- Note 1 Accounting principles
- Note 2 Critical accounting estimates and judgements
- Note 3 Segment information
- Note 4 Acquisitions and disposals
- Note 5 Other operating income and expense
- Note 6 Personnel expenses
- Note 7 Board and executive remuneration
- Note 8 Net financial items
- Note 9 Income taxes
- Note 10 Depreciation, amortisation and impairment charges
- Note 11 Intangible assets and property, plant and equipment
- Note 12 Biological assets
- Note 13 Equity accounted investments
- Note 14 Available-for-sale investments
- Note 15 Other non-current assets
- Note 16 Inventories
- Note 17 Receivables
- Note 18 Shareholders’ equity
- Note 19 Non-controlling interests
- Note 20 Post-employment benefits
- Note 21 Employee variable compensation and equity incentive schemes
- Note 22 Other provisions
- Note 23 Operative liabilities
- Note 24 Financial risk management
- Note 25 Fair values
- Note 26 Debt
- Note 27 Derivatives
- Note 28 Cumulative translation adjustment and equity hedging
- Note 29 Commitments and contingencies
- Note 30 Principal subsidiaries and joint operations
- Note 31 Related party transactions
- Note 32 Earnings per share and equity per share
Note 21 Employee variable compensation and equity incentive schemes
The costs of all employee-related share-based payments are charged to the Consolidated Income Statement as personnel expenses over the vesting period. The share programmes are hedged using Total Return Swaps (TRS) which are settled with cash payments, allowing the company to receive cash compensation to partially offset any change in the share price between the grant and settlement dates.
The fair value of employee services received in exchange for share awards is accounted for in a manner that is consistent with the method of settlement. The group will withhold an amount from an employee’s compensation to satisfy the employee’s tax liability incurred as a result of the transaction. This is done by reducing the number of shares issued to the employee. This tax-related amount is accounted for as a cash-settled share-based compensation. The number of shares delivered to the employee is accounted for as an equity-settled transaction. The resulting cash-settled liability related to the expected tax to be paid is remeasured at each reporting date at its fair value using estimates of the number of share awards that are expected to be issued and the latest fair valuations by using the Stora Enso R share year-end closing price, adjusted for the present value of expected dividends, with all changes recognised immediately in the Income Statement. The equity-settled share awards (net of tax), are measured at the fair value of the equity instruments on the grant date, and are adjusted for the present value of expected dividends. The fair value of the equity-settled share-based payments determined on the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of equity instruments that will eventually vest, with a corresponding increase in equity.
Short Term Incentive (STI) programmes
Salaries for senior management are negotiated individually. Stora Enso has incentive plans that take into account the performance, development and results of both business units and individual employees. This performance-based variable compensation system is based on profitability as well as on attaining key business targets.
Group Executives, as well as division and business unit management have STI programmes in which the payment is calculated as a percentage of the annual base salary with a maximum level ranging from 8% to 75%. Non-management employees participate in an STI programme with a maximum incentive level of 7%. All incentives are discretionary. These performance-based programmes cover most employees globally, where allowed by local practice and regulations. For the performance year 2017, the annual incentive programmes were based on financial targets as well as individually set key targets. The financial success metrics in the STI programme are: Operational EBITDA and Operative Working Capital to sales.
Long Term Incentive (LTI) programmes
Starting in 2004, the Board approved the implementation of two share-based programmes (Restrictive and Performance Share programmes). From 2005 to 2017, new share-based programmes have been launched each year. Since 2009, new long-term incentive programmes for executives have mainly been performance share programmes. The 2009 to 2013 Performance Share programmes vested in portions over three years, based on annually defined targets set by the Remuneration Committee. The 2014 to 2017 programmes have three year targets and vest in only one portion after three years. Previous programmes, launched in 2009 to 2011 vested up to an absolute maximum vesting level of 150% of the number of shares granted, provided that the result of the performance criterion exceeded the target. In programmes since 2012, the absolute maximum vesting level is 100% of the number of shares granted.
Three quarters (75%) of the opportunity under the 2014 to 2017 programmes are in Performance Shares, where shares will vest in accordance with performance criteria proposed by the Remuneration Committee and approved by the Board of Directors. The financial success metric in the 2017 Performance Share Plan is the 3-year Economic Value Added (EVA) for the Stora Enso Group. One quarter (25%) of the opportunity under the 2014 to 2017 programmes are in Restricted Shares, for which vesting is only subject to continued employment.
Outstanding restricted and performance share opportunities are shown below.
|Share awards at 31 December 2017|
|Estimated Delivery of Outstanding Restricted and Performance Share Awards at Year End|
|Number of shares||2018||2019||2020||Total|
|2015 programme||1 232 596||1 232 596|
|2016 programme||1 036 286||1 036 286|
|2017 programme||1 152 042||1 152 042|
|Total||1 232 596||1 036 286||1 152 042||3 420 924|
The costs of the Stora Enso Share-based Programmes are recognised as costs over the vesting period, which is the period between the grant and vesting. The total impact of share-based programmes in the Income statement amounted to an expense of EUR 10 (EUR 6) million, all related to restricted and performance share awards, of which an expense of EUR 3 (EUR 2) million relates to equity-settled share awards programmes. A year-end liability of EUR 11 (EUR 8) million is shown in non-current operative liabilities and is all related to the restricted and performance share awards.
The share programmes may be hedged using total return swaps (TRS) which are settled with cash payments, allowing the Company to receive cash compensation to partially offset any change in the share price between the grant and settlement dates. Group TRS instruments do not qualify for hedge accounting and therefore periodic changes to their fair value are recorded in the Income statement in operative costs alongside the share-based programme costs to which they relate.
At the year end, there were no TRS instruments outstanding (2 700 000 in 2016) covering underlying Stora Enso Oyj R shares and therefore the recorded net fair value of TRS contracts was EUR 0 (asset EUR 3) million. During 2017, a gain of EUR 2 (EUR 6) million coming from fair valuation changes in the TRS was recorded in the Income statement.