Governance Information • Mar 13, 2019
Governance Information
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PIHLAJALINNA PLC
CORPORATE GOVERNANCE STATEMENT
| I INTRODUCTION | 3 |
|---|---|
| II CORPORATE GOVERNANCE | 3 |
| General Meeting | 3 |
| Board of Directors | 3 |
| Shareholders' Nomination Board | 3 |
| Board Committees | 6 |
| CEO | 7 |
| Management Team | 8 |
| III INTERNAL CONTROL | 8 |
| IV RISK MANAGEMENT | 9 |
| V OTHER INFORMATION REQUIRED | 10 |
| Insider Administration | 10 |
| Related Parties | 10 |
| Auditors and Auditing | 11 |
| VI REMUNERATION REPORT | 11 |
| Remuneration of the Board of Directors | 12 |
| Remuneration of the CEO and members of the Management Team | 12 |
The Corporate Governance of Pihlajalinna Plc (the Company) is based on effective legislation, the Company's Articles of Association and the rules and regulations applied to companies listed on Nasdaq Helsinki Ltd. The Company abides by the Finnish Corporate Governance Code 2015 issued by the Securities Market Association. The Finnish Corporate Governance Code is available on the www.cgfinland.fi/en website maintained by the Securities Market Association.
Pihlajalinna did not depart from the recommendations of the Corporate Governance Code in 2018.
This Corporate Governance Statement has been compiled as a separate statement from the annual report and will be published on the Company's website investors.pihlajalinna.fi/corporate-governance.
The Audit Committee and the Board of Directors of Pihlajalinna Plc have reviewed this Corporate Governance Statement.
The General Meeting is Pihlajalinna's highest decision-making body. According to the Company's Articles of Association, the Annual General Meeting is held annually within six (6) months of the end of the financial year. The Annual General Meeting decides on the matters determined by the Limited Liability Companies Act and the Articles of Association. These matters include, among other things, the approval of the Financial Statements, the distribution of profit shown in the Balance Sheet and the election of members of the Board of Directors and the auditor and their remuneration. The Annual General Meeting of Shareholders also decides upon discharge of the Board of Directors and of the CEO from liability.
The Board of Directors is responsible for the invitations to the General Meeting and decides its venue and timing.
According to the Company's Articles of Association, the notice of a General Meeting shall be delivered to shareholders no earlier than three (3) months and no later than three (3) weeks prior to the date of the Meeting, but no later than nine (9) days prior to the record date of the Meeting. The notice shall be delivered to shareholders by sending the notice by post to their addresses registered in the Company's register of shareholders or by publishing a notice on the website of the Company or in at least one national daily newspaper determined by the Board of Directors. The notice of a General Meeting is published as a stock exchange release and on the Company's website. The Agenda, the proposals of the Board of Directors and other General Meeting material will be available on the Company's website at least three weeks prior to the General Meeting.
Each shareholder has the right to have a matter within the remit of a General Meeting, under the Limited Liability Companies Act, to be discussed by the General Meeting if he or she requests this in writing from the Board of Directors by the date announced on the Company website. The date will be announced on the Company's website no later than by the end of the financial year preceding the Annual General Meeting. Any requests by shareholders to have a matter considered by the Annual General Meeting 2018 were to be delivered to the Company's Board of Directors as instructed on the Company's website and at the latest on Monday, 12 February 2018.
The Company's Chairman of the Board, members of the Board of Directors, the CEO and the Auditor attend the General Meeting. In addition, any candidates for the Board of Directors attend the General Meeting that decides on their election. If one or more members of the Board of Directors cannot attend the General Meeting, the Company informs the General Meeting of their absence at the beginning of the Meeting.
After the General Meeting, its decisions are published in a stock exchange release. The minutes of the General Meeting are published on the Company's website within two weeks of the General Meeting. The documents of the General Meeting must be kept on the Company's website for at least five years from the Meeting.
Pihlajalinna's Articles of Association are available on the Company's website at investors.pihlajalinna.fi/corporategovernance/articles-of-association. Any amendments to the Articles of Association require the decision of the General Meeting.
Pihlajalinna Plc's Annual General Meeting 2018 was held in Tampere on 5 April 2018. The General Meeting was attended by 125 shareholders in person or by proxy. Approximately 71 per cent of the Company's shares and votes were represented in the meeting.
The Board of Directors is elected on an annual basis by the Annual General Meeting. According to the Company's Articles of Association, there are a minimum of four (4) and a maximum of ten (10) members on the Board of Directors.
The General Meeting shall elect the Chairman and Vice-Chairman of the Board of Directors. The term of office of a member of the Board of Directors shall expire at the close of the first Annual General Meeting following the election. In case the Chairman and Vice-Chairman of the Board of Directors resign or become otherwise unable to act as chairman during their term of office, the Board of Directors may elect a new Chairman from among its members for the remaining term of office.
Pihlajalinna's Annual General Meeting resolved in 2017 to establish a Shareholders' Nomination Board, tasked with preparing future proposals on the election and remuneration of the members of the Board of Directors to the General Meetings. The Nomination Board was established for an indefinite period.
The Nomination Board consists of four members nominated by the shareholders of the Company. In addition, the Chairman of the Board of Directors of the Company participates in the work of the Nomination Board as an expert. The right to nominate members is vested with the four shareholders of the Company having the largest share of the votes represented by all the shares in the Company annually on 1 September based on the Company's shareholders' register held by Euroclear Finland Ltd. However, if a shareholder who has distributed his/her holdings e.g. into several funds and has an obligation under the Finnish Securities Markets Act to take these holdings into account when disclosing changes in his/her share of ownership makes a written request to such effect to the Chairman of the Board of Directors no later than on 31 August. Such shareholder's holdings in several funds or registers will be combined when calculating the share of votes that determines the nomination right. Should a shareholder not wish to exercise his/her nomination right, the right shall be transferred to the next largest shareholder who otherwise would not be entitled to nominate a member.
The Chairman of the Board of Directors shall, on 1 September each year, request the four largest shareholders of the Company, based on their shareholding, to nominate one member each to the Nomination Board. The Nomination Board elects a Chairman from among its members. The term of office of the members of the Nomination Board expires annually when the new Nomination Board has been appointed.
In conjunction with establishing the Nomination Board, the Annual General Meeting also approved the Charter of the Shareholders' Nomination Board, which is available on the Company's website at investors.pihlajalinna.fi.
The four largest registered shareholders of Pihlajalinna Plc (based on the shareholders' register held by Euroclear Finland Ltd on 1 September 2018) appointed the following representatives to the Shareholders' Nomination Board:
The Shareholders' Nomination Board elected Jari Eklund as its Chairman.
The Shareholders' Nomination Board convened three times. The attendance rate was 100%. The Nomination Board submitted its proposals to the Annual General Meeting on 29 January 2019. The proposals are available on the Company's website.
The Board of Directors shall have sufficient and versatile expertise and experience with respect to its duties. In preparing a proposal for the composition of the Board of Directors, attention shall be paid to the requirements placed by the Company's operations and its development stage. A person to be elected to the Board of Directors shall have the qualifications required by the duties and the possibility to devote a sufficient amount of time to the work. The number of the members and the composition of the Board of Directors shall make it possible for the Board of Directors to fulfill its duties in an efficient manner.
For the versatile support and development of the Company's business, the composition of the Company's Board of Directors should be sufficiently diverse. Both genders shall be represented on the Board of Directors. The overall aim of the Board composition is to achieve sufficiently extensive qualifications, expertise and experience. The sufficient diversity of the Board of Directors, including age and gender, as well as educational and professional background, is taken into account in the preparation of a proposal for the composition of the Board of Directors. The aim of the Company is that there are at least two women and at least two men on the Board of Directors.
The majority of the members of the Board of Directors must be independent of the Company. In addition, at least two of the members representing this majority shall be independent of major shareholders of the Company. The members of the Board of Directors must provide the Board of Directors with sufficient information for the evaluation of their qualifications and independence and inform the Board of Directors about any changes in this information. The members of the Board shall not act as representatives of persons who have proposed them to the Board or who otherwise belong to their interest groups.
The duties and responsibilities of the Board of Directors are defined in the Limited Liability Companies Act, the Company's Articles of Association and the Charter of the Board of Directors. The Board of Directors conducts an annual evaluation of its operations and working methods and updates its Charter as needed.
Any matters that are far-reaching from the viewpoint of the Company's business shall be considered and decided by the Board of Directors. According to its Charter, the Board of Directors:
confirms the principles of the Company's internal control and risk management;
reviews the material risks affecting the Company's operations and their management, and supervises the adequacy, relevance and efficiency of the Company's administrative processes;
The members of the Board of Directors are provided with sufficient information on the Group's operations, operating environment and financial position, and new Board members must be introduced to the Company's operations at the beginning of their term. The Board of Directors is regularly informed of matters considered by Pihlajalinna Group's Management Team, receives profit and loss reports and auditor's reports and regularly (at least once a year) hears the auditor's opinions of the Company's financial situation and its developments.
The Board of Directors convenes regularly. The timing of the Board Meetings will be confirmed in advance for the Board's entire term of office. When necessary, the Board holds additional meetings that can be organised as conference calls. At least one of the meetings is a strategy meeting and in at least one meeting the Board meets the Company's auditor.
The proposal for the composition of the Board of Directors was prepared by the Company's largest shareholders in 2018. LocalTapiola Group, MWW Yhtiö Oy (Mikko Wirén), Fennia Mutual Insurance Company and Elo Mutual Pension Insurance Company participated in the preparation of the proposal for the composition of the Board of Directors. The shareholders who were involved in preparing the proposal for the composition of the Board of Directors represented approximately 48% of the shares in the Company.
The principles regarding the composition of the Board of Directors were observed in the Board of Directors elected in 2018. The Board of Directors has four female board members and four male board members. The members of the Board represent versatile experience from managerial and board duties. All members of the Board elected in 2018 hold a master's degree and one has a doctoral degree. The members of the Board of Directors have versatile industry-specific, economic and business skills. Their age range is from 44 to 65 years. At the end of 2018, the term of all members of the Board had lasted less than five years.
The members of the Board of Directors up to the Annual General Meeting of 5 April 2018 were Mikko Wirén (Chairman), Jari Eklund, Timo Everi, Leena Niemistö, Jari Sundström and Seija Turunen.
The Annual General Meeting 2018 held on 5 April 2018 decided that the number of members of the Board of Directors shall be eight (8) at a time. The following individuals were elected as members of the Board of Directors: Mikko Wirén, Matti Bergendahl, Timo Everi, Gunvor Kronman, Leena Niemistö, Kati Sulin, Jari Sundström and Seija Turunen.
The General Meeting elected Mikko Wirén as the Chairman of Pihlajalinna Plc's Board of Directors and Matti Bergendahl as the Vice-Chairman.
During the financial year 2018, the Board of Directors convened 22 times and made one decision without convening a meeting. The average attendance rate during the period was 96%.
More information on the Members of the Board of Directors is available on the Investors section of the Pihlajalinna website at investors.pihlajalinna.fi.
Information on the remuneration of the members of the Board of Directors is presented in section VI.
The Board of Directors may appoint committees, management groups and other permanent or temporary bodies to perform duties specified by the Board of Directors. The Board of Directors confirms the charters of the Company's committees and Management Team as well as the guidelines and authorisations of any other bodies appointed by the Board of Directors. The Board of Directors has established from among its members an Audit Committee and a Remuneration Committee. These committees have written charters approved by the Board of Directors.
Pihlajalinna Plc's Board of Directors has established from among its members an Audit Committee which monitors the Company's reporting process of financial statements and the efficiency of the Company's internal control, potential internal audit and risk management systems. The Audit Committee also reviews the description of the main features of the internal control and risk management systems in relation to the financial reporting process, which is included in the Company's Corporate Governance Statement, monitors the statutory audit of the financial statements and consolidated financial statements and evaluates the independence of the statutory auditor or audit firm, particularly the provision of related services to the Company. The members of the Audit Committee must have the expertise and experience necessary to perform the responsibilities of the Committee and at least one of the members must have special expertise in accounting, bookkeeping or auditing.
The Audit Committee comprises three to five members who are elected from among the members of the Board of Directors. The majority of the members of the Audit Committee must be independent of the Company, and at least one member must be independent of major shareholders of the Company.
The Board of Directors has confirmed a written Charter for the Audit Committee, according to which the Committee has the following duties, among other things:
The Audit Committee regularly provides the Board of Directors with a summary of matters considered by the Committee.
Work on the committee is subject to remuneration as determined by the General Meeting.
On 5 April 2018, the Board elected Seija Turunen (chairman), Matti Bergendahl, Leena Niemistö and Kati Sulin as the members of the Audit Committee.
During the financial year 2018, the Audit Committee convened five times. The attendance rate of the Committee members was 94%.
Pihlajalinna Plc's Board of Directors has established from among its members a Remuneration Committee (Nomination and Remuneration Committee until 4 April 2017) that assists the Board by preparing matters pertaining to the remuneration and nomination of the Company's CEO and other management, as well as the Company's remuneration principles.
The Remuneration Committee comprises three to five members who are elected from among the members of the Board of Directors. The majority of the members of the Remuneration Committee must be independent of the Company. The CEO or other executives of the Company may not be appointed to the Remuneration Committee.
The Board of Directors has confirmed a written Charter for the Remuneration Committee, according to which the Committee has the following duties, among other things:
Work on the committee is subject to remuneration as determined by the General Meeting.
On 5 April 2018, the Board of Directors elected Mikko Wirén (Chairman), Timo Everi, Gunvor Kronman and Jari Sundström as the members of the Remuneration Committee.
During the financial year 2018, the Remuneration Committee convened two times. The attendance rate of the Committee members was 100%.
| Name | Position | Board Meetings* | Audit Committee Meetings* |
Remuneration Committee Meetings* |
|---|---|---|---|---|
| Mikko Wirén | Chairman | 22 / 22 | - | 2 / 2 |
| Matti Bergendahl | Vice-Chairman, member since 5 April 2018 |
13 / 17 | 3 / 4 | - |
| Jari Sundström | Member | 20 / 22 | - | 2 / 2 |
| Timo Everi | Member | 22 / 22 | - | 2 / 2 |
| Seija Turunen | Member | 22 / 22 | 5 / 5 | - |
| Leena Niemistö | Member | 22 / 22 | 5 / 5 | |
| Kati Sulin | Member since 5 April 2018 | 16 / 17 | 4 / 4 | |
| Gunvor Kronman | Member since 5 April 2018 | 17 / 17 | 1 / 1 |
* A total of 17 Board meetings, 4 Audit Committee meetings and 1 Remuneration Committee meeting were held after the Annual General Meeting of 5 April 2018. In total, the Board of Directors met 22 times, the Audit Committee 5 times and the Remuneration Committee 2 times in 2018.
| PIHLAJALINNA HOLDINGS OF THE MEMBERS OF |
|---|
| PIHLAJALINNA PLC'S BOARD OF DIRECTORS |
| ON 31 DECEMBER 2018 |
| Direct and indirect Pihlajalinna holdings of the Board of Directors |
Number of shares on 31 December 2018 |
|---|---|
| Mikko Wirén and MWW Yhtiö Oy combined | 2,309,010 |
| Leena Niemistö | 703,475 |
| Matti Bergendahl | - |
| Jari Sundström | - |
| Timo Everi | - |
| Seija Turunen | - |
| Kati Sulin | - |
| Gunvor Kronman | - |
The Board of Directors appoints the Chief Executive Officer and decides on the terms and conditions of his or her service contract. The CEO is in charge of the Company's operational management and Pihlajalinna Group's business in accordance with the instructions and orders issued by the Board of Directors. The CEO is responsible for ensuring that the Company's accounting practices comply with the law and that the financial matters are handled in a reliable manner. The Management Team assists the CEO in leading the Company's operations.
Joni Aaltonen was the CEO of Pihlajalinna Plc during the financial year 2018.
Pihlajalinna Group's Management Team assists the CEO in the operative business management. The Management Team prepares and steers the development of the Group's business, processes and joint Group functions and promotes cooperation and the flow of information between the various parts of the organisation. It also prepares the Group's strategic planning and budgeting, monitors the implementation of plans and reporting and prepares acquisitions and other major investments. In addition, the Management Team monitors and evaluates the profitability of the Company's businesses as well as the functioning of its internal control and reporting systems. The Management Team convenes regularly by invitation of the CEO. The Management Team conducts an annual evaluation of its operations and working methods.
Pihlajalinna reformed the structure of its Management Team as part of the Company's restructuring process in spring 2018. In connection with the changes, the Company discontinued its Extended Management Team and the position of Deputy CEO.
The Group's Medical Director is Kimmo Saarinen. He reports to the Group's CEO.
The Management Team has met regularly, on a weekly basis.
During 2018, the members of the Management Team also included Siri Markula, Head of Communications and Investor Relations (until 12 October 2018), Perttu Monthan, Chief Digital Officer (until 21 November 2018) and Pauliina Rannikko, Head of HR and General Counsel (until 14 December 2018).
The table below presents the Pihlajalinna shareholdings of the members of Pihlajalinna Group's Management Team (31 December 2018).
| Direct and indirect shareholdings of Pihlajalinna shares by the Management Team |
Number of shares (31 December 2018) |
|---|---|
| Joni Aaltonen | 81,920 |
| Sanna Määttänen | 11,700 |
| Stefan Wentjärvi | 22,038 |
| Tero Järvinen | 560 |
| Ville Lehtonen | - |
| Marko Savolainen | - |
| Minna Elomaa | - |
| Teija Kulmala | - |
| Pauli Waroma | - |
The goal of internal control associated with the financial reporting process is to ensure that the financial reports published by the Company are reliable and compliant with laws and regulations, and that they provide materially correct information regarding the Company's finances. The Company has continued its internal audit cooperation with PwC, which began in the previous year.
The Group's financial development is monitored by Groupwide reporting systems. The systems cover monthly financial information, the budget approved by the Board of Directors, monthly financial forecasts and operational performance indicators. The Group Management Team and business area management teams analyse the result and deviations, are responsible for budgeting and forecasting, monitor the integration and development of acquisitions made and monitor other investments. The business controller function and financial management analyse and produce financial reports as well as prepare separate analyses for use by the management, the Audit Committee and the Board of Directors. The Group has a centralised asset management function.
The Group's financial management issues guidelines and instructions on the preparation of the financial statements and interim financial statements and, together with the Group communications function, is responsible for the Group's regular disclosure obligations.
Pihlajalinna's financial and HR management functions have defined and documented control targets and control points (process-specific control catalogues) related to financial management, reporting and HR management processes. The appropriateness and effectiveness of control targets and control points are evaluated at least once a year. Control observations are analysed and, as a result, guidelines, practices and potentially also control points are updated.
The control measures consist of automated and manual reconciliation of processes, controls, analytical checks and instructions aimed at ensuring the accuracy of financial reporting. Further key control mechanisms include the administration of access rights to information systems and reporting systems as well as the controlled implementation of authorisations and changes to systems. The financial management function processes and regularly reports to the Board of Directors on exceptional items and items subject to management judgment, and analyses the underlying reasons behind changes to forecasts.
The CEO and the chief executives of the subsidiaries are in charge of ensuring that accounting and administration in the areas they are responsible for comply with the law and that the Group's guidelines are adhered to. The Group's legal department is in charge of issuing operational guidelines and instructions in its area of responsibility. The auditors audit the accounting and administration of the parent company and the subsidiaries annually. In all Group companies, auditing is conducted by a firm of authorised public accountants. The auditor of the parent company is responsible for the coordination of audit focus areas, the analysis of audit observations from the point of view of consolidated financial statements and communication with the Group's financial management. The detailed auditing results are reported annually to the Group management, the Audit Committee and the Board of Directors.
The Audit Committee verifies that accounting, financial administration, the internal audit and auditing are organised appropriately. The Board of Directors reviews and approves half-year reports, interim reports and financial statements bulletins. Pihlajalinna's internal audit activities were continued in 2018 in accordance with the cooperation organised with PwC in the previous year.
Internal audit measures are used to assess the appropriateness and performance of the Company's internal control system, risk management, management processes and administrative processes. The audit measures support organisational development and enhance the fulfilment of the Board of Directors' supervisory duty.
The internal audit function assists the organisation in achieving its objectives by evaluating and surveying its functions
and supervising compliance with Company guidelines and instructions. To this end, the internal audit produces analyses, estimates, recommendations and information for use by the Board of Directors and senior management. The assessments are reported upon completion to the CEO and the management in charge of the function being assessed. They are also reported regularly to the Board's Audit Committee. The Company's Chief Financial Officer is in charge of the internal audit process.
The internal audit function is based on internal standards (IIA). The Company's Chief Financial Officer is in charge of the internal audit. The point of departure for the internal audit is primarily management-oriented, and the work is coordinated in cooperation with the external audit. The annual audit plan and audit report are presented to the Audit Committee. The internal audit function also audits other areas by request of the Board of Directors and Pihlajalinna's Management Team. In the financial year 2018, an audit related to green field investments and the integration process related to M&A transactions was carried out, along with an audit of the procurement process. In late 2018, the internal audit function began a technical audit of the access rights architecture.
In risk management, Pihlajalinna's aim is to operate as systematically as possible and incorporate risk management in normal business processes. Furthermore, the Company invests in quality management systems and the management of information security, occupational safety and health risks.
Pihlajalinna's Risk Management Policy defines and categorises the Group's risks and describes the goals of risk management. In addition, it defines risk management principles, operating methods and responsibilities.
Internal risk reporting is included in the regular business reporting as well as in business planning and decision-making. The material risks and their management are reported to stakeholders regularly and, when necessary, on a case-by-case basis.
In 2018, Pihlajalinna applied the Enterprise Risk Management process developed and implemented in the previous year. In the process, risks are categorised into:
Strategic risks refer to uncertainty related to the implementation of the Group's short-term and long-term strategy. An example is structural changes in society. The role of the private sector as a provider of social and healthcare services as well as structural changes in the public sector have a material impact on the company's business.
Operational risks are risks that are caused by external factors, technology, actions of employees, the operations of the organisation or the functionality of processes. These risks are managed by, for instance, monitoring the competitive situation systematically and reacting to changes to it.
Financial risks refer to risks that are related to the Group's financial position, such as profitability, financing risk management, the functionality of financing processes and taxation. For instance, changes in tax legislation may have an impact on the Company's business.
Damage risks are related to accidents or other damage that may occur to the Group's assets, personnel, customers, stakeholders or environment. The Company has liability and patient insurance to cover any malpractice caused by the Company's own personnel.
A factor that links all risk categories together is the reputational risk that may affect the reputation of the Group's brands or the entire company.
The goal of Pihlajalinna's risk management is to promote the achievement the Group's strategic and operational targets, shareholder value, the Group's operational profitability and the realisation of responsible operating methods. Risk management seeks to ensure that the risks affecting the company's business operations are known, assessed and monitored.
The Group and operative management are responsible for risk management according to reporting responsibilities. In addition, risk management specialists guide and develop the Group's risk management. Everyone working at Pihlajalinna must also be aware of and manage risks related to their responsibilities. The internal audit function evaluates the appropriateness and performance of the Company's risk management as part of its annual audit plan.
Pihlajalinna Plc complies with the Nasdaq Helsinki Ltd Guidelines for Insiders in effect at any given time, subject to the additional specifications concerning Pihlajalinna and referred to in Pihlajalinna's Insider Guidelines.
The Company's insider information and the managers' and their close associates' transactions in Company's financial instruments are administered according to applicable legislation and the Insider Guidelines of the Company. When necessary, the Company sets up project-specific insider lists which includes every person who receives project-specific inside information.
The insider lists are not public. The Company's insider lists are maintained in the SIRE register of Euroclear Finland Ltd.
In addition to the insider lists, the Company creates and maintains a list of persons discharging managerial responsibilities and related parties (natural or legal persons) who have the duty to notify their transactions related to Company's financial instruments to the Company and the Financial Supervisory Authority within three business days after the transaction. The Company publishes transactions notified to it with a release within the same time limit. Persons discharging managerial responsibilities include Pihlajalinna's members of the Board of Directors and members of the Management Team.
Executives at Pihlajalinna and non-executive persons defined by the Company are prohibited from all trading in the Company's securities or related derivatives and other financial instruments on their own account or for the account of a third party during the period of 30 calendar days before the publication of the Company's annual financial statements, interim report and half year financial report (closed window).
The purpose of Pihlajalinna Plc's Guidelines on Related Party Transactions is to ensure that any business transactions involving persons belonging to the Company's related parties are made independently and based on market terms. The Company assesses and verifies that any related party transactions are in the best interests of the Company overall and that any conflicts of interest are duly taken into account when making decisions on related party transactions. The principles of the Guidelines on Related Party Transactions are observed throughout the Group and in the decision-making concerning all of the Group companies.
Pihlajalinna Plc's related parties include the Group's executives, such as the members, deputy members (if any) and secretary of the Board of Directors, the CEO, Deputy CEO and members of the Management Team, and the aforementioned persons' spouses and common-law spouses and other people living in the same household. In addition, related parties include organisations in which an above-mentioned related party, either alone or together with other related parties, exercises significant influence or control. Related parties also include the Company's subsidiaries, associated companies and joint ventures and their CEOs, Board members and potential deputy members, as well as any organisations in which the above-mentioned parties exercise significant influence or control. Furthermore, related parties include the Company's shareholders holding at least 10 per cent of the Company's shares or votes.
Pihlajalinna Plc maintains a related party register of major business transactions between the Company and its related parties, the parties involved and the key terms of such transactions. The information entered in the register is collected annually from the persons belonging to the Company's related parties. In addition, persons considered as the Company's related parties are obliged to notify the Company's related party administration of any related party transactions which are being planned or which have come to their knowledge. Such
notification must be made without delay after receiving such information.
The Company's related party register is not public, and any information entered in it will not be disclosed to third parties, with the exception of any authorities and the auditor entitled to receive such information.
Any related party transactions will be processed in accordance with the Guidelines on Related Party Transactions approved by Pihlajalinna's Board of Directors. Any major transactions to be executed with Pihlajalinna's management and its related parties shall always be approved by the Board of Directors
According to the Articles of Association, the Company shall have one (1) Auditor that shall be a firm of authorised public accountants with an APA-certified Auditor acting as the Auditor with principal responsibility.
The auditor will annually submit an auditor's report to Pihlajalinna's Annual General Meeting. When the Company's Board of Directors reviews the financial statements, the principal auditor provides a statement on the implementation of the audit and on their audit observations.
Pihlajalinna Plc's Annual General Meeting on 5 April 2018 resolved, in accordance with the Board's proposal, to appoint KPMG Oy Ab as the Company's auditor for a term ending at the conclusion of the Annual General Meeting 2019. The responsible auditor appointed by KPMG Oy Ab was Lotta Nurminen, APA.
During the 2018 financial year, the Group companies' auditors have included BDO in addition to KPMG Oy Ab. The following fees have been paid to the auditors (amounts in thousands of euros):
| Auditor's fees | 2018 | 2017 |
|---|---|---|
| Auditing, BDO | 81 | 68 |
| Auditing, KPMG Oy Ab | 251 | 193 |
| Other services, KPMG Oy Ab | 25 | 19 |
| Total | 357 | 279 |
Pihlajalinna's Annual General Meeting decides on the remuneration paid to the members of the Board of Directors. The proposal for the remuneration of the Board members is prepared by the Shareholders' Nomination Board.
Assisting the Board of Directors, the Remuneration Committee prepares the principles applied to the remuneration of the CEO and the Company's other executives.
The Company's Board of Directors elects the CEO and Deputy CEO and decides on the terms and conditions of their service.
The Board of Directors confirms the salaries and other benefits of the members of the Management Team on the basis of the CEO's proposal and decides on the remuneration principles for other executives.
In 2018, the proposal for the remuneration of the Board members was prepared by the Company's largest shareholders. LocalTapiola Group, MWW Yhtiö Oy (Mikko Wirén), Fennia Mutual Insurance Company and Elo Mutual Pension Insurance Company participated in the preparation of the proposal. The shareholders who were involved in preparing the proposal for the composition of the Board of Directors represented approximately 48% of the shares in the Company.
The Annual General Meeting 2018 decided that remuneration shall be paid to the members of the Board of Directors as follows: to the Chairman EUR 250,000, to the Vice-Chairman EUR 48,000 and to the other members EUR 24,000 per year.
In addition, the AGM decided that each Board member shall be paid a meeting fee of EUR 500 for each Board and Committee meeting. Reasonable travel expenses will also be reimbursed to the members of the Board in accordance with the Company's travel rules.
In 2018, the fees paid to Pihlajalinna Plc's Board members for Board and Committee work totalled EUR 513,035 (2017: EUR 403,961). This amount consists of monthly and meeting fees related to Pihlajalinna Plc's Board of Directors and its Committees.
The Company does not use any share-based incentive schemes for members of the Board of Directors.
| Name | Position | Board members' monthly/annual fees |
Board Members' meeting fees includes a fee for a decision made without convening a meeting |
Audit Committee fees |
Remuneration Committee fees |
Total |
|---|---|---|---|---|---|---|
| Vice-Chairman, | ||||||
| Bergendahl Matti | member since 5 April 2018 | 36,000 | 7,000 | 1,500 | , | 44,500 |
| Everi Timo | Member | 24,000 | 11,500 | , | 1,000 | 36,500 |
| Kronman Gunvor | Member since 5 April 2018 | 18,000 | 9,000 | , | 500 | 27,500 |
| Niemistö Leena | Member | 30,000 | 11,500 | 2,500 | , | 44,000 |
| Sulin Kati | Member since 5 April 2018 | 18,000 | 8,500 | 2,000 | , | 28,500 |
| Sundström Jari | Member | 24,000 | 10,500 | 1,000 | 35,500 | |
| Turunen Seija | Member | 24,000 | 11,500 | 2,500 | , | 38,000 |
| Wirén Mikko | Chairman | 246,035 | 11,500 | , | 1,000 | 258,535 |
| Total | 420,035 | 81,000 | 8,500 | 3,500 | 513,035 |
* Excess Board fees of EUR 3,965 paid in 2017 have been deducted from Mikko Wiren's annual remuneration of EUR 250,000
The Company's Board of Directors elects the CEO and Deputy CEO and decides on the terms and conditions of their service.
In 2018, the Management Team's statutory and additional pension costs amounted to approximately EUR 327,570 (2017: approximately EUR 151,809).
CEO Joni Aaltonen's salary and other taxable benefits for the financial year that ended on 31 January 2018 amounted to EUR 285,436. (In 2017, Joni Aaltonen's salary and other taxable benefits amounted to EUR 7,084 for the period 11–31 December 2017, in addition to which Aaltonen's predecessor, Aarne Aktan, was paid salaries and other taxable benefits amounting to EUR 332,114 for the period 1 January–11 December 2017).
CEO Joni Aaltonen's director agreement can be terminated by either party with a three-month (3) notice period. If the Company terminates the agreement, the Company shall pay the CEO a one-time monetary compensation for termination corresponding to six (6) months' total salary effective at the time of termination.
Joni Aaltonen is committed to a fifteen-month (15) noncompetition and non-solicitation period. In the event of a breach of this condition, the CEO shall be obliged to pay the Company compensation corresponding to his salary for twelve (12) months. The CEO is entitled to rectify such a breach within 30 days of being notified by the Company. If the loss or damage caused to the Company exceeds the contractual penalty mentioned above, the CEO must compensate for the loss or damage in its entirety. The director agreement will expire at the latest when Joni Aaltonen retires. The CEO's retirement age is statutory.
The Board of Directors confirms the salaries and other benefits of the members of the Management Team on the basis of the CEO's proposal and decides on the remuneration principles for other executives.
The notice period for the members of the Management Team is three or six months, and they are entitled to the salary for the notice period. In addition, the members of the Management Team have non-competition and non-solicitation commitments for certain periods, during which compensation may be paid. In 2018, the members of the Management Team were offered the opportunity to join a share-based incentive programme.
The salaries and other taxable benefits paid to the other members of the Management Team for the financial year that ended on 31 December 2018 were approximately EUR 1,464,893 (2017: approximately EUR 852,677). The remuneration paid consists of a fixed monthly salary and fringe benefits.
In its meeting on 13 May 2018, the Board of Directors approved the terms of a share-based long-term incentive programme for Pihlajalinna Group's senior management (LTI 2018). The incentive programme is effective from 1 January 2018 onwards and it is aimed at the CEO, the Management Team and other key employees selected for inclusion in the programme. In the initial stage, 20 key employees were selected for the programme. The number of key employees eligible for the programme is 65.
In a decision made on 14 February 2019, the Board of Directors declared the incentive programme void, as the level of adjusted operating profit required for the fulfilment of the entire programme was not achieved in 2018. No rewards will be paid under the incentive programme.
The Annual General Meeting 2018 resolved to authorise the Board of Directors to repurchase the Company's own shares. The authorisation is valid until the Annual General Meeting 2019 and no longer than until 30 June 2019. Pursuant to the authorisation, the Board of Directors may resolve to repurchase an aggregate maximum of 2,061,314 of the Company's own shares in one or more tranches, which corresponds to approximately 10 per cent of all existing shares in the Company. Pursuant to the authorisation, shares can be repurchased for, among other purposes, the implementation of the Company's share-based incentive schemes. The authorisation was not exercised in 2018.
The Annual General Meeting 2018 decided to authorise the Board of Directors to resolve on the issuance of shares and other special rights conveying entitlement to shares as referred to in Chapter 10, section 1 of the Companies Act. The number of shares issued pursuant to the authorisation may not exceed 3,091,971 shares, which corresponds to approximately 15 per cent of all existing shares in the Company. The authorisation concerns both the issuance of new shares and the transfer of the Company's own shares. The authorisation is in force until the end of the Annual General Meeting 2019, but no later than 30 June 2019. The authorisation may be exercised, among other purposes, in order to carry out a directed share issue as part of the implementation of the Company's share-based incentive schemes. The authorisation was not exercised in 2018.
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