Nokia 2005 Annual Report Download - page 92

Executive Compensation Philosophy
Nokia operates in the extremely competitive, complex and rapidly evolving high technology
industry. We are a leading company in the industry and conduct a global business. The key
objectives of the executive compensation programs are to attract, retain, and motivate talented
executive officers that drive Nokia’s success and industry leadership.
The Personnel Committee benchmarks Nokia’s compensation practices against those of other
relevant companies in the same or similar industries. The relevant companies include both high
technology and telecommunications firms that are headquartered in Europe and the United States.
The compensation levels of the executive officers in these relevant companies are considered
when the Committee makes decisions regarding the compensation of our executive officers. The
Committee also has access to, and uses outside independent consultants.
The executive compensation programs are designed to:
• provide a total compensation package that is competitive with the relevant market,
• provide competitive base pay rates,
• deliver significant variable cash compensation for the achievement of stretch goals and
• align the interests of the executives with those of the shareholders through long-term
incentives in the form of equity-based awards.
Components of executive compensation
The compensation program for executive officers includes the following components:
Annual cash compensation
•Base salaries targeted at globally competitive market levels.
•Short-term cash incentives tied directly to performance and representing a significant portion
of executive officers’ total annual cash compensation. The short-term cash incentive
opportunity is expressed as a percentage of the executive officer’s annual base salary. These
award opportunities, measurement criteria and performance periods are presented in the
table below. These incentive payments are primarily determined based on a formula that
compares the company’s actual performance to pre-established targets for net sales,
operating profit and net working capital measures. Certain executives may also have
objectives related to market share, quality, technology innovation, new product revenue, or
other objectives of key strategic importance which require a discretionary assessment of
performance by the Personnel Committee.
In certain exceptional situations the actual short-term cash incentive awarded to the
executive could be zero. The maximum payout is only possible with maximum performance
on all measures. A portion of the short-term cash incentives 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 is paid annually at the end of the year, based on the
Personnel Committee’s assessment of the company’s total shareholder return compared to
key comparators in the high technology and telecommunications industries over a one,
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