Ponsse Plc's Remuneration Report 2023
Approved at the General Meeting on April 12, 2024
1. INTRODUCTION
The remuneration policy of Ponsse’s bodies presents how remuneration is paid to the Board of Directors and the CEO (and any Deputy CEO).
The remuneration policy will be presented to the 2024 Annual General Meeting for an advisory decision, and it supersedes the remuneration policy presented in 2020. As a rule, the remuneration policy is valid for four years, unless changes to the remuneration policy are presented to the Annual General Meeting earlier.
This remuneration policy has been prepared in accordance with the Limited Liability Companies Act, the Securities Markets Act, the Decree of the Ministry of Finance, and the Finnish Corporate Governance Code 2020.
2. REMUNERATION PRINCIPLES
The purpose of Ponsse’s remuneration policy is to align the objectives of shareholders, the Board of Directors, the CEO and the personnel in order to increase shareholder value in the long term. In preparing the remuneration policy, the Board of Directors has taken into account the views of the shareholders and the company’s needs to attract, engage and motivate the senior management to implement Ponsse’s business strategy. The Board of Directors regularly monitors the effectiveness of the performance indicators used in remuneration to ensure that they support Ponsse’s strategy.
Ponsse’s remuneration policy is based on the following key principles:
• The interests of shareholders, the Board of Directors, the CEO and employees are aligned
• Remuneration is based on performance and transparency
• Remuneration attracts and commits employees to the company
• Remuneration is linked to sustainability as part of the company’s strategy
As a rule, the same principles and practices apply to the remuneration of the CEO as to the remuneration of other Ponsse employees, although the remuneration of the CEO differs quantitatively because of the demanding responsibilities associated with the position.
Based on feedback given by shareholders, the remuneration policy has been updated, especially with regard to the remuneration criteria. Key changes in the 2024 remuneration policy compared to the 2020 remuneration policy are as follows:
• Key remuneration principles updated
• Potential different forms of remuneration paid to the Board of Directors described in more detail
• The performance indicators of the short- and long-term incentive plans described in more detail
• Key terms and conditions applied to the CEO’s service relationship described in more detail
• Remuneration practices applied to recruitment and promotion added
• Situations involving temporary derogations described in more detail
• The structure and wording updated and other clarifications made to improve the readability of the remuneration policy
3. DESCRIPTION OF THE DECISION MAKING PROCESS
At Ponsse, remuneration is discussed and related decisions are made at the Annual General Meeting and by the Board of Directors as defined below. The largest shareholders prepare a proposal for the election and remuneration of the members of the Board of Directors.
Annual General Meeting
• Decides through advisory voting on the approval of the remuneration policy every four years
• Decides through advisory voting on the approval of the remuneration report annually
• Decides on the fees paid to the members of the Board of Directors annually
• Decides on the authorisation of the Board of Directors to decide on the issuance of the company’s shares, options or other special rights entitling to shares for use in remuneration
Board of Directors
• Prepares and presents the remuneration policy to the Annual General Meeting at least every four years
• Brings the shareholders’ proposal for a decision on the remuneration of the members of the Board of Directors to the Annual
General Meeting
• Decides on the remuneration of the CEO in accordance with the remuneration policy
• Prepares and presents to the Annual General Meeting a proposal for a decision on authorising the Board of Directors to decide on the issuance of the Company’s shares, options or other special rights entitling to shares for use in remuneration
• Prepares and presents the remuneration report to the Annual General Meeting annually
Shareholders representing more than 50% of the company’s shares and votes
• Prepare a proposal for a decision on the fees paid to the members of the Board of Directors for the Annual General Meeting in accordance with the remuneration policy
Shareholders cannot propose any changes to the remuneration policy presented to the Annual General Meeting. If majority votes at the Annual General Meeting do not support the remuneration policy presented, a revised remuneration policy must be presented to the next Annual General Meeting at the latest. In this case, the decision on the remuneration of the Board of Directors and the CEO is based on the remuneration policy presented to the Annual General Meeting until the revised remuneration policy has been discussed at the next Annual General Meeting.
Conflicts of interest
Due to the company’s ownership structure, certain members of the Board of Directors may sometimes be employed by the company under separate terms of an employment or service relationship. To avoid conflicts of interest, such members of the Board of Directors cannot participate in preparation or decision-making processes regarding the terms of employment or service relationships, as decisions will be made by independent members of the Board of Directors.
4. DESCRIPTION OF THE BOARD OF DIRECTORS’ REMUNERATION
The Annual General Meeting decides on the remuneration of the members of the Board of Directors. Board fees may consist of a fixed monthly or annual fee, meeting fees and other fees decided by the Annual General Meeting. The annual fee can be paid either in cash and/or in Ponsse’s shares. If Board fees are paid in shares in full or in part, the Annual General Meeting can decide on any restrictions or recommendations regarding the transfer of shares. Meeting fees are paid in cash. In addition to meeting fees, the company compensates the members of the Board of Directors for reasonable travel expenses in accordance with the company’s travel policy.
5. DESCRIPTION OF THE CEO’S REMUNERATION
5.1 Remuneration components
The remuneration of Ponsse’s CEO typically consists of fixed basic wages, fringe benefits and other financial benefits, variable remuneration, such as a short-term performance bonus and a long-term incentive plan, as well as supplementary pension arrangements.
a) Basic wages
The purpose of basic wages is to pay competitive compensation for the responsibilities of the position based on the CEO’s skills, knowledge and experience. No specific targets are applied to basic wages. Basic wages are usually reviewed annually taking into account various factors, including the CEO’s personal performance, the company’s operating profit or loss, the corresponding remuneration of an external reference group, and any changes in responsibilities.
b) Short-term performance bonus
The purpose of the short-term performance bonus is to provide encouragement and remuneration for the achievement of the goals set out in the annual business strategy, and on a non-recurring basis for any other particularly good performance.
The Board of Directors determines annual performance indicators for the CEO, as well as their weighted values and targets, to ensure that they support the implementation of Ponsse’s business strategy. They may include financial (e.g. growth and profitability) and non-financial targets (e.g. targets related to strategy, sustainability and customer satisfaction, joint targets applied to the Management Team or personal targets). A significant part of the bonus is based on financial as well as sustainability indicators. Performance indicators may vary from one year to the next.
At the end of the year, the Board of Directors assesses actual performance and determines the extent to which the targets set for the annual performance bonus have been achieved, and the final bonus level is determined on the basis of this. Any short-term incentive bonus is paid in cash. The Board of Directors decides on the maximum amount before tax to be paid annually on the basis of the annual performance bonus. The maximum amount applied each year is presented in the remuneration report.
Performance indicators, including their targets (unless considered commercially sensitive), and the confirmed result of each indicator will be published retroactively in the remuneration report.
c) Long-term incentive plans
A long-term incentive plan is usually a performance- and share-based bonus. Its purpose is to align the objectives of the shareholders and the CEO to increase the company’s long-term value, to engage the CEO in the company, and to offer them a competitive incentive plan based on earnings and the accrual of shares in the company.
The Board of Directors determines annual performance indicators, as well as their weighted values and targets, to ensure that they support Ponsse’s long-term strategy and financial success and increase the shareholder value. Performance indicators are typically financial or linked to the share price, strategy or sustainability. A significant part of the bonus is based on financial as well as sustainability indicators. The earning period is typically three years and may include a restriction period of one to three years during which shares under the incentive plan cannot be transferred.
Share-based incentive plans can also be based on investments. The Board of Directors can decide that participating in the earning period and receiving a bonus requires the CEO to acquire the number of the company’s shares pre-defined by the Board of Directors when the earning period begins.
At the end of the earning period, the Board of Directors assesses actual performance and determines the extent to which the targets set have been achieved, and the final bonus level is determined on the basis of this (and any investments). The Board of Directors determines the maximum amount of the performance- and share-based bonus, and it is indicated annually in the remuneration report.
Performance indicators, including their targets (unless considered commercially sensitive), and the confirmed result of each indicator will be published retroactively in the remuneration report.
d) Supplementary pension
The purpose of the pension benefit is to to supplement the statutory pension in accordance with market practices. The CEO can participate in a pension plan offered to other members of the company’s management. Information about the realised pension plan is reported retroactively in the remuneration report.
e) Other benefits and programmes
Fringe and other financial benefits aim to offer competitive benefits, support engagement, and increase personal wellbeing. The level of the benefits offered is in line with market practices and subject to change from one year to the next. Typical benefits include phone, car and accommodation benefits, and various insurance policies, as well as other employee benefits available to the company.
5.2 Other key terms applicable to a service relationship
Ponsse’s Board of Directors decides on the terms of the CEO’s service relationship. The CEO agreement is typically valid until further notice, but the Board of Directors may offer a fixed-term agreement, if required. In the CEO agreement, the notice period, wages during the notice period and compensation for the termination of the agreement are defined in accordance with market practices at the time of signing the agreement.
If the CEO’s service relationship ends before the payment of the annual performance bonus or before the end of the earning or restriction period in accordance with the rules of the long-term incentive plan, the Board of Directors can, at its discretion, decide whether the CEO is to be paid bonuses from the annual performance bonus plan and/or the long-term incentive plan, and whether the CEO is entitled to some or all of the shares received on the basis of the share-based incentive plan. The Board of Directors can decide on the terms under which these bonuses will be paid.
5.3 Terms regarding changes in and recovery of remuneration
The purpose of the terms regarding changes and recovery is to ensure that remuneration is based on actual accomplishments. The Board of Directors can, at its discretion, exercise the right to make changes (changes made before payment) or the right of recovery (recovery after payment) in situations related to significant errors, abuse, damage to reputation, problems related to occupational safety and health, as well as in other situations defined by the Board of Directors.
5.4 Remuneration practices applied to recruitment and promotion
The goal of Ponsse’s remuneration practices is to offer a remuneration package that is sufficient to attract, engage and motivate individuals with the expertise required for the position in question. The Board of Directors seeks to align the remuneration of a new CEO and any special arrangements related to recruitment with the remuneration policy valid in the company at the time. In special situations, Ponsse may pay non-recurring fees to compensate the new CEO for any financial losses resulting from the change of employment or to encourage the person to join Ponsse. Such potential fees are presented in the remuneration report.
6. REQUIREMENTS FOR TEMPORARY DEROGATIONS
The Board of Directors can, at its discretion, temporarily derogate from the remuneration policy in any of the following situations:
• Appointment of a new CEO
• Appointment of an interim CEO
• Significant changes in the company’s structure, organisation, business and ownership (e.g. purchase offer, takeover, acquisition or divestment, merger or demerger) that may contribute to the adjustment of short-term and long-term performance bonus plans and other remuneration components to ensure the continuity of the company’s management
• Significant changes in the group’s financial position or strategy
• Significant changes in laws, rules or regulations (including taxation)
• Any other situation where a derogation is necessary to protect the company’s long-term interests
Any derogations are reported in the remuneration report for the year in question. If a derogation is no longer considered temporary, the Board of Directors will present a revised remuneration policy at the next Annual General Meeting.