Nokia 2015 Annual Report Download - page 101

99
Corporate governance
NOKIA IN 2015
Performance of previous equity programs
The recently vested performance share plan 2013 is the rst to
achieve above-threshold performance for some years, such that
86.25% of the target award granted to participants vesting on
January1, 2016, with diluted EPS for Continuing operations increasing
from negative EUR (0.16) to EUR 0.67 from the scal year 2012 to 2014,
including the two year performance period (2013–2014) of the plan.
The new strategy for Nokia delivered in 2014 with the focus on
networks and the IoT has seen an increase in value for shareholders
and a corresponding change in the performance of long-term
incentive plans. In addition to the performance share plan 2013
achieving 86.25% of itstarget, the 2014 plan has achieved 125.72%
and will vest to participants on January 1, 2017. In the same period
the share price of Nokia hasincreased from EUR 3.49 per share on
January 1, 2013 to EUR 6.60 on December 31, 2015 representing
anincrease of 89% and we have restored dividend payments.
TSR
value
0
50%
100%
150%
200%
250%
2014 20152013
Long-term incentive plan year,
at December 31
20122011
Achieved
Overachieved
Nokia Total Shareholder Return (TSR)
86%
Nil
100%
25.72%
Share price and Total Shareholder Return vs long-term
incentive performance
Legacy equity compensation programs
Stock options
Although the granting of stock options ceased at the end of 2013,
awards under the 2011 stock option plans remain in force. Stock
options under the 2007 stock option plan lapsed on January 1, 2016
and no new Nokia shares can be subscribed for with the stock options
awarded under the 2007 stock option plan.
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
■Lapsed on January 1, 2016
2011 stock option plan ■ 50% on third anniversary of grant
■ 50% on fourth anniversary of grant
■Term is approximately six years
Shares will be eligible for dividends in respect of 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 EIP 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 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) increase the value of Nokia Networks; and
(2) create 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
our strategy, the likelihood ofa saleor an initial public oering (“IPO”)
has diminished.
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
EIP. The options will be cash-settled at exercise, unless an IPO has
taken place, at which point they would be converted into
equity-settled options.
The targets of the plan were set at a demanding level and payments
from the plan represent the outstanding achievement of the Networks
team. The actual payments, if any, under the Nokia Networks EIP 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 EIP is expected
tobe reduced by 50%.
In the event that a sale or an IPO has not occurred, the maximum
totalpayment to Mr. Suri pursuant to the plan would be limited to
EUR10.8million. In the unlikely event of an IPO or exit event, the value
of the options could exceed this maximum.
30% of the options became exercisable on the third anniversary of
thegrant date with the remainder vesting on the fourth anniversary or,
ifearlier, all the options will vest on the occurrence of certain corporate
transactions such as an initial public oering (Refer to “Corporate
Transaction” above).
If a Corporate Transaction has not taken place by the sixth anniversary
of the grant date, the options will be cashed out. If an IPO has taken
place, equity-settled options remain exercisable until the tenth
anniversary of the grant date.