Nokia 2007 Annual Report Download - page 102

listed in the table above: (a) a comparison of Nokia’s actual performance to preestablished targets
for net sales, operating profit and operating cash flow and (b) a comparison of each executive
officer’s individual performance to his/her predefined individual strategic objectives and targets.
Individual strategic objectives include market share, quality, technology innovation, new product
revenue, customer retention rates, environmental achievements and other objectives of key strategic
importance which require a discretionary assessment of performance by the Personnel Committee.
When determining the final incentive payout, the Personnel Committee determines an overall score
for each executive based on the degree to which (a) Nokia’s financial objectives have been achieved
together with (b) qualitative 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
percent; 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
(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 in the
high technology 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 entry into new
markets and services and executive development.
Instead of Nokia’s shortterm cash incentive plan, Simon BeresfordWylie participates in a shortterm
cash incentive plan sponsored by Nokia Siemens Networks, which is similar to Nokia’s plan.
For more information on the actual cash compensation paid in 2007 to our executive officers, see
“—Actual Executive Compensation for 2007—Summary Compensation Table 2007” 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 and Decisionmaking Process”, including a
comparison of the 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 their
value increases with our 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.
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