Decision-making procedure and remuneration principles
Varma’s Board of Directors annually decides on the company’s principles of performance-based remuneration, the maximum amounts and the personnel groups that are included. The Board of Directors also decides on the remuneration of the President and CEO and the members of the Executive Group, according to the ‘one-above’ principle, in which the decision is made by at least one organisational level above the superior of the person in question.
Composition and authority of the Nomination and Compensation Committee
Preparation of remuneration matters to be discussed by the Board of Directors is the responsibility of the Nomination and Compensation Committee, appointed by the Board of Directors. In 2013, the Committee consisted of the Chairman of the Board of Directors Sakari Tamminen and Deputy Chairmen Kari Jordan and Mikko Mäenpää. The decisions on remuneration are made by the Board of Directors.
Contents of the performance-based remuneration scheme
Varma has three performance-based remuneration schemes in use:
- the long-term incentive scheme,
- the separate scheme for Investment Operations, and
- the annual bonus scheme.
The key principles of performance-based remuneration are as follows:
- The schemes support Varma’s long-term objectives, which include solvency, the return on investments and cost-efficiency.
- Remuneration should be planned so as to prevent unhealthy risk-taking. Therefore, the schemes include, among other things, pre-defined maximum amounts of remuneration and a force majeure clause, which gives the Board of Directors the right to discontinue the schemes before the end of the period if the company’s economic position is jeopardised (see section “Basis for performance measurement and risk weighting” for more details).
- The Board of Directors decides on the payment of performance-based remuneration annually after the end of the incentive period.
- The share of performance-based remuneration of total remuneration shall increase along with an increase in the person’s responsibility and capacity to influence the performance of other Varma employees and the success of the company.
- Compliance with the norms regulating the activities is also considered when making remuneration decisions. Performance-based remuneration is not paid or is recovered as an unjustified gain if it turns out that the person in question has behaved contrary to Varma’s internal guidelines or ethical principles, legislation, or official regulations or guidelines.
- Remuneration decisions must always be made according to the ‘one-above’ principle.
Long-term incentive scheme
The purpose of the long-term incentive scheme is to commit key persons to Varma and its objectives, which is why performance-based remuneration is determined on the basis of common, company-level criteria. The extent to which the objectives set for the criteria are achieved linearly determines how big a share of the maximum sum of the incentive is distributed.
Varma’s long-term incentive scheme is based on incentive periods of three calendar years. At the beginning of each incentive period, the Board of Directors identifies the persons covered by the scheme, their maximum remuneration, and the remuneration criteria and their indicators.
The first incentive period covered the years 2010–2012 (37 persons), the second incentive period covers the years 2011–2013 (37 persons), the third covers the years 2012–2014 (maximum 40 persons), and the fourth covers the years 2013–2015 (maximum 40 persons). Maximum remunerations in the long-term incentive scheme correspond to 2, 3 or 4 months’ salary of the person in question. The criteria for incentive periods 2010–2012, 2011–2013, 2012–2014, and 2013–2015 are based on solvency, customer account performance and cost control.
Key persons in Investment Operations do not participate in the long-term incentive scheme.
Separate scheme for Investment Operations
The aim of the separate scheme for Investment Operations, approved by the Board of Directors, is to benefit from added value that is created if Varma’s solvency and return on investments develop, in the long term, better than those of a peer group of competitors. The separate scheme for 2013 covered, in addition to the Senior Vice-President, Investments, a maximum of 54 key persons in Investment Operations.
Personal maximum remuneration was based on the last salaried month of the previous calendar year and in the 2013 scheme corresponded to a maximum of 3–14 months’ salary.
The share of the remuneration that corresponds with no more than 6 months’ monthly salary is paid within one month of the Board of Directors’ approval of the remuneration, and the remainder in three equal instalments during the three following years.
Annual bonus scheme
In 2013 all Varma employees were covered by an annual bonus scheme, with the exception of the persons covered by the separate scheme for Investment Operations (see above). The amount paid as an annual bonus is determined on the basis of the achievement of personal objectives agreed on in development discussions and on the company’s result; the higher the person’s possibility to influence the company’s result, the greater its weight. In 2013 the criteria for getting the bonus were based on customer account performance, the investment result and cost control.
The base for the maximum annual bonus was determined by the person’s position and monthly salary. The maximum bonuses under the 2013 bonus scheme of the President and CEO and the members of the Executive Group (not including the Chief Investment Officer, who is covered by the separate scheme for Investment Operations) correspond to 2.5–8 months’ salary. Additionally, the base for the maximum bonus is increased or decreased for each by the incentive coefficient, which is based on the investment result. In 2013, the coefficient could be at maximum 1.25 and at minimum 0.75 (i.e. +25% /–25% of the basic maximum bonus).
The relation of remuneration to performance
In all schemes, performance-based remuneration is dependent on the achievement of the criteria based on performance indicators. The extent to which the objectives set for the criteria are achieved linearly determines how large a part of the maximum sum is distributed.
Basis for performance measurement and risk weighting
In all of Varma’s incentive schemes, performance measurement is based on objective criteria, the realisation of which can be independently verified.
Apart from maximum remunerations determined in advance, the risk inherent in the remuneration schemes is managed so that the Board of Directors has reserved the right to discontinue the schemes before the end of the incentive period. The discontinuation can be based on the Board of Directors’ assessment that Varma’s economic position is seriously jeopardised due to a reason inside or outside the company.
Excessive risk-taking is also prevented by a maximum risk level confirmed by the Board of Directors.