Board emoluments and other benefits
The Annual General Meeting (AGM) decides on Board emoluments and other benefits, proposed by the parent entity, OP Cooperative, to the AGM.
No separate meeting allowances were paid in 2019 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.
President and CEO’s salary and other benefits
The Board of Directors appoints the President and CEO and decides on their salary, benefits and the terms and conditions of his executive contract. A written executive contract with the Executive Vice President of Banking, Corporate and Institutional Customers within OP Financial Group and its appendix specifies the terms and conditions of the executive contract with the President and CEO.
The President and CEO as OP Financial Group's Executive Vice President, Banking Corporate and Institutional Customers, is a member of OP Cooperative's Executive Board. The President 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 President and CEO 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. Furthermore, the President and CEO belongs to the supplementary pension plan for the Executive Board of OP Cooperative.
The period of notice applicable under the President 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 President and CEO a severance pay equalling his/her 6-month total salary, in addition to compensation for loss of office, if the company dismisses him/her or he/she has 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 President and CEO 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 to the President and CEO 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 central cooperative’s 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 incentive schemes have been taken into account in establishing the incentive schemes.
In 2019, remuneration of the President and CEO and other management consisted of the following three components: 1) Basic pay (salary and fringe benefits, based on the job grade and skills); 2) performance-based bonus (based on the achievement of targets under the annual plan); and 3) long-term remuneration (OP Financial Group’s long-term management remuneration scheme, based on the achievement of the Group’s shared strategic goals and targets).
In June 2019, the Supervisory Board of OP Cooperative decided not to initiate a new performance period for the long-term management remuneration scheme in 2020. OP Financial Group’s variable remuneration comprises performance-based bonuses and the personnel fund. Group-level strategic goals and targets will be taken into account in the metrics of performance-based bonuses and the personnel fund. Bonuses under the long-term management remuneration scheme for 2014–2016 and 2017–2019 will be paid normally.
The Board of Directors is responsible for deciding on remuneration to the President 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-, 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 OP Financial Group’s LCR (Liquidity Coverage Ratio) is over 110% and the CET1 ratio is over the buffer set by the ECB plus 3% on the bonus payout date (over 14.5% in 2020). The final amount of the bonus earned based on the metrics in the balanced scorecard is also determined by OP Financial Group's EBT. A precondition for the bonus payout is that customer business in the Banking segment too shows a profit before tax.
For 2019, the President and CEO is entitled to a maximum bonus corresponding to his/her regular four-month salary (a maximum of ten for 2020) 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 Corporate Bank 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 President and CEO and other persons confirmed by the Board of Directors are 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 4–6-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 4–6-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 the President and CEO 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 personnel fund.