FinancialsNotesNote 28 Employee Bonus and Equity Incentive Schemes
Note 28 Employee Bonus and Equity Incentive Schemes
Notes to the Consolidated Financial Statements
The majority of production employees are members of labour unions with which either the Group or the forest industry customarily negotiate collective bargaining agreements in Europe. 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 bonus system is based on profitability as well as on attaining key business targets.
Bonus Programmes
Division and Business Unit management have annual bonus programmes based on the corporate target return on capital employed and on the results of their respective areas of responsibility, together with the achievement of separately defined key personal targets; the bonus amounts to between 10% and 40% of salary depending on the person’s position in the Company. Staff participate in another bonus plan in which the payment is calculated as a percentage of annual salary up to a maximum of 7%. All bonuses are discretionary and, for the majority of employees, at least 50% of the bonuses are dependent on financial targets, triggered only when results exceed a predetermined minimum level. The Group has decided to continue its performance-based programmes and has expanded these to cover 75% to 80% of employees globally where allowed by local practice and regulations.
Share Based Programmes for Management
In 2004 the Board approved the implementation of two new share based programmes to complement and partially replace the existing option programme. The changes were made in response to the competitive market trend away from option programmes towards share base award schemes, stimulated by the change in international accounting standards. The new programmes are synthetic share awards where designated employees will receive existing Stora Enso R shares, not new shares. The new programmes are targeted at 200 key managers and staff in the Group and replace 50% of the existing option programme for these employees; consequently the number of options issued under the 2004 share option programme has been reduced. The total number of shares that may be awarded under these two new share programmes is 652 500.
The Performance Share Plan will deliver awards to managers and key employees in each March over a three year period, starting in 2005, based on the Group performance during each of the preceding financial years. The performance target is for the corporate return on capital employed to equal the weighted average cost of capital before any shares are awarded. The intended range of awards over the three year period is from 850 to 10 000 shares with a maximum of one and one half times the award when the corporate return on capital employed exceeds the weighted average cost of capital by 4 percentage points. The Restricted Share Plan will similarly deliver shares to managers and key employees over the same three year period subject to the employee remaining in employment of Stora Enso on the intended award date.
The Board also approved awarding shares under the restricted plan to a maximum of 50 key top young talents with a condition that they remain in employment for at least 5 years. The level for these award was set at 2 500 to 5 000 shares and the maximum number of shares that may be issued is 187 500.
The new share plans do not confer any beneficial interest at grant and the holder has no rights to receive shares until the future award dates materialise.
Option/Synthetic Option Programmes
Option Programme
Type
Year of Issue
Number of Staff
Strike Price
Number of Options Issued
Number of Options Outstanding
Exercise Period
2004
Synthetic
2004
1 000
EUR 11.15
4 675 300
4 644 050
1 Mar 2007-28 Feb 2011
2003
Synthetic
2003
1 000
EUR 10.00
6 064 150
5 945 400
8 Feb 2006-7 Feb 2010
2002
Synthetic
2002
1 000
EUR 16.50
5 902 000
5 702 000
8 Feb 2005-7 Feb 2009
2001
Synthetic
2001
500
EUR 11.70
4 215 000
3 995 000
1 Apr 2004-31 Mar 2008
2000
Synthetic
2000
200
EUR 12.25
2 800 000
2 555 000
1 Apr 2003-31 Mar 2007
1999
Synthetic
1999
200
EUR 11.75
2 750 000
2 532 750
15 Jul 2002-15 Jul 2006
1997 (closed)
Warrants
1997
15
FIM 45.57 (EUR 7.66)
3 000 000
0
1 Dec 1998-31 Mar 2004
North America
Stock options
2000
839
USD 6.9687 (EUR 5.51)
5 680 000
1 166 559
11 Sep 2000-4 Feb 2010
Option Programmes for Management (1999 to 2004)
In 1999 the Board announced an annual share option programme for some 200 key staff as part of an integrated top management compensation structure intended to provide a programme contributing to the long-term commitment of managerial and specialist personnel; this programme has since been extended into subsequent years and now covers some 1 000 staff. The seven-year programmes consist of financially hedged options and synthetic options, which avoid diluting the number of shares in issue, with strike prices set at levels representing then-current market prices plus 10% premiums. Depending on local circumstances, option holders will receive either a payment in cash, representing the difference between the strike price and the share price at the time of exercise, or an option to purchase existing R shares, though not new shares. Options are not transferable and expire if the employee leaves the Group.
The strike price for the 2004 Programme has been set at EUR 11.15 based on the average price for R shares from 5 February to 12 February 2004, plus a 10% premium. The strike price for the 2003 Programme has been set at EUR 10.00 based on the average price for R shares from 31 January 2003 to 7 February 2003, plus a 10% premium. The strike price for the 2002 Programme has been set at EUR 16.50 based on the average price for R shares from 31 January to 7 February 2002, plus a 10% premium. The strike price for the 2001 Programme has been set at EUR 11.70 based on the average price for R shares from 8 to 14 February 2001, plus a 10% premium; the earliest exercise date was 1 April 2004. The strike price for the 2000 Programme is EUR 12.25 based on the average share price for the period of three days before and after the Annual General Meeting on 21 March 2000, plus a 10% premium; the earliest exercise date was 1 April 2003. The strike price for the 1999 Programme is EUR 11.75, based on the average share price from May to July 1999, plus a 10% premium; the earliest exercise date was 15 July 2002. As of 31 December 2004, no options from the 1999 to 2004 programmes had been taken up.
Stora Enso North America Option Programme
On 18 August 2000 the Board decided to convert the Consolidated Papers, Inc. share option plans (1989 Stock Option Plan and 1998 Incentive Compensation Plan) into Stora Enso programmes entitling holders to purchase a maximum 5 680 000 R shares, in the form of ADRs, at a weighted average strike price of USD 6.9687. The exercise period of the currently existing plans is from 11 September 2000 to 4 February 2010, depending on the grant date.
On 16 October 2001 the Board decided to amend the Programme to simplify administration and speed up delivery of shares to option holders. Thus, as of 1 November 2001, no new R shares will be issued under the terms of the Programme, but instead, repurchased R shares have been reserved for distribution. A total of 2 001 733 new R shares were issued before the terms were amended, thereby increasing the share capital by EUR 3.4 million. During the year, 733 133 (570 292) options were exercised, of which 685 085 (522 540) resulted in cash compensation and 48 048 (47 752) in the allocation of repurchased R shares. At 31 December 2004, 1 166 559 (1 899 692) options were still outstanding.
Option Programme for Management (1997):
Fully Subscribed and Closed
On 7 April 1997 the Company issued 1 000 warrants with a maximum value of EUR 168 187 (FIM 1 million) to 15 members of senior management. Each bond accrued annual interest of 4.0%, had a maturity of five years and carried one warrant entitling the holder to subscribe for 3 000 new R shares at a subscription price of EUR 7.66 (FIM 45.57). The exercise period ran from 1 December 1998 to 31 March 2004 and the bond entitled the holder to receive a dividend for the year in which the warrants were exercised. In 2004, a final 789 000 shares were issued, thus by 8 April 2004 the Programme had been fully subscribed and a total of 3 000 000 new R shares had been issued against the warrants, representing 0.3% of the share capital and 0.1% of the voting rights.
Director and Management Group Interests as at 31 December 2004
