Remuneration

Board emoluments and other benefits

The Annual General Meeting (AGM) decides on Board emoluments and other benefits, proposed by the parent entity, OP Cooperative. The Board members did not receive any separate attendance fees or monthly emoluments in 2018.

Managing Director’s salary and other benefits

The Board of Directors appoints the Managing Director and decides on his/her salary, benefits and the terms and conditions of his executive contract. A written Managing Director executive contract stipulates the terms and conditions of the contract.

Pension benefits are determined in accordance with pension laws and OP Financial Group's own pension plans. The Managing Director is covered by TyEL (the Finnish Employees Pensions Act) which provides pension benefits based on the years of employment and earnings as prescribed in the Act. The Managing Director is not included in any supplementary pension plan.

The period of notice applicable under the Managing Director’s executive contract is six months in case the company terminates the contract. In case the executive contract terminates due to reasons attributable to the company, the Managing Director will be entitled to bonuses under the short- and long-term remuneration schemes for the year of contract termination, provided that the schemes’ performance criteria and the criteria for payment under the schemes' terms and conditions are fulfilled.

Principles governing remuneration paid to the Managing Director and other management

The remuneration schemes approved by OP Cooperative Consolidated are aimed at encouraging and engaging key human resources in the development of business and ensuring that the company attracts new key employees. The Remuneration Committee of OP Cooperative’s Supervisory Board and, if necessary, the Executive Board assess and monitor regularly the effectiveness of the company’s remuneration schemes with the aim of ensuring that remuneration policies and practices with respect to all personnel groups are in line with core values, strategy, targets and goals, risk policies and control systems. The regulations regarding the financial sector’s remuneration schemes have been taken into account in establishing the incentive schemes.

Remuneration of the Managing Director and other management consists of the following three components: 1) basic pay (salary and fringe benefits, based on the job grade and skills); 2) short-term incentives (performance-based bonuses, based on the achievement of targets under the annual plan); and 3) long-term incentives (OP Financial Group’s long-term management incentive scheme, based on the achievement of the Group’s shared strategic goals and targets).

The Board of Directors is responsible for deciding on remuneration to the Managing Director and other management.

Short-term management incentive scheme

The Board of Directors decides annually on the short-term management incentive scheme. Remuneration is based on metrics deriving from annual targets. Such metrics may be determined at Group-, function-, department- and employee level. In addition to personal performance, bonus payout requires the fulfilment of the conditions set for Group- and/or company-level remuneration.

The Group-level precondition for remuneration is that the Group’s CET1 ratio on the payout date is over the CET1 buffer set by the ECB +3% on the payout date. The final amount of the bonus earned based on the metrics in the balanced scorecard is also determined by OP Financial Group's EBT, OP Financial Group's operating expenses and customer experience. A precondition for the bonus payout is that customer business in the Banking segment too shows a profit before tax.

For 2018, the Managing Director is entitled to a maximum bonus corresponding to his regular three-month salary subject to PAYE tax. Bonuses under the short-term incentive scheme are paid in cash, in view of OP Financial Group’s payment guidelines with respect to persons affecting the company’s risk profile (Identified Staff).

Long-term management incentive scheme

Based on the decision by the company’s Board of Directors, OP MB adheres to OP Financial Group’s long-term management remuneration scheme. OP Financial Group's shared management incentive scheme consists of consecutive three-year performance periods. The Managing Director confirmed by the Board of Directors is included in the scheme.

Performance period 2014–2016

The primary performance metrics for the performance period of 2014–2016 included growth in the number of customers using OP as their main bank and insurer, OP Financial Group’s EBT and Common Equity Tier 1 (CET1) ratio. In addition, the scheme takes account of profitability (return on economic capital) and capital adequacy under the Act on the Supervision of Financial and Insurance Conglomerates. No bonus will be paid out if capital adequacy under said Act is less than the minimum 130% on the date of payout.

During the performance period of 2014–2016, it was possible to annually earn bonuses equalling a person’s regular 4-month salary subject to PAYE tax. The bonus will be paid to the beneficiary in cash in three instalments between 2018 and 2020. If the person is a member of identified staff and the total amount of variable remuneration exceeds the regulatory level, the bonus will be paid in four instalments between 2018 and 2021 (in six instalments to Executive Board members and the Chief Audit Executive between 2018 and 2023) partially tied to the value of the debenture loan issued by OP Corporate Bank.

Bonus payout includes conditions relating to the duration of employment or executive contracts and stipulations governing the hedging prohibition and the retention period.

Performance period 2017–2019

The targets for the performance period 2017–2019 are according to the strategy in force and they are based on OP Financial Group's EBT, customer experience and use of digital services. No bonuses will be paid out if the Group's CET1 ratio is less than the CET1 capital buffer set by the ECB +3%.

During the performance period of 2017–2019, it is possible to annually earn bonuses equalling a person’s regular 4-month salary subject to PAYE tax. The bonus will be paid to the beneficiary in cash in four  instalments between 2020 and 2023. If the person is a member of identified staff and the total amount of variable remuneration exceeds the regulatory level, the bonus will be paid in four instalments between 2020 and 2023 (in six instalments to Executive Board members and the Chief Audit Executive between 2020 and 2025) partially tied to the value of the debenture loan issued by OP Corporate Bank.

Bonus payout includes conditions relating to the duration of employment or executive contracts and stipulations governing the hedging prohibition and the retention period.

Long-term incentive scheme for other employees

Personnel (excl. management) is included in the long-term incentive scheme based on OP Financial Group Personnel Fund. This long-term scheme is grounded on the achievement of OP Financial Group’s shared strategic goals and targets. The scheme uses the same target performance metrics as the long-term management incentive scheme. The Board of Directors annually determines the amount of profit-based bonuses transferred to the Fund.