Wärtsilä’s Remuneration Principles in connection with the company’s purpose and strategy form the basis for the content of the Remuneration Policy for Governing Bodies of Wärtsilä (“Remuneration Policy” or “this Policy”). The objective is to promote long-term financial success, shareholder value, and a performance culture at Wärtsilä. Wärtsilä’s Remuneration Policy outlines the terms and conditions of remuneration, as well as the decision-making process for the remuneration of the Board of Directors and the President & CEO. In situations where Wärtsilä would have a Deputy CEO in place, the remuneration would be decided in the same way as that of the President & CEO.
The remuneration for the CEO and the rest of the Board of Management is prepared by the People Committee and approved by the Board of Directors. The People Committee evaluates how Wärtsilä’s Remuneration Principles have been implemented and the competitiveness of the remuneration. The remuneration is benchmarked against relevant peer group, and the benchmark study is reviewed by the People Committee.
Remuneration of the CEO and the rest of the Board of Management
The remuneration for the CEO and the rest of the Board of Management consists of fixed and variable performance related pay. The objective is to have a good balance of rewarding elements, and to guarantee a market competitive level of fixed remuneration supported with short- (“STI”) and long-term (“LTI”) incentive schemes aimed at driving company performance and providing an appropriate reward.
Fixed pay
Definition of fixed salary varies per country based on local legislation and market practice. In Finland, the fixed salary paid to the President & CEO consists of a monthly base salary and fringe benefits.
The fixed salary is defined based on the position’s requirements and the individual’s level of relevant
experience, skills, and competences for the position. The fixed salary is set so as to be competitive in
the relevant market. The fixed salary is reviewed annually, taking into consideration the performance
of the company and the individual, along with the existing market conditions. The review does not
necessarily lead to a salary increase. Statutory increases are being applied as required based on the
applicable regulation
Variable pay
Short-term incentives
The short-term incentive scheme is designed to provide incentives for the achievement of, and reward for, delivery of the short-term business plan. For the President & CEO, the pay-out is based on the achievement of the company’s profitability and other financial targets for the financial year, as set by the Board of Directors at the beginning of the appropriate performance periods. Strategic, operational, ESG or individual targets can be used as seen critical as per company strategy. Details of performance measures for each year and how they support the business strategy will be disclosed in the annual remuneration report.
The maximum STI opportunity will be determined annually by the Board of Directors based on market practice and performance subject to an overall cap of 150% of fixed salary. Maximum STI opportunity applied for a given year will be disclosed in the annual remuneration report.
The People Committee reviews, and the Board of Directors approves, the STI plan realization against the set targets before the pay-out. Short-term incentive is paid in cash shortly following the year-end.
Long-term incentives
The long-term incentive scheme is designed to align the interests of participants with those of Wärtsilä’s shareholders.
The long-term incentive scheme is issued on annual basis, and each scheme has a three-year performance period.
Performance measures, weightings, and targets for these selected measures are set by the Board of Directors to ensure that they continue to support Wärtsilä’s long-term strategy. Performance measures may include financial, share-price related, operational, strategic, sustainability and ESG measures. Details of performance measures for each year and how they support the long-term strategy will be disclosed in the annual remuneration report. The maximum LTI opportunity will be determined annually by the Board of Directors based on market practice and performance subject to an maximum overall cap of 300% of fixed salary at grant. Maximum LTI opportunity applied for a given year will be disclosed in the annual remuneration report.
The People Committee reviews, and the Board of Directors approves, the scheme realization against the set targets before the pay-out. The long-term incentive is paid shortly following the performance period. The pay-out can be made in cash and/or in shares.
In January 2023, the Board of Directors decided on the long-term incentive scheme which comprises a Performance Share Plan (PSP). The plan in the PSP structure covers the years 2023-2025 and the performance criterion applied is Economic Value Added (EVA) and Sustainability Targets linked to decarbonisation. The aggregate maximum number of shares payable as a reward based on the plan is approximately 3,432,000 shares.
For PSP 2021–2023, the CEO was granted 104,651 shares, with value at target EUR 900,000 and with a maximum earning opportunity of 175% of the base pay at grant. The performance measure in the PSP is Economic Value Added. The plan resulted in a gross award equivalent to 12,140 shares. The gross value of the transfer was EUR 172,212.
For PSP 2022-2024, the CEO was granted 86,136 shares, with value at target EUR 963,000 and with a maximum earning opportunity of 175% of the base pay at grant. The performance measure in the PSP is Economic Value Added (weighted 85%) and sustainability targets (weighted 15%). The plan resulted in a gross award equivalent to 75,455 shares. The final taxable value of the award is dependent on the share price at the time of transfer.
Ongoing schemes:
For PSP 2023-2025, the CEO was granted 122,735 shares, with a value at target EUR 1,001,520 and with a maximum earning opportunity of 175% of the base pay at grant. The performance measure in the PSP is Economic Value Added (weighted 85%) and sustainability targets (weighted 15%).
For PSP 2024-2026, the CEO was granted 76,863 shares, with a value at target EUR 1,001,520 and with a maximum earning opportunity of 175% of the base pay at grant. The performance measure in the PSP is Economic Value Added (weighted 85%) and sustainability targets (weighted 15%).
Pension and benefits
The pension and other benefits are intended to be competitive in the relevant market and may evolve year-on-year. The President & CEO participates in the company specific pension scheme in addition to any statutory requirements in the relevant country. The retirement age is based on the retirement scheme of the national social security system to which the person in question belongs. The current President & CEO is eligible to take retirement upon reaching the age of sixty-three (63). His pension scheme is a defined contribution plan with contribution of 30% of the annual fixed salary.
Wärtsilä’s benefit arrangements are aimed at building a healthy organization and providing an energy boost that results in sustainable high performance, both at the individual and company levels. For the President & CEO, Wärtsilä provides regular health checks and health counselling. Wärtsilä may provide a company car to the President & CEO. Considering the company’s environmental responsibility and its seeking of more environment-friendly solutions, hybrid or low emission cars are recommended.
Various insurance policies, such as medical, disability, life and travel, are provided to mitigate risk in unpredictable life events, and the President & CEO is eligible to participate in programs which may be offered to Wärtsilä’s other employees at any given point, payable in cash or shares.
Additional benefits and allowances may be offered in case of relocation or international assignment, such as for example relocation support, expatriation allowance, tax equalization, reimbursement for international schools, housing support in accordance with Wärtsilä’s International Mobility framework, and other benefits which reflect local market practice. Further information regarding the benefits and pension arrangements for current President a& CEO is disclosed in the annual remuneration report.
In case of new hires, buy-out awards to compensate the candidate for remuneration which the candidate had held prior to joining Wärtsilä’s, but which had lapsed upon the candidate leaving their previous employer may be made. The rationale and details of any such arrangement made either in shares or cash is disclosed in the annual remuneration report.
Share ownership
The President & CEO is expected to accumulate and once achieved, maintain a share ownership in Wärtsilä that at least corresponds to the individual’s annual gross fixed salary.
Notice period and Severance Pay
The agreement expires without notice upon retirement of the President & CEO. The agreement can be terminated by either party. The term of notice by both, the Company and President & CEO, is six months. Remuneration paid to the President & CEO, if dismissed by the Company, corresponds to 18 months’ salary plus the six months’ period of notice salary.
Further information:
Remuneration Policy for Governing Bodies of Wärtsilä
Remuneration report 2024