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Finland: New Government Statement on Remuneration in State-Owned Companies

(Aug. 31, 2012) On August 13, 2012, the Government of Finland released a new statement on the remuneration of senior executive management in state-owned companies, which takes “openness and moderation” as its basic premises. The previous statement, which was adopted by the Cabinet Committee on Economic Policy, dated from 2009. (Press Release, No. 247/2012, Finnish Government, A New Statement on Management Remuneration in State-Owned Companies; Remuneration to Be Based on Openness, Moderation and Performance (Aug. 13, 2012); Statement by the Cabinet Committee on Economic Policy Regarding the Remuneration of Executive Management and Key Individuals, 13 August 2012 [hereinafter Statement], Prime Minister's Office Ownership Steering Department website, and text in Finnish.)

According to the Government, “[r]emuneration must be predictable and transparent so that everyone involved can assess its efficiency. In all companies total remuneration is to be reined in.” The statement stresses the particular importance, moreover, of ensuring “that remuneration does not lead to excesses jeopardising the targets set for remuneration schemes.” (Press Release, supra.)

The document is divided into nine principles, each followed by an explanatory note. Among other points, the statement:

  • gives due consideration to the fact that there is a range of different kinds of state-owned companies, which vary in their amount of shares, unlike the previous Statement (id.);
  • recognizes the need for a fair share of a state company's good results to be guaranteed to the staff, through performance-based remuneration and personnel funds (id.);
  • assigns responsibility to the board of directors for management remuneration decisions, with state-set targets “concerning moderation and benefits to the whole of society” to be taken into account, and with the basic levels of remuneration to be sufficiently challenging to attain and with maximum levels of remuneration reserved for exceptionally good performance (id.);
  • calls for bonus schemes to have payment terms that allow for cancellation or reduction of bonuses “to a reasonable level as necessary,” and for companies that attains their targets and exceed the annual overall performance-based bonus level to make public the circumstances that led to such results, to enable the owner and stakeholders to assess the payment criteria (id.);
  • expresses the view that additional pensions are not to be used as remuneration, although in the case of “exceptional changes or crisis situations,” remuneration not based on performance may be justified (id.);
  • emphasizes that “all the terms of service contracts on retirement age and termination must remain fair to the company,” noting that “the minimum retirement age must be 63 years and the pensions must be exclusively on an accrual basis” (Statement, supra); and
  • instructs that in companies wholly owned by the state, no deviation from the statement guidelines is permissible without prior approval by the owner; in unlisted state majority-owned companies, the guidelines must be followed “unless otherwise required by the common interest of shareholders”; in listed state majority-owned companies, the board of directors is expected to recognize the guidelines in respect to the Companies Act, the Securities Markets Act, and the Corporate Governance Code of listed companies; and in companies in which the state is a minority owner, “the guidelines provide an opinion of one major shareholder on good and acceptable remuneration principles. As such, the boards of directors are to take these guidelines into account in their decision-making.” (Press Release, supra.)