Nokia 2014 Annual Report Download - page 104

102 NOKIA IN 2014
Performance criteria are set with the purpose of being challenging but
achievable to ensure that executives are motivated. The awards at the
threshold are signicantly reduced from grant level and achievement
of maximum award would require performance signicantly ahead of
current market expectations.
Achievement of the maximum performance for all criteria would
result in the vesting of a maximum of 32.2 million Nokia shares.
Achievements beyond the maximum performance level will not cause
any further shares to vest. Achievement of the threshold performance
for all criteria will result in the vesting of approximately 8.1 million
shares which is the minimum payout under the plan. Minimum payout
under the plan, even if threshold performance is not achieved, is 4.05
million shares due to the 25% minimum payout. Until Nokia shares are
delivered, the participants will not have any shareholder rights, such as
voting or dividend rights associated with these performance shares.
Restricted shares
In 2014 restricted shares were used on a selective basis to ensure
retention and recruitment of individuals deemed critical to Nokia’s
future success. The restricted shares vest on the third anniversary
of the award subject to continued employment with Nokia. Until
the restricted shares vest they carry no voting or dividend rights.
Restricted shares under the Nokia Restricted Share Plan 2015 will
be used in an increasingly targeted way. Grants will be focused on
retention and recruitment of key individuals in dened locations
wheresupported by local practice, for example in Silicon Valley and
other parts of the United States where Nokia maintains a signicant
presence. The shares will vest in three equal tranches over three
years,on the rst, second and third anniversary of the award.
Vestingis subject to continued employment with the company.
Until the shares are delivered, the participants will not have any
shareholder rights, such as voting or dividend rights, associated
with the restricted shares.
Employee Share Purchase Plan
Under the Employee Share Purchase Plan, eligible Nokia employees
can elect to make monthly contributions from their salary to
purchase Nokia shares. The contribution per employee cannot exceed
EUR 1 200 per year. The share purchases are made at market value on
predetermined dates on a monthly basis during a 12-month savings
period. Nokia will oer one matching share for every two purchased
shares the employee still holds after the last monthly purchase has
been made following the end of the 12-month savings period.
Participation in the plan is voluntary to employees.
Legacy equity compensation programs
No new awards have been made under the following equity programs
in 2014 but awards made in earlier years remain in force.
Stock options
Although the granting of stock options ceased at the end of 2013,
awards under the 2007 and 2011 option plans remain in force.
Under the plans, each stock option entitles the holder to subscribe for
one new Nokia share and the stock options are non-transferable and
may be exercised for shares only. The dierence between the two
plans is in the vesting schedule as follows:
Plan Vesting schedule
2007 Stock Option Plan ■25% 12 months after grant
■ 6.25% each quarter thereafter
■ Term approximately 5 years
2011 Stock Option Plan ■ 50% on third anniversary of grant
■ 50% on fourth anniversary of grant
■Term approximately 6 years
Shares will be eligible for dividend for the nancial year in which
the share subscription takes place. Other shareholder rights will
commence on the date on which the subscribed shares are entered
in the Trade Register. The stock option grants are generally forfeited
if the employment relationship terminates with Nokia.
Nokia Networks Equity Incentive Plan
The Nokia Networks Equity Incentive Plan (“Nokia Networks Equity
Incentive Plan”) was established in 2012 by the board of Nokia
Siemens Networks prior to Nokia’s acquisition of full ownership of
the Nokia Networks business. Under this Plan options over Nokia
Solutions and Networks B.V. shares were granted to Mr. Suri,
Mr. Elhage and approximately 65 other Nokia Networks employees.
At that time, both Nokia and Siemens were considering a potential
exit from Nokia Siemens Networks. The plan had two objectives:
(1) increasing the value of Nokia Networks; and (2)thecreation of an
exit option for its parent companies. With the signicantly improved
performance of Nokia Networks, the rst objective has been met.
Thesecond objective has not occurred and given the change in
Nokia’sstrategy, the likelihood of a sale or IPO hasreduced.
The exercise price of the options is based on a Nokia Networks share
value on grant, as determined for the purposes of the Nokia Networks
Equity Incentive Plan. The options will be cash-settled at exercise,
unless an initial public oering has taken place, at which point they
would be converted into equity-settled options.
The actual payments, if any, under the Nokia Networks Equity Incentive
Plan will be determined based on the value of the Nokia Networks
business and could ultimately decline to zero if the value of the
business falls below a certain level. There is also a cap that limits
potential gain for all plan participants.
If the second objective of the plan is not achieved and there is no
exit event, options are cash-settled and the holder will be entitled
tohalf of the share appreciation based on the exercise price and the
estimated value of shares on the exercise date. In the unlikely event of
an IPO or exit event the holder is entitled to the full value of the share
appreciation. As the likelihood of a sale or IPO has reduced, the value
of any payouts under the Nokia Networks Equity Incentive Plan is
expected to be reduced by 50%.
Compensation continued