Nokia 2009 Annual Report Download - page 129

When determining the final incentive payout, the Personnel Committee determines an overall score
for each executive based on the degree to which (a) Nokia’s financial objectives and key business
goals have been achieved together with (b) qualitative and quantitative scores assigned to the
individual strategic objectives. The final incentive payout is determined by multiplying each
executive’s eligible salary by: (i) his/her incentive target percentage; 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 key
business goals 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, which are selected by the Personnel Committee, in the high technology, Internet services
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 performance in key
markets, development of strategic capabilities enhanced competitiveness of core businesses and
executive development.
For more information on the actual cash compensation paid in 2009 to our executive officers, see
“—Actual Executive Compensation for 2009—Summary Compensation Table 2009” 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 an 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. In addition, any shares granted are subject to the share
ownership guidelines as explained below.
Information on the actual equitybased incentives granted to the members of our Group Executive
Board is included in Item 6E. “Share Ownership.”
Actual Executive Compensation for 2009
At December 31, 2009, Nokia had a Group Executive Board consisting of 11 members. Changes in the
composition in the Group Executive Board during 2009 are explained above in Item 6A. “Directors and
Senior Management—Group Executive Board”.
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