Nokia 2008 Annual Report Download - page 104

payout is determined by multiplying each executive’s eligible salary by: (i) his/her incentive target
percent; and (ii) the score resulting from the abovementioned factors (a) and (b). The resulting score
for each executive is then multiplied by an “affordability factor,” which is determined based on
overall sales, profitability and cash flow of Nokia. The Personnel Committee may apply discretion
when evaluating actual results against targets and the resulting incentive payouts. In certain
exceptional situations, the actual shortterm cash incentive awarded to the executive officer could be
zero. The maximum payout is only possible with maximum performance on all measures.
The portion of the shortterm cash incentives that is tied to (a) Nokia’s financial objectives and
(b) individual strategic objectives and targets is paid twice each year based on the performance for
each of Nokia’s shortterm plans that end on June 30 and December 31 of each year. Another portion
of the shortterm cash incentives is paid annually at the end of the year, based on the Personnel
Committee’s assessment of (c) Nokia’s total shareholder return compared to key competitors in the
high technology and telecommunications industries and relevant market indices over one, three and
fiveyear periods. In the case of the President and CEO, the annual incentive award is also partly
based on his performance compared against (d) strategic leadership objectives, including entry into
new markets and services, and executive development.
Instead of Nokia’s shortterm cash incentive plan, Simon BeresfordWylie participates in a shortterm
cash incentive plan sponsored by Nokia Siemens Networks, which is similar to Nokia’s plan.
For more information on the actual cash compensation paid in 2008 to our executive officers, see
“—Actual Executive Compensation for 2008—Summary Compensation Table 2008” below.
LongTerm EquityBased Incentives
Longterm equitybased incentive awards in the form of performance shares, stock options and
restricted shares are used to align executive officers interests with shareholders’ interests, reward
performance and encourage retention. These awards are determined on the basis of the factors
discussed above in “—Executive Compensation Philosophy, Programs and Decisionmaking Process”,
including a comparison of the executive officer’s overall compensation with that of other executives
in the relevant market and the impact on the competitiveness of the executive’s compensation
package in that market. Performance shares are Nokia’s main vehicle for longterm equitybased
incentives and reward the achievement of both Nokia’s longterm financial results and an increase in
share price. Performance shares vest as shares, if at least one of the predetermined threshold
performance levels, tied to Nokia’s financial performance, is achieved by the end of the performance
period and the value is dependent on Nokia’s share price. Stock options are granted to fewer
employees that are in more senior and executive positions. Stock options create value for the
executive officer, once vested, if the Nokia share price is higher than the exercise price of the stock
option established at grant, thereby aligning the interests of the executives with those of the
shareholders. Restricted shares are used primarily for retention purposes and they vest fully after the
close of a predetermined restriction period. These equitybased incentive awards are generally
forfeited if the executive leaves Nokia prior to vesting.
Instead of the longterm equitybased incentive plans of Nokia, Simon BeresfordWylie participates in
a longterm cash incentive plan sponsored by Nokia Siemens Networks. The longterm cash incentive
plan of Nokia Siemens Networks is designed to align the interests of Nokia Siemens Networks
executives with increased shareholder value of Nokia Siemens Networks and, ultimately, with
increased shareholder value for that of its owners, including Nokia and its shareholders. The plan
provides Nokia Siemens Networks executives an opportunity to earn cash incentives based on the
achievement of predetermined financial goals, including net sales and operating margin. These long
term cash incentive awards of Nokia Siemens Networks are generally forfeited if the executive leaves
employment prior to the end of the plan period.
Information on the actual equitybased incentives granted to the members of our Group Executive
Board is included in Item 6E. “Share Ownership.”
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