Nokia 2003 Annual Report Download - page 88

Nokia’s Equity Based Compensation Program 2004
On January 22, 2004, the Board of Directors approved a new equity based compensation program
2004 for Nokia, as proposed by the Personnel Committee. Under this program, Nokia will introduce
Performance Shares as the main element of its broad based equity compensation program to
further emphasize the performance element in the employees’ long-term incentives. As part of this
change, Nokia will grant significantly fewer stock options in 2004 compared to 2003.
The new, more diversified program aligns the potential value received by participants directly
with the performance of the company. The target group for this new share-based incentive
program continues to be broad and to include a wide number of employees on many levels of the
organization. However, the number of actual participants will be smaller as the program increases
the focus on rewarding achievement and on retaining high potential and critical employees.
Performance Shares
Performance Shares represent a commitment by the company to deliver Nokia shares to
employees at a future point in time, subject to the company’s fulfillment of pre-defined
performance criteria. Performance Shares will vest subject to the company’s performance reaching
at least one of the threshold levels measured by two independent, pre-defined performance
criteria: the company’s Average Net Sales Growth and EPS Growth (basic, reported) for the 2004 to
2007 period. Both the EPS and Average Net Sales Growth criteria will have an equal weight of
50%.
The initial threshold for the Average Annual Net Sales Growth criteria is 4% resulting in the
vesting of up to 2 million Performance Shares. Similarly, the first threshold for the annual EPS
Growth criteria is 3% resulting in the vesting of up to 2 million Performance Shares. The
maximum performance for Average Annual Net Sales Growth criteria is 16% resulting in the
vesting of up to 8.5 million Performance Shares. Similarly, the maximum performance for the
annual EPS Growth criteria is 12% resulting in the vesting of up to 8.5 million Performance Shares.
The EPS percentages above are approximate figures based on the criteria expressed in euro cents.
Performance exceeding the set criteria does not increase the number of Performance Shares
vesting.
Under the 2004 Program, the maximum performance level for both criteria will result in the
vesting of the maximum of 17 million Performance Shares. If the threshold levels of performance
are not achieved, none of the Performance Shares will vest. For performance between the
threshold and maximum performance levels the payout follows a linear scale. If required
performance levels are achieved, the first payout will take place in 2006 up to a maximum of
4 million shares. The second and final payout, if applicable, will be in 2008. The company will
determine the method by which the shares are obtained for delivery, which may include the use
of one or more of the following: treasury shares, newly issued shares, shares purchased on the
open market, or cash settlement.
Stock Options and Restricted Shares
Under the 2004 program, Nokia will issue significantly fewer Stock Options for incentive purposes
than in 2003 when approximately 30 million options were granted under the Stock Option
Program out of the maximum of 94.6 million Stock Options as approved by the Annual General
Meeting the same year. In 2004, the maximum number of Stock Options to be granted is 7 million.
In addition, Nokia has used Restricted Shares on a very limited scale to retain high potential and
critical employees. Going forward, the company will continue to use a limited number of
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