- Performance Shares continue to be used as the main share-based incentive
- Stock options to be granted to selected employees, subject to AGM approval
- Limited use of Restricted Share grants to motivate and retain critical resources
- Plans to keep the equity incentives in 2006 the same as in 2005
Nokia will continue to use performance shares as the main element in its broad-based equity compensation program for 2005. In addition, stock options will be granted to a select number of employees as in 2004. Further, the program will include restricted shares to very few selected employees. The program follows the structure adopted in 2004.
The target group for the 2005 share-based incentive program continues to be broad and includes a wide number of employees in many levels of the organization. The program will focus on rewarding achievement and retaining critical talent. The combined use of performance shares and stock options builds a well-balanced combination of share-based compensation elements for Nokia's reward model. The program aligns the potential value received by participants directly with the performance of the company and in line with shareholders' interests.
No performance shares will vest unless the company performance reaches at least one of the threshold levels measured by two independent, pre-defined performance criteria: the company's Average Annual Net Sales Growth and EPS Growth (basic) for 2005 to 2008. If a required performance level is achieved, the first payout will take place in 2007. The second and final payout, if applicable, will be in 2009. Under the 2005 Program, approved by the Nokia Board of Directors, Nokia will grant Performance Share Units in 2005 resulting in a maximum payout of 18.8 million Nokia shares, should the maximum performance levels be met.
It is our intent to grant performance share units to a similar target group and amounting to a similar number also in 2006. We have also reserved a pool of Performance Share Units, to be used for grants within the anticipated annual grant cycle in 2006 as well as for recruiting and special retention needs for 2005 and 2006 combined. This amount may result in a maximum payout of 31.2 million Nokia shares.
Under the 2005 Program, Nokia will issue stock options in 2005 for incentive purposes amounting to a maximum of 8.5 million. The intent is to grant a similar amount also in 2006. We have also reserved an additional pool of stock options to be used for grants within the anticipated annual grant cycle in 2006 as well as for recruiting and special retention needs, for 2005 and 2006 combined.
The grant of stock options is subject to the approval of the 2005 Annual General Meeting. The Equity Program 2005 includes a proposal by the Board of Directors to Nokia's Annual General Meeting 2005 for the approval of a new two-year stock option plan amounting to a maximum of 25 million stock options, allowing these plans.
In addition, Nokia will continue to use a limited number of restricted shares to recruit, retain, reward and motivate selected high potential and critical employees. The maximum number of restricted shares that we intend to grant during 2005 is 3.5 million.
Our intent is to grant a similar amount in 2006. We have also reserved a pool of restricted shares be used for special needs in 2005 and 2006. This amount may result in a maximum payout of 9 million Nokia shares.
As of December 31, 2004, the total dilution effect of Nokia's stock options, performance shares and restricted shares currently outstanding, assuming full dilution, is approximately 3.6 % The potential maximum effect of the new program, including the potential grants from the pools mentioned above, would be approximately another 1.5 per centage points.
For more information - Media and Investor Contacts:
Corporate Communications, tel. +358 7180 34495 or +358 7180 34900
Investor Relations Europe, tel. +358 7180 34289
Investor Relations US, tel.
www.nokia.com
www.nokia.com/agm
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Information about the Nokia 2005 Performance Share Plan Criteria
Performance shares represent a commitment by the company to deliver Nokia shares to employees at a future point in time subject to the company's fulfillment of pre-defined performance criteria. Performance shares will vest subject to the company performance reaching at least one of the threshold levels measured by two independent, pre-defined performance criteria: the company's Average Annual Net Sales Growth and EPS Growth (basic, reported) for the 2005 to 2008 period.
Both the EPS and Average Annual Net Sales Growth criteria will have an equal weight of 50%.
The performance criteria are
1) Average Annual Net Sales Growth: 3 percent (threshold) and 12 percent (maximum), and
2) EPS Growth: EUR 0.82 (threshold) and 1.33 in 2008 (maximum). EPS growth is calculated based on the compounded annual growth rate over the full performance period (2005-2008) compared to 2004 EPS of EUR 0.70.
The maximum performance level for both criteria will result in the vesting of the maximum of 18.8 million Performance Shares. If the threshold levels of performance are not achieved, none of the performance shares will vest. For performance between the threshold and maximum performance levels the payout follows a linear scale. The company will determine the method by which the shares are obtained for delivery after vesting, which may also include cash settlement.
Information about the proposed Nokia 2005 Stock option plan
The Board proposes to the Annual General Meeting convening on April 7, 2005, the approval of a bi-annual stock option plan amounting to a maximum of 25 million stock options. Each stock option would entitle to the subscription of one newly issued Nokia share. The stock options will be granted to a selected number of employees within Nokia Group during a period of 2 years.
The share subscription price applicable upon exercise of the stock options will be determined on a quarterly, or, subject to the Board's decision, on a monthly basis.
The intention is to determine the exercise prices at fair market value. The share subscription price for each subcategory of stock options to be issued, will equal the trade volume weighted average price of Nokia shares on the Helsinki Exchanges for the first whole week of the second month of the calendar quarter (i.e. February, May, August or November) or, for the monthly priced stock options, the first whole week of such calendar month when the subcategory of the stock option has been denominated.
The share subscription periods (i.e. exercise period) for the stock options will have a quarterly staggered commencement schedule. The subcategories of stock options to be issued under the plan will have a life of approximately 5 years, the last of the subscategories expiring as of 31 December 2011.
Information about the Restricted Share Plan
Those receiving restricted shares will have a 3-year restriction period. The restricted shares will be delivered in 2008, if recipients satisfy the restriction criteria. Shares are not eligible for any shareholder rights during the restriction period.