Compensation

Board of Directors

The remuneration packages for Board members are resolved by the AGM on the basis of a proposal made by the Nomination and Compensation Committee. Non-executive members of the Board of Directors do not receive stock options. Board members employed by Konecranes do not receive separate compensation for their Board membership. 

Total compensation to the Board of Directors

President and CEO

The Nomination and Compensation Committee reviews the President and CEO’s performance. Based on this review and other relevant facts, the Board determines the total compensation package paid to the President and CEO.

On December 15, 2006, the Board of Directors approved a long-term incentive scheme for President and CEO Pekka Lundmark. The incentive scheme was implemented by disposing of Konecranes shares in the Company’s possession on the basis of the authorization granted to the Board of Directors by the AGM on March 8, 2006. Pursuant to the incentive scheme, a total of 100,000 Company shares were sold to the Managing Director in December 2006 and January 2007 on terms and conditions defined in the terms of subscription. The shares sold are subject to a five-year transfer restriction. As part of the program, the Company paid a separate bonus to Pekka Lundmark to cover the taxes levied as a result of the arrangement.

The purpose of the incentive scheme is to motivate the Managing Director to contribute in the best possible manner to the long-term success of the Company and increased shareholder value for all shareholders. The agreed price per share of 12 euros corresponded approximately to the average share price during the period that Mr. Lundmark had been CEO of the Company prior to approval of the incentive scheme.

In connection with Konecranes’ new executive incentive program established in May 2009, the five-year transfer restriction relating to these shares has been amended, granting the President and CEO the right to divest these shares on the market, provided that an agreed amount of the funds so received will be invested in KCR Management Oy.

The Nomination and Compensation Committee reviews the President and CEO’s performance. Based on this review and other relevant facts, the Board determines the total compensation package paid to the President and CEO. Compensation package includes basic salary, fringe benefits, pension scheme, and performance-related bonus scheme.

The President and CEO’s bonus scheme is based on Group Profitability and Growth and the maximum bonus is 50% of CEO’s annual base salary. Additionally, the Board of Directors has a possibility, but not an obligation,  to set certain strategic targets that can trigger an additional bonus, maximum 50% of CEO’s annual base salary.

Pension scheme states that when the President and CEO reaches the age of 60 years, both he and the Company may request his retirement with a target pension of 60 percent of his underlying income, excluding bonuses.

Salary, bonus, and fringe benefits paid to the President and CEO, 2008–2009

Group Management

The Nomination and Compensation Committee reviews and issues guidelines for Group compensation policies. The Committee also confirms compensation packages for Group Executive Board members who report directly to the President and CEO. Compensation packages for other Extended Management Team members are confirmed by the President and CEO.

Compensation packages normally include basic salary, fringe benefits (typically use of a company car and mobile phone), contribution-based pension schemes, and performance-related bonus schemes. Bonus schemes are always based on written contracts. Bonus criteria vary, but are usually based on the Group’s five Key Performance Areas: Safety, Customer, People, Growth, and Profitability. Bonuses are related to an individual’s performance and to the performance of the unit that he/she belongs to. Numerical performance criteria are used rather than personal assessments.

The Finnish members of the Group Management participate in a contribution-based group pension insurance scheme, which can be withdrawn from the age of 60. However, the retirement age of the members of the Group Management is according to the Employees’ Pensions Act (TyEL). One member of the Group Management participates in a supplementary contribution-based pension insurance scheme, whose liability is fully covered. The retirement age of the member of the Group Management is 60 years.

Salary, bonus, and fringe benefits paid to the Extended Management Team, excluding the President and CEO, 2008-2009

KCR Management Oy/Group Executives’ Incentive program

The Board of Directors of the Konecranes Group has approved an executive incentive program to enable Group Executives to invest in Company shares. For the purposes of share ownership, executive management has established a managementowned company known as KCR Management Oy. The members of the Board of Directors of Konecranes Plc are not shareholders in the company. KCR Management Oy has acquired a total of 517,696 Konecranes Plc shares from the market, financing these purchases through capital investments made by executives totaling EUR 1.3 million and a loan of roughly EUR 7.1 million provided by Konecranes Plc. The purpose of this arrangement is to commit the executives to the Company by encouraging them to acquire and own Company shares. The Board of Directors sees this as a way of increasing management’s commitment to long-term shareholder value.

The arrangement will remain in force until fall 2012, at which time the intention is to dissolve it. Any transfer of Konecranes Plc shares held by KCR Management Oy prior to that time is subject to restrictions. Executives holding KCR Management Oy shares may not dispose of their holding before the termination of the program.

The arrangement extends and continues the incentive scheme provided to the President and CEO of the Company in December 2006, whereby a total of 100,000 shares were sold to the President and CEO. In connection with the establishment of the new arrangement, the five-year transfer restriction relating to these shares has been amended, enabling the President and CEO to divest these shares on the market, provided that the funds so received are invested in KCR Management Oy. The members of the Extended Management Team at the
time the arrangement was established participated in the program.

Stock Options

The Company has issued stock option plans for its key employees, including top and middle management, and employees in certain expert positions. A summary of the ongoing Konecranes stock option plans can be found on page 94. Stock option plans require a corresponding resolution by a General Meeting, and all plans have been unanimously adopted by the relevant General Meetings. Certain large institutional shareholders have adopted guidelines for stock option plans. These guidelines offer advice on the acceptable (maximal) dilution effect, levels of incentives, lock-up periods, length of programs, etc. The Company’s option plans have been designed to comply with these guidelines in all their essentials.

The purpose of the option schemes is to motivate key personnel to contribute to the long-term success of the Company and to create a common understanding of and commitment to the creation of shareholder value. A further purpose is to create a joint sense of common ownership among managers, which is seen as valuable for a company like Konecranes with operations covering many countries, cultures, and customer industries.

The Board decides on the distribution of options to key personnel under a proposal made by the President and CEO. In granting options to the President and CEO, the Board acts independently.

Konecranes Plc’s outstanding stock option plans include Option Series 2001B, 2007A, 2007B, and 2009A. Stock Option Series 2007C was not distributed and, according to the terms and conditions of 2007C stock option, these stock options expired on December 31, 2009. Stock Option Series 2009B and 2009C have been approved by the AGM 2009, but have not yet been distributed according to the terms of the 2009 stock option plan. Based on outstanding stock option plans, a total of 2,773,400 stock options were unsubscribed on December 31, 2009.