Management Incentive Schemes
On 14 June 2011 Sampo plc’s Board approved the Sampo Group Compensation Principles which describe the remuneration structure and the principles used in setting up remuneration systems within the general governance framework and according to the Sampo Group’s Risk Management Principles. The Compensation Principles apply to all companies within the Sampo Group and are available at www.sampo.com/corporate-governance/compensation.
The core of the Compensation Principles is that all remuneration systems in Sampo Group shall safeguard the financial stability of the Group and comply with regulatory and ethical standards. They shall also be designed to balance the interests of different stakeholder groups such as shareholders, employees, customers and supervisory authorities. Furthermore, all compensation mechanism shall be designed in parallel with the Risk Management Principles.
The starting point of any compensation mechanism is to encourage and stimulate employees at all levels to do their best and surpass their targets. Compensation packages shall be designed to reward employees on all levels, compensating them fairly for prudent and successful performance. At the same time, however, in order to safeguard the interest of other stakeholders, compensation mechanisms shall neither entice nor encourage employees to excessive or unwanted risk taking. Thus, compensation mechanisms cannot be separated from risk management practices.
According to the principles fixed compensation shall support financial stability, represent a sufficiently high share of the total compensation and be competitive but not leading in the market. Variable compensation shall be used to ensure the competitiveness of total compensation packages while still keeping fixed cost base reasonable. Variable compensation consists of short-term incentives, profit sharing programs and discretionary rewards.
Long-term incentive programs may be used as part of the total compensation package to commit executive management and key persons to the Group for a longer period of time. The programs are designed to also align the participants’ interests with those of the shareholders’ by linking the pay-out of the programs not only to certain performance criteria, but also to the development of Sampo’s share price.
The design of compensation systems should always encourage long-term financial stability and value creation of the Group. Variable compensation mechanisms shall ultimately be based on the employer’s unilateral decision and contain ‘force majeur’ clauses allowing the Board to stop payment if necessary e.g. because of the financial situation of the company.
The payment of a certain portion of the variable compensation and long-term incentives payable to senior executive management and to certain key persons shall be deferred for a defined period of time as required in the regulatory framework applicable to each Group company. After the deferral period, a retrospective risk adjustment review shall be carried out and the Board shall decide whether the deferred compensation can be paid out or not. For the year 2011, part of short-term incentives has been deferred. Payout from agreements or programs decided prior to the publishing of FSA deferral recommendations has not been deferred.
On 14 September 2011 Sampo plc's Board adopted a new long-term incentive scheme 2011:1. The scheme is targeted at Sampo Group's management and other key employees. Altogether approximately 115 people are participants in the scheme. The scheme includes at maximum 4.5 million incentive units and the potential payments shall be divided for the years 2014-2017. The allocation of incentive units shall be based on a combination of the assessment of the performance of the individual, of the business area and/or business unit concerned and of the overall results of the relevant Sampo Group company or of Sampo Group. Also qualitative criteria shall be taken into account in the assessment.
According to the new scheme, incentive rewards to be paid are based on the price of Sampo plc's A share on the NASDAQ OMX Helsinki Ltd and the payments shall be made on condition that the insurance margin and return on capital at risk, determined in the terms and conditions of the scheme, exceed specified threshold values. A deferral rule applies to incentive rewards paid to key employees defined as risk takers (Sweden, Norway and Denmark) and key employees receiving significant variable compensation (Finland). According to the deferral rule 60 per cent of the net incentive rewards will be paid in shares and 40 per cent in cash. These shares will be subject to disposal restrictions for three years from the date when the installment was paid.
In 2011 EUR 7 million (10) was paid out based on the long-term management incentive scheme 2009:1. The outcome of the long-term management incentive scheme is determined by Sampo’s share price development over a period of approximately three years starting from the issue of the respective program. The program is subject to thresholds on share price development and company profitability, as well as ceilings for maximum bonuses. Furthermore, the program is subject to rules requiring part of the paid bonus to be used to acquire Sampo shares, which must in turn be held for a specified period of time.
The terms of all incentive schemes are available on Sampo’s website at www.sampo.com/compensation.