Board emoluments and othet benefits
The Annual General Meeting (AGM) decides on Board emoluments and other benefits proposed by the parent entity, OP Cooperative.
No separate meeting allowances were paid in 2022 to the members of the Board of Directors employed by OP Cooperative or its subsidiaries. The meeting allowance paid to the board members employed by OP Financial Group’s cooperative banks amounts to 600 euros per meeting.
EVP and CEO's salary and other benefits
The Board of Directors appoints the EVP and CEO and decides on their salary, benefits and the terms and conditions of their executive contract. A written executive contract with the Executive Vice President of Banking, Corporate and Institutional Customers within OP Financial Group and its appendix specify the terms and conditions of the executive contract with the EVP and CEO.
The EVP and CEO as OP Financial Group’s Executive Vice President, Banking Corporate and Institutional Customers, is a member of OP Cooperative’s Executive Management Team.
The EVP and CEO’s retirement age is determined as specified in applicable pension laws. Pension benefits are determined in accordance with pension laws and OP Financial Group’s own pension plans. The EVP and CEO is covered by the Finnish Employees Pensions Act which provides pension benefits based on the years of employment and earnings as prescribed in the Act. Furthermore, the EVP and CEO belongs to the defined contribution supplementary pension plan for the Executive Management Team of OP Cooperative.
The period of notice applicable under the EVP and CEO’s executive contract is six months. According to the executive contract with the Executive Vice President of OP Financial Group’s Banking, Corporate and Institutional Customers, the company must pay the EVP and CEO a severance pay equalling their six-month total salary, in addition to compensation for loss of office, if the company dismisses them or they have to resign or terminate the contract due to a reason attributable to the company. In case the executive contract terminates due to reasons attributable to the company, the EVP and CEO will be entitled to bonuses under the performance-based bonus scheme for the year of contract termination, provided that the scheme’s performance criteria and the criteria for payment under the scheme’s terms and conditions are fulfilled.
Principles governing remuneration to the EVP and CEO and other management
The remuneration schemes approved by OP Cooperative Consolidated are aimed at encouraging and engaging key persons in the development of business and ensuring that the company attracts new employees. OP Corporate Bank’s Board of Directors, and OP Cooperative’s Board of Directors and its Nomination and Remuneration Committee 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 the Group’s core values, strategy, targets and goals, risk policies, sustainability risks and control systems. The regulations regarding the financial sector’s remuneration schemes have been taken into account in establishing the incentive schemes.
In 2022, remuneration of the EVP and CEO and other management consisted of the following two components:
1) basic pay (salary and fringe benefits, based on the job grade and skills), and
2) performance-based bonus (based on the achievement of targets under the annual plan)
The EVP and CEO also has a defined contribution supplementary pension plan based on their membership in OP Cooperative’s Executive Management Team. The Board of Directors is responsible for deciding on remuneration to the EVP and CEO and other management.
Performance-based bonus scheme
The Board of Directors annually decides on the performance-based bonus scheme. Remuneration is based on metrics deriving from annual targets. Such metrics may be determined at Group-, function-, team- and employee level. In addition to annual targets, bonus payout requires the fulfilment of the conditions set for Group- and/or company-level remuneration.
In 2022, the metrics for the EVP and CEO’s performance-based bonus with a weight of 20% each were as follows:
- OP Financial Group’s growth differential between income and expenses (percentage points)
- Net growth in the number of customers using OP as their main bank and insurer
- OP Financial Group’s RORAC (Return on risk-adjusted capital)
- Earnings of the Corporate Banking function
- Overall assessment of operations (incl. ESG targets, customer-related target and systems development)
The Group-level precondition for remuneration is that OP Financial Group’s LCR (Liquidity Coverage Ratio) exceeds 110% and the CET1 ratio exceeds the CET1 MDA + 2 percentage points on the bonus payout date (CET1 MDA = CET1 minimum level. If this level is not met, profit distribution will be restricted). The final amount of the bonus earned based on the metrics in the balanced scorecard is also determined by the EBT of the central cooperative consolidated, multiplied by a factor of 0.5–1.25. A precondition for the bonus payout is that the Banking Corporate and Institutional Customers segment too shows a profit before tax.
Furthermore, bonuses earned will be reduced or completely refused if binding internal guidelines within the Group or task or regulatory requirements have been ignored and separately specified qualitative or risk management elements have materialised. Paid bonuses may also be fully or partly reclaimed if the beneficiary is found guilty of misdemeanours, of intentionally endangering the future of business, or of breaking the law.
For 2022, the EVP and CEO is entitled to a performance-based bonus corresponding to their regular ten-month salary subject to PAYE tax at a maximum.
A regulatory deferral procedure applies to the payment of performance-based bonuses and the payment of half of the bonus in other than cash, if the performance-based bonus exceeds 50,000 euros or constitutes at least a third of the combined annual bonuses.
If the euro maximum for deferral is exceeded, 60% of the remuneration will be paid immediately and 40% is deferred. If the amount of performance-based bonus exceeds an 8-month salary, totalling at least 200,000 euros, 40% of the remuneration will be paid immediately and 60% will be deferred. The deferred bonus will be paid within the next five years. The value of the reference instrument decided by OP Cooperative’s Board of Directors is used as the non-cash payment; in 2022, the reference instrument was OP Financial Group’s Profit Share (an equity investment). The bonus tied to the reference instrument will be paid after a 12-month retention period.
Personnel (excl. management) is included in the long-term incentive scheme based on OP Financial Group Personnel Fund. The personnel fund is grounded on the achievement of the Group’s shared strategic goals and targets. In 2022, the target performance metrics applied in the scheme included the growth differential between income and expenses at OP Financial Group as well as net growth in the number of customers using OP as their main bank and insurer. The Board of Directors annually determines the amount of profit-based bonuses transferred to the personnel fund. The maximum amount of the profit-based bonus in 2022 accounted for 3 per cent of the total wages and salaries of the employees included in the personnel fund.