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Remuneration statement 2015

Kesko complies with the Corporate Governance Code for Listed Companies in force at any given time. This statement has been prepared in compliance with the Finnish Corporate Governance Code 2010 (“Corporate Governance Code”). The Corporate Governance Code 2010 can be read in full at www.cgfinland.fi/files/2012/01/suomen-listayhtioiden-hallinnointikoodi-cg2010.pdf.

In autumn 2015, the Securities Market Association published the new Finnish Corporate Governance Code for listed companies, which Kesko adopted as of 1 January 2016. A Remuneration Statement in compliance with the new Code will be published in spring 2017. The new Corporate Governance Code can be read at http://cgfinland.fi/en/

Principles of remuneration and the decision-making procedure

The Annual General Meeting decides on the remuneration and other financial benefits of the members of Kesko Corporation's (“Kesko”) Board of Directors and its Committees’ members annually. The remuneration of the members of the Board and its Committees is paid in cash. The Board members do not have share compensation or share-based compensation schemes. Nor do they participate in the other remuneration schemes or pension plans of the Company.

Based on the Remuneration Committee's preparatory work, Kesko's Board of Directors makes decisions on the personal compensation, other financial benefits, the performance bonus system criteria and the performance bonuses paid to the President and CEO and the Group Management Board members responsible for lines of business. As for the other Group Management Board members, Kesko's Board of Directors makes decisions on the performance bonus principles.

The President and CEO makes decisions on the compensation and other financial benefits of the Group Management Board members other than those responsible for lines of business within the limits set by the Chair of the Board's Remuneration Committee.

The remuneration scheme of the President and CEO and the other members of the Group Management Board consists of a non-variable monetary salary (monthly salary), fringe benefits (free car and mobile phone benefit), a performance bonus based on criteria decided annually (short-term remuneration scheme), a share-based compensation (long-term remuneration scheme) and management's retirement benefits.

The Board of Directors monitors the implementation of the remuneration schemes of the President and CEO and the other Group Management Board members. 

Remuneration schemes 

Performance bonus scheme (short-term remuneration scheme) in 2015

The performance bonuses determined annually are paid after the completion of the annual financial statements by the end of April following the year of determination. Kesko's Board makes decisions on management's performance bonus criteria annually.

The criteria have been the Group's, or each respective division’s operating profit excluding non-recurring items, the operating profit before non-recurring items of the executive's area of responsibility, sales and market share indicators and the achievement of personal targets. The performance bonus criteria and their weightings vary depending on the duties of the position.

The maximum performance bonus of Kesko's President and CEO corresponds to his 8 months' monetary salary excluding fringe benefits, and that of the other Group Management Board members, the monetary salary of 4—5 months, depending on the profit impact of their respective positions. The performance bonus of a Group Management Board member is determined based on the monetary salary of the last month of the calendar year, the performance of which is the basis of the bonus.

The fulfilment of the performance and profit criteria and their impact on long-term financial success are monitored and evaluated by Kesko's Board and the Remuneration Committee.

If exceptional events and events with significant impacts on operations take place during the financial year, or if the market situation or the Company’s productivity trend so requires, the application, target setting and payment rules of the performance bonus scheme can be changed by a decision of Kesko Corporation’s Board also in individual cases.

At its discretion, the Board may decide not to pay a share award, or decide to recover an award that has already been paid, if the award recipient has been found guilty of malpractice or an action in breach of Kesko’s ethical or responsibility principles or guidance that, as a whole, cannot be considered insignificant, or if there are weighty reasons for assuming that he/she is guilty of such acts.

Share-based compensation plan 2014—2016 (long-term remuneration scheme)

In addition to the performance bonus scheme, Kesko operates the 2014–2016 share-based compensation plan decided by the Company’s Board and intended for the Group's management and certain other key persons.

The purpose of the share-based compensation plan is to promote Kesko's business and increase the Company's value by combining the objectives of the shareholders and management personnel. The plan also aims to commit the grantees to Kesko Group and give them the opportunity to receive Company shares upon fulfilling the objectives set in the share-based compensation plan.

The share-based compensation plan has three vesting periods: the calendar years 2014, 2015 and 2016. Kesko's Board decides the vesting criteria, the target group and the maximum amounts of the share award separately for each vesting period based on the Remuneration Committee's proposal. The final amounts of Kesko B shares to be granted based on the fulfilment of the vesting criteria are decided by the Board at the beginning of the year following the vesting period. The criteria for the 2015 vesting period were, with equal weightings, the growth percentage of Kesko Group's sales exclusive of tax, Kesko's basic earnings per share (EPS) excluding non-recurring items and the percentage by which the total shareholder return of a Kesko B share exceeds the OMX Helsinki Benchmark Cap GI index. Under the share-based compensation plan, a total maximum of 600,000 own B shares held by the Company as treasury shares can be granted.

The award possibly paid for a vesting period is paid in Kesko B shares. In addition, a cash component at maximum equalling the value of the shares is paid to cover the taxes and tax-like charges incurred under the award. A commitment period of three calendar years following each vesting period is attached to the shares granted, during which the shares must not be pledged or transferred, but the other rights attached to the shares remain in force. The commitment period of the 2015 vesting period will end on 31 December 2018. If a person's employment or service relationship terminates prior to the expiry of a commitment period, he or she must, as a rule, return the shares under transfer restriction to Kesko or its designate for no consideration. In individual cases, the Board may decide that the grantee can keep the shares under return obligation, or some of them. If the grantee retires during the commitment period, he/she is entitled to keep the shares and other securities already received.

Even if the criteria are met, the Board always has discretion over whether to pay a share award to any given recipient in full, in part or not at all.

Kesko’s share-based compensation plan 2014—2016

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At its discretion, the Board may decide not to pay a share award, or decide to recover an award that has already been paid, if the award recipient has been found guilty of malpractice or an action in breach of Kesko’s ethical or responsibility principles or guidance that, as a whole, cannot be considered insignificant, or if there are weighty reasons for assuming that he/she is guilty of such acts.

The plan does not contain terms or conditions that would limit the grantees' income from the shares.