as a basis for annual reviews of fixed salaries.
Pension and retirement benefits should be based on a defined contribution model, which means that a premium is paid amounting to a certain percentage of the individual’s annual salary. When deciding the size of the premium, the level of total remuneration should be considered. The level of contribution should be benchmarked and may vary due to the composition of fixed salary and pension. The retirement age is normally 65 years of age.
The company provides other benefits in accordance with market practice. A Group Executive Management member may be entitled to a company car, health and care provisions, etc. Internationally hired Group Executive Management members and those who are asked to move to another country can be offered mobility related benefits for a limited period of time.
Notice of termination and severance pay
The termination period for a Group Executive Management member may be up to six (6) months (twelve (12) months for the President) when given by the employee and up to twelve (12) months when given by the company. In case the termination is given by the company the individual may be entitled to a severance payment up to twelve (12) months. Severance pay shall not constitute a basis for calculation of vacation pay or pension benefits. Termination and severance pay will also be reduced if the individual will be entitled to pay from a new employment or if the individual will be conducting own business during the termination period or the severance period.
The Board of Directors may make minor deviations on an individual basis from the principles stated above. The 2016 remuneration policy is reproduced in Note C31 to the consolidated financial statements.
Long-term incentive program 2016/2019
The Annual General Meeting held on April 12, 2016, resolved to launch a long-term incentive program (LTI) comprising of approximately 200 key employees. This program is not available for the members of Group Executive Management. The LTI program should strengthen Telia Company’s ability to recruit and retain talented key employees, create a long-term confidence in and commitment to the group’s long-term development, align key employees’ interests with those of the shareholders, increase the part of the remuneration that is linked to the company’s performance and encourage shareholding of key employees. The LTI program rewards performance measured over a minimum of a three-year period (performance period), is capped to a maximum value of 60 percent of the annual base salary and is equity based (delivered in Telia Company shares with the ambition that the employees should remain shareholders also after vesting). A prerequisite for pay-out from the LTI program is the continuous employment during the length of the program (vesting period).
The LTI program measures performance over a 3-year period. Financial targets are earnings before interest, tax, depreciation and amortisation (EBITDA) and total shareholder return (TSR). The final allotment of Telia Company shares will be based 50 percent on accumulated EBITDA and 50 percent on TSR compared to a corresponding TSR development of a pre-defined peer group of companies.
The maximum number of Performance Shares a participant can receive is the equivalent of 30 percent of the participant’s annual salary. Accumulated EBITDA represents 50 percent of the Performance Shares (or 15 percent of the participant’s annual salary):
- If 100 percent (or above) of the EBITDA target is met, 100 percent of Performance Shares under the EBITDA part will vest.
- If 97.5 percent (or less) of the target is met, 0 percent of Performance Shares under the EBITDA part will vest.
- If between 97.5 and 100 percent of the target is met, a proportionate amount of Performance Shares under the EBITDA part will vest.
No Performance Shares will vest under the EBITDA part if the Company’s accumulated EBITDA is below the minimum level (97.5 percent) and no additional Performance Shares will vest if the Company’s accumulated EBITDA is above the maximum level (100 percent).
TSR part represents 50 percent of the Performance Shares (or 15 percent of the participant’s annual salary):
- If the Company’s TSR is ranked first or second compared to the defined peer group of companies, 100 percent of the Performance Shares under the TSR part will vest.
- If the Company’s TSR is ranked third of fourth, 75 percent of the Performance Shares under the TSR part will vest.
- If the Company’s TSR is ranked fifth or sixth, 50 percent of the Performance Shares under the TSR part will vest.
- If the Company’s TSR is ranked seventh or lower, no Performance Shares under the TSR part will vest.
The program may be repeated annually. Similar programs were launched in 2010-2015. The prevalence of an LTI program is subject to the approval of the Annual General Meeting. For more information on Telia Company’s LTI programs, see Note C31 to the consolidated financial statements.