Salary and remuneration report
1. Board of Directors
1.1 Fees and other benefits of the Board of Directors
The fees of members of the company's Board of Directors are decided by the shareholders at the Annual General Meeting. On 14 March 2012, SRV Group Plc's s Annual General Meeting decided that the monthly fee for:
- the Chairman of the Board of Directors be EUR 5,000
- the Vice-Chairman be EUR 4,000 and
- a Board member be EUR 3,000.
In addition, the Chairman, Vice-Chairman and members are paid a EUR 500 fee per meeting for Board and Committee meetings. Moreover, travel expenses for Board-related duties are reimbursed in accordance with the company's travel policy.
1.2 Fees paid to the Board members for 2011
For the financial year ended on 31 December 2011, the company paid EUR 67,500 in fees to Ilpo Kokkila, EUR 43,500 to Arto Hiltunen, EUR 44,000 to Timo Kokkila, EUR 14,000 to Lasse Kurkilahti (1 January - 15 March 2011), 41,895 to Olli-Pekka Kallasvuo (15 March - 31 December 2011), EUR 45,000 to Matti Mustaniemi and EUR 43,500 to Ilkka Salonen.
2. President and other executives
2.1 President's contract
A written president's contract has been concluded between SRV Group Plc and its President and CEO Jukka Hienonen, according to which the president's salary is formed by a fixed monthly salary, including a monetary cash salary and regular fringe benefits, as well as a performance bonus. Jukka Hienonen's monthly salary is 43.262 € including fringe benefits of EUR 1.164,15. The maximum performance bonus is 40% of the president's annual salary, calculated by multiplying the president's regular monetary salary per month by 12. Payment of the maximum bonus requires that the financial year's target profit before taxes, as confirmed by SRV Group Plc's Board of Directors in SRV Group Plc's budget, is exceeded by at least 50%. However, for the financial year in question, the president's performance bonus cannot exceed five per cent of the Group's profit after taxes.
The president and CEO is entitled to retire at 60 years of age. SRV Group Plc pays annual pension contributions amounting to 20% of the president's annual salary, exclusive of performance bonus. His pension plan is a defined contribution plan, and the company is not responsible for the amount of pension payable later. At the end of his contract, the president is entitled to the paid-up pension.
Each contracting party has the right to terminate the president's contract with a six (6) month period of notice. If SRV Group Plc dismisses the president, he shall be paid termination compensation amounting to 12 months' salary. If the president terminates the agreement before serving for more than two years, he will receive termination compensation amounting to six months' salary over and above his salary for the period of notice. If the president terminates the agreement after serving for more than two years, he will be paid termination compensation amounting to 12 months' salary.
SRV Group Plc and the president have concluded a share-based incentive agreement, further details being provided below under 3.2 Long-term remuneration.
2.2 Other directors' service contracts
Certain members of the Corporate Executive Team are entitled to compensation corresponding to six (6) months' salary in addition to the salary for the period of notice, if the company or its subsidiary terminates their employment without the person being guilty of e.g. gross malpractice related to the company's business.
The CEO and Senior Executive Vice Presidents of SRV Group are included in the pension scheme according to which they are entitled to retire at 60 years of age. The additional pension plan is a defined contribution plan, and the company is not responsible for the amount of pension payable later. The annual pension contribution amounts to 20% of the beneficiaries' annual salary, exclusive of performance bonus. The beneficiaries are entitled to the paid-up pension in case their employment is terminated for other reasons than retirement.
The company has no other contracts based on which the members of the Corporate Executive Team or the Board of Directors would be entitled to additional benefits upon the termination of their employment or the president's contract.
3. Remuneration
3.1 Short-term remuneration
The president's short-term remuneration scheme has been described above under 2.1 President's contract. Other of the companies' executives and salaried office employees in Finland are covered by the Group's annual performance bonus schemes. The Board of Directors approves the principles of the performance bonus scheme, the applicable performance and result criteria and the maximum amounts of performance bonuses, for one year at a time. Written regulations concerning remuneration schemes are drawn up for each year. For 2012, the size of the performance bonuses is influenced by the Group's result (performance bonus corresponding to 1-2 months' salary), the business area's result (max. 0.7 month), start up of selected projects (max 0.7 month) and personal performance, with the total maximum bonus amounting to 2-3 months' salary.
In addition, salaried employees employed by the company on site are paid performance bonuses, whose magnitude is determined based on achieving the project-specific targets set. The maximum amount of project staff performance bonus corresponds to 2.5 months' salary.
Performance bonuses concern some 240 persons who are either executives or salaried office employees and some 430 salaried employees on site.
3.2 Long-term remuneration
Incentive plan 2008 - 2010
In 2008, SRV Group Plc's Board of Directors approved a share-based incentive scheme for the Group's key personnel, which covered approximately 70 persons in 2010. This included eight corporate executives. President and CEO was not included in the scheme. The scheme included three earning periods - the calendar years 2008, 2009 and 2010.
The reward was paid during the year following the earning period, partly as shares in the company and partly as cash. The proportion to be paid in cash covered taxes and the employee's social security contributions arising from the reward. These shares may not be transferred during the two-year restriction period, starting from the end of the share bonus' earning period. If a key person's employment or service ends during said restriction period, he/she must return the shares rewarded under the scheme to the company, without compensation. A maximum of 240.000 SRV Group Plc's shares and corresponding amount of cash to cover the taxes was possible to be rewarded based on the scheme, of which 54.000 shares could be rewarded to corporate executives. The reward based on the share-based incentive scheme can amount up to 4, 5, 6 or 9 month pay. 9 month for business operations directors and vice presidents and 4, 5 or 6 months for other members of the Corporate Executive Team.
In 2010, the parent company's share-based incentive scheme was tied to achieving the Group's performance targets set for 2010, while in business areas, the scheme was based partly on consolidated and partly on business area performance. Restriction period for the shares granted for the result of the year 2010, ends at 31 December 2012.
Incentive plan 2011 - 2016
The Board of Directors of SRV Group Plc has in 2011 decided on a new long-term share-based incentive plan for the SRV Group key personnel.
The Plan is directed to approximately 70 employees. The Plan is valid for the years 2011 - 2016, and the potential reward from the Plan is based on the increase in SRV Group Plc's share price. The incentive plan is aimed to recruit, commit and motivate key personnel. The plan aligns the interests of the employees involved with the interests of the shareholders as well as ties the key employees to the company and share ownership. The plan is a continuation to SRV's share-based inventive plan 2008-2010.
The Plan is carried out as share bonus rights. Their value is based on the price development of SRV's shares. The reference rate used is the volume weighted average quotation of January 2011 (EUR 6.81/share). The annual dividends will be deducted from the reference price. The maximum total amount of bonus rights granted is 2,000,000.
There are four series of share bonus rights, their exercise and restriction periods are:
Serie A: 15 March 2012 - 15 March 2013, restriction period until 31 December 2013
Serie B: 1 January 2013 - 15 March 2014, restriction period until 31 December 2014
Serie C: 1 January 2014 - 15 March 2015, restriction period until 31 December 2015
Serie D: 1 January 2015 - 15 March 2016, restriction period until 31 December 2016
According to the incentive plan terms half of the value increase calculated from the price development of SRV's share is given to the key employees in SRV's shares and half is paid in cash for taxes arising from the bonus. There is a restriction concerning the transfer of shares and a restriction period. If the employment of the person included in the plan ends during the period, he/she must return the shares granted to the company without compensation.
Based on the scheme, approximately 1.7 million bonus rights have been granted the value of the IFRS recognition over the lifetime of the scheme is approximately two million Euros with the addition of the cash payments.The value is calculated by the Black & Scholes -model used for pricing options with the following criteria: share price EUR 7.43, reference share price EUR 6.81, risk-free interest rate 2.5% and volatility 33 per cent.
Other plans
Additionally, SRV Group Plc has concluded share-based incentive scheme agreements with the president and one of the executives. Based on the concluded agreements, 1,500,000 rights will be granted to the president and 500,000 to the executive, these entitling them to either subscribe for or purchase the corresponding number of SRV Group Plc shares at a per-share price of EUR 4.80 (weighted average price for the six (6) months preceding the agreements) or receive an amount of cash equivalent to the benefits deriving from the exercise of the rights, as decided by the company. According to the terms of the scheme, half of the post-tax value of the rewards must be tied to SRV Group Plc shares. Shares obtained under the scheme are subject to a lock-up agreement which is valid two years from receipt of the shares. These rights can be exercised during five two-year periods, the first of which will begin on 1 August 2010 and the last of which will end on 31 July 2016.
3.3 The impact of the performance and result criteria on the company's long-term financial performance
On an annual basis, the company's Board of Directors defines the result criteria related to both short- and long-term remuneration. Personal performance criteria are defined together by the employee and his/her supervisor in an annual development discussion. The development discussion also comprises a joint assessment of the realisation of the previous year's targets, including an evaluation of adherence in one's actions to the company's values. Based on the company's long-term strategy, the annual operating plan and the budget, the Board of Directors sets result criteria. Setting annual rewarding criteria highlights the gradual achievement of the long-term targets sets. The goal of short-term rewards is to reinforce the management's commitment to Group targets. In addition, long-term rewards are aimed at ensuring that capable and motivated staff retain their interest in the Group and its goals. Thereby, for instance, management is incentivised to continue with the Group.
4. Salaries and compensation in 2011
4.1 Salaries and other benefits paid to the president, his deputy and the Corporate Executive Team members for the financial year 2011
In 2011, including fringe benefits the salary paid to President and CEO Jukka Hienonen totalled EUR 510,842. No performance bonus was paid to the president in 2011. Based on the share-based incentive plan described above (section 3.2) President and CEO received a share reward valued EUR 711.000. Neither the company nor its subsidiaries paid any other compensation to the president. In 2011, Deputy CEO Timo Nieminen was paid EUR 163,282 in salary, including fringe benefits, and a performance bonus of EUR 10,128. For the members of the Corporate Executive Team (excluding the president and CEO and deputy CEO), salaries including fringe benefits amounted to EUR 1,204,215, performance bonuses to EUR 88,885 and share payments to EUR 463,267 in 2011.
In 2011 the company paid contributions pertaining to voluntary pension insurance on behalf of the president and CEO and on behalf of Deputy CEO's EUR 207,145.
4.2 Long-term remuneration
Under the long-term incentive scheme (the incentive scheme concerning the years 2008, 2009 and 2010) and based on the 2010 results, the Board of Directors has decided to grant a total of 53,956 SRV Group Plc shares, accompanied by a sum of money corresponding to this number of shares enabling the payment of the related withholding tax and social security contributions, to a total of 37 persons employed by the Group. Of these, four belonged to the company's management, and received a total of 11,868 SRV Group Plc shares under the share-based incentive scheme.
5. Decision-making prodecure concerning salaries and remuneration
SRV Group Plc's Board of Directors decides on the terms of employment of the president and CEO and other members of the Corporate Executive Team, and their other compensation, based on a proposal by the Nomination and Compensation Committee. In other matters concerning the terms of employment, including remuneration, the "two rungs up" principle is observed - in other words, decisions are approved and made by a supervisor's supervisor.
The Board of Directors approves the amount of performance bonuses paid to the president and CEO and other Corporate Executive Team members under the performance bonus scheme. Performance bonuses payable to other persons are approved by business area executive vice presidents and the president and CEO. In each case of bonus approval herein, the "two rungs up" principle is applied. Performance bonuses can be approved for payment only after an assessment to ensure that the criteria set for the earning period have been met. With respect to financial criteria, such an assessment is conducted in the year following the earning period, after the completion of the financial statements. The fulfilment of personal criteria is evaluated annually in development discussions between the supervisor and subordinate. A decision over granting share bonuses is taken by the Board of Directors, based on the authorisation, concerning the issue of shares without payment, granted to the Board from time to time by the general meeting.