Starting in 2004 the Board approved the implementation of two share- based programmes (Restrictive and Performance Share Programmes) to complement and partially replace the existing option programme. From 2005 to 2012 new share-based programmes have been launched each year. Since 2009 new long-term incentive programmes for executives have been mainly performance share programmes. The Performance Share Plans are vesting in portions over a three-year period. The performance target is set annually by the Remuneration Committee. The programmes launched between 2009 and 2011 have a maximum vesting potential of 150% of the number of shares awarded, provided the performance criteria exceed the target. In the Performance Share programme launched in 2012, the absolute maximum vesting level was changed to 100% of the number of shares awarded. In 2010 and 2011 the Board also approved an annual
allocation of restricted shares under a separate Young Talent Award programme to a maximum of 100 young talents in the Company.
Option programmes for management
(1999 to 2007)
The Group has an option programme, but the last options granted under this programme were granted in 2007 and there is currently no intention to issue any in the future. The seven-year programmes consist of financially hedged options and synthetic options with strike prices set at levels representing current market prices at issue plus 10% premiums. The synthetic options are hedged by TRS that are settled with cash payments allowing the Company to receive cash compensation to partially offset any change in the share price between the grant and settlement dates. Depending on local circumstances, option holders have the choice of receiving either a payment in cash representing the difference between the strike price and the share price at the time of exercise or an option to purchase existing R shares. If an employee chooses the option to purchase existing R shares, the Company first purchases in the market the relevant number of R shares and then transfers them to the employee, thus avoiding any dilution in the number of shares in issue. Options are not transferable and expire if the employee leaves the Group. During the year no options were exercised as the share price remained below the relevant strike prices; 1 882 750 options from the 2005 scheme lapsed in 2012 and 1 263 500 options from the 2006 scheme lapse on 28 February 2013.
Option/Synthetic Option Programmes at 31 December 2012
Option Programme Year of Issue Base PeriodStrike Price Strike Price Number of Staff
Number of Options Issued Number of Options Cancelled2) Number of Options Exercised Number of Options
Outstanding Exercise Period
8 Feb 1 Mar 2010
2007 Synthetic 2007 14 Feb EUR 14.00 731 1 406 596 510 800 - 895 796 28 Feb 2014
3 Feb 1 Mar 2009
2006 Synthetic 2006 10 Feb EUR 12.46/13.321) 744 2 161 000 897 500 - 1 263 500 28 Feb 2013
1) Strike price of options granted to new CEO upon his appointment.
Notes to the Consolidated Financial Statements
The fair value of employee services received in exchange for cash- settled synthetic options and share awards is recognised at the fair value of the liability incurred and expensed rateably over the vesting period. The synthetic option liability is remeasured at each reporting date to its fair value using estimates of the number of options that are expected to become exercisable and the latest fair valuations using the Black and Scholes model, with all changes recognised in the Income Statement. The liability for share awards is also remeasured at each reporting date to its fair value using estimates of the number of share awards that are expected to be issued and the latest fair valuations by using the Stora Enso R share closing price EUR 5.25 (EUR 4.63) with all changes recognised in the Income Statement.
At the year end, there were 2 159 296 (4 082 421) synthetic options outstanding, of which 2 159 296 (4 082 421) options were exercisable. The strike price for the outstanding options was within the range EUR 12.46 to EUR 14.00, with the weighted average strike price being EUR 13.16 (12.72) and a weighted average remaining contractual right of 0.6 (0.9) years. No options have been granted since 2007.
The fair values of the restricted and performance share awards have been calculated using year end closing prices of Stora Enso R shares. The outstanding restricted and performance share awards are shown below.
Share Awards at 31 December 2012
Projected Delivery of Outstanding Restricted and Performance Share Awards at Year End
Number of shares 2013 2014 2015 Total
2008 programme 74 000 - - 74 000 2009 programme 16 750 16 750 - 33 500 2010 programme 416 851 - - 416 851 2011 programme 362 540 427 541 70 000 860 081 2012 programme 1 054 003 790 503 790 503 2 635 009 Total 1 924 144 1 234 794 860 503 4 019 441
The costs of the Stora Enso Synthetic Option and Share-based Programmes are recognised as costs over the vesting period, being the period between grant and right to exercise or award. The fair valuation and vesting impact of share-based programmes amounted to a gain of EUR 0.9 (EUR 26.6) million. Synthetic options accounted for a gain of EUR 0.1 (EUR 1.3) million and the restricted and performance share awards amounted to a gain of EUR 0.8 (EUR 25.3) million. The year end liability of EUR 3.8 (EUR 4.7) million is shown in Non-current Operative Liabilities of which EUR 0.0 (EUR 0.1) million relates to synthetic options and EUR 3.8 (EUR 4.6) million to the restricted and performance share awards. No options were cashed in 2011 or 2012. The actual cash cost for the restricted and performance share awards totalled EUR 2.9 (EUR 28.4) million.
Stora Enso utilises TRS to partially hedge exposures to changes in the share price of synthetic options granted under the Option Programmes for Management which are settled with cash payments. While these TRS
instruments allow the Group to partially stabilise future cash flows related to the settlement of outstanding synthetic options, the Group pays for them as and when exercised and therefore they contain certain market risks such as when the Company’s share price is below the option strike price. For this reason the movements on TRS and the option liability do not match on a year-to-year basis, Group TRS instruments do not qualify for hedge accounting and therefore periodic changes to their fair value are recorded in the Income Statement in operative costs alongside the share-based programme costs to which they relate.
At the year end there were TRS instruments outstanding covering 10 960 672 (10 960 672) underlying Stora Enso Oyj R shares recorded at a net fair value asset of EUR 2.6 (liability EUR 22.6) million. The change from a net liability of EUR 22.6 million to a net asset of EUR 2.6 million is due to a cash payment of EUR 16.1 million and a fair value increase of EUR 9.1 million due to the increase in share price from EUR 4.63 at 31 December 2011 to EUR 5.25 at 31 December 2012.
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Notes to the Consolidated Financial Statements