Remuneration statement

The primary objective of remuneration is to attract, retain and motivate key personnel, as well as to provide a competitive remuneration package in the prevailing market situation. To ensure that compensation elements are aligned with shareholder interests, remuneration is based on the achievement of specific individual targets and corporate goals. Furthermore, remuneration levels are systematically compared to the industry’s general remuneration practices, and long-term incentive schemes are based on the positive development of the Company’s share price. Talvivaara has a remuneration policy that covers all managers and senior salaried employees.

Decision making process of remuneration

The Annual General Meeting (“AGM”) of Shareholders decides on the remuneration payable for Board and Committee work, as well as the basis of its determination.

The Board of Talvivaara has nominated a Remuneration Committee from among its members, which comprises of at least three Directors independent of the Company. The Remuneration Committee supervises, reviews and develops the remuneration and reward schemes of the Company and the remuneration paid to the members of the Board of Directors. The Remuneration Committee makes the necessary proposals to the General Meetings of Shareholders regarding the remuneration of the Board of Directors. The Committee also makes recommendations to the Board of Directors and, within its terms of reference, decisions on Talvivaara’s remuneration policies, the implementation of incentive schemes of senior management, and on reviewing the performance of Executive Directors and senior management of the Company and its subsidiaries. The Remuneration Committee ensures that Talvivaara’s remuneration practices and remuneration levels are sufficient and well-sized and that remuneration is based on the achievement of specific individual targets and corporate goals. The allocation of share options is decided by the Board subject to proposals of the Remuneration Committee. The CEO decides on the monthly remuneration of the members of the Extended Executive Committee in accordance with the guidelines set by the Board of Directors and the Remuneration Committee. The CEO makes proposals to the Remuneration Committee relating to the long term remuneration and annual bonuses of the members of the Extended Executive Committee, excluding Executive Directors. Based on a proposal by the Remuneration Committee, the Board of Directors resolves on the salaries and bonuses of the Executive Directors, the CEO and the CFO as well as on the criteria for contribution to the personnel fund of the employees.

Committee members serve for a term of one year. The Remuneration Committee has been chaired by Mr. Niiva. Its other members have been Mr. Haslam, Mr. Järvinen and Mr. Titcombe. The CEO attends meetings of the Committee by invitation. During 2011, the Remuneration Committee met twice. In 2011 the Remuneration Committee focused on setting up the Personnel Fund of the Group, finalisation of the management holding company, Talvivaara Management Oy, and development of the incentive and remuneration system of the Group. The CEO did not attend when the Committee considered his remuneration package. The Personnel Fund was prepared by the Remuneration Committee and established by the employees of the Talvivaara Group in 2011. The members of the Extended Executive Committee are not members of the Personnel Fund.

Remuneration of members of the Board of Directors

Remuneration of the Board of Directors consists of annual compensation and long-term stock-based incentives. The Annual General Meeting of Shareholders decides on the remuneration of the members of the Board of Directors. In 2011, the AGM decided the annual compensation of the members of the Board of Directors as follows: Chairman of the Board of Directors EUR 160,000, Deputy Chairman (Senior Independent Director) EUR 69,000, Chairman of the Audit Committee EUR 69,000, Chairman of the Nomination Committee EUR 53,000, Chairman of the Remuneration Committee EUR 53,000, Chairman of the Sustainability Committee EUR 53,000, other Non-executive Directors and Executive Directors EUR 48,000. To the extent a member of the Board has several positions, such member is entitled only to one (the highest) annual fee payable among such positions while the other fee(s) is/are forfeited. The remuneration of the Executive Directors for the Board work is included in their base salary and is not paid out separately.

The Company granted 2007A options to the Non-Executive members of the Board as a part of the 2007 Option Scheme. The options were granted in 2007 prior to the Initial Public Offering and the listing of the Company’s shares on the London Stock Exchange (“LSE”). The options granted were disclosed in the pathfinder and the final prospectus and published in connection with the listing of the Company’s shares on the LSE Main Market. Thereafter, no options have been granted to Non-Executive Directors, nor has the Company any intention to grant such options to Non-Executive Directors in the foreseeable future.

In 2011 no stock options were allocated to Executive Members of the Board.

Holdings of Talvivaara shares and options by the current members of the Board of Directors can be reviewed from Talvivaara Insider Register.

Directors' service contracts

The service contracts entered into with CEO Pekka Perä and CFO Saila Miettinen-Lähde are valid until further notice and may be terminated by either party upon six months’ notice. Upon termination by the Company for reason other than substantial breach of the service agreement or gross misconduct, the CEO or the CFO will be entitled to an additional compensation equal to six months’ salary and fringe benefits for that period. Accordingly, upon termination the CEO and the CFO may receive a maximum payment of 12 months’ salary.

General information on employment terms of the Executive Committee members

The Executive compensation consists of base salary, an annual performance-based bonus scheme and long-term stock-based incentives.

The monthly base salary of the CEO and members of the Extended Executive Committee is based on the executive’s position, skills and experience, and individual performance. To ensure the appropriate remuneration level, Talvivaara regularly gathers and evaluates information on market-based remuneration levels for the mining sector and comparable listed companies in Finland and the UK. To ensure that compensation elements are aligned with shareholder interests, remuneration is based on the achievement of specific individual targets and corporate goals. Furthermore, long-term remuneration levels are based on the positive development of the Company’s share price. Total remuneration development is regularly compared to general remuneration developments within the industry.

Talvivaara’s Extended Executive Committee members’ pension benefits are determined on the basis of statutory employment pension cover. Executive Directors and other members of the Extended Executive Committee are entitled to a daily allowance for business trips, in accordance with the tax guidelines of the Finnish Tax Administration and the maximum amounts decided by the Ministry of Finance from time to time. Other remuneration, including selected fringe benefits, typically consists of insurances, e.g. liability insurance and traveler’s insurance, and some other benefits related to the usage of mobile communication and media.

Short-term remuneration: Monthly remuneration and annual bonuses of members of the Extended Executive Committee

The monthly total remuneration levels of Executive Directors and other Extended Executive Committee members have been reviewed, based on the available reports and comparisons from Finnish listed companies and from UK listed metals and mining companies. According to Finnish statistics, Talvivaara’s Executive Directors and other Extended Executive Committee members are compensated above median levels, when the Company’s turnover and personnel are applied as comparison criteria, but slightly below the median when the balance sheet is so applied. According to statistics regarding UK listed metals and mining companies, Talvivaara’s Executive Directors and other members of the Extended Executive Committee are compensated at a lower level than the Company’s closest peers. It is recognised that differences exist between living costs, working environments, duties, local taxation, etc. that make direct comparisons with UK listed companies somewhat challenging. These differences will be taken into consideration in future compensation reviews.

The Executive Directors and other Extended Executive Committee members received a 2.5% salary increase in January 2011. The increase was seen reasonable considering that remuneration development had fallen short of that of other senior salaried employees, who had received salary increases based on collective agreement. The Executive Directors and other Extended Executive Committee members had not received salary increases for the past two years.

All Extended Executive Committee members are eligible to receive an annual bonus, whose maximum amount ranges from 0 to 50% of the annual individual base salary. The Executive Directors’ maximum bonus can be 75% of the annual base salary. The maximum bonus potential of Talvivaara’s Executive Directors and other Extended Executive Committee members can be considered to correspond well to those of Finnish listed companies, but to be below those of UK listed metals and mining companies.

Bonus criteria can be based on Company’s financial and operative results, as well as on each individual’s performance targets. Annual Company level criteria, as well as individual performance targets for Executive Directors and other senior management, are decided at the Board of Directors’ meeting, based on recommendation by the Remuneration Committee. Before giving its recommendation, the Committee hears the CEO. A person cannot participate in decision making regarding his/her own remuneration.

Considering the ramp-up phase of the Company, it has been deemed important for the long-lasting financial success of the Company to emphasize the relevance of concrete performance metrics in addition to financial metrics in deciding the allocation and evaluation of the annual discretionary incentive plan. In 2011, a minimum production volume of nickel was agreed as a cut-off criterion for Executive Committee bonuses. As this level was not achieved, no bonuses for the year were paid.

Long-term remuneration

Share option plan 2007

By resolution passed at the General Meeting of Shareholders on 28 February 2007, the Company resolved to issue free stock options to the key personnel of the Company and its subsidiaries entitling them, after the split of the Company’s shares 1:70, to subscribe for a maximum of 6,999,300 new shares in the Company (2007 Option Scheme). Pursuant to the terms and conditions of the 2007 Option Scheme, the Board of Directors shall decide upon the distribution of the stock options. The purpose of 2007 Option Scheme is to increase and strengthen the commitment of Talvivaara’s key personnel to the Company.

During 2011, based on the recommendation of the Remuneration Committee, the Board of Directors allocated a total of 952,000 2007C Options to the personnel of Talvivaara and its subsidiaries. At the end of 2011, the number of options available for allocation under the 2007 Option Scheme was 100 2007C Options. A total of 70,000 2007C options were allocated to Mr. Jari Voutilainen, General Manager Business Development, who joined Talvivaara in 2010. Otherwise no options were allocated to members of the Extended Executive Committee.

Holdings of Talvivaara options of the members of the Extended Executive Committee can be reviewed from the Talvivaara Insider Register.

Share options plan 2011

The Annual General Meeting of 2011 resolved to issue stock options partly to the key employees and partly to the personnel of the Company and its subsidiaries. The maximum total number of stock options issued will be 5,500,000 and the stock options entitle their holders to subscribe for a maximum total of 5,500,000 new shares in the Company or to receive existing shares held by the Company. The share subscription price will be based on the trade volume weighted average quotation of the Talvivaara Mining Company Plc share on NASDAQ OMX Helsinki Ltd in March 2011, 2012 and 2013. The subscription price for stock option rights 2011A is 6.33 euros per share. The share subscription period for stock options 2011A, will be 1 April 2014 - 31 March 2016, for stock options 2011B, 1 April 2015 - 31 March 2017 and for stock options 2011C, 1 April 2016 - 31 March 2018. The beginning of the share subscription period requires attainment of certain operational or financial targets determined by the Board of Directors annually. No stock options rights 2011 were allocated in 2011.

The management holding company Talvivaara Management Oy

On 14 December 2010, the Board of Directors of Talvivaara decided on a new shareholding plan directed to members of the Talvivaara Executive Committee and the key personnel of Talvivaara Mining Company Plc (Participants). This plan enables Participants to acquire a considerable long-term shareholding in Talvivaara. Through this plan, the Participants will invest their own funds in Talvivaara’s shares. The Participants partly finance their investments themselves and partly through a loan provided by Talvivaara. Actual owner risk will be borne personally by the Participants, with respect to their personal investment in the plan.

For the purposes of share ownership, the Participants have acquired a limited liability company named Talvivaara Management Oy (Talvivaara Management), whose entire share capital they own. Talvivaara Management acquired a total of 1,104,000 Talvivaara shares. These acquisitions were financed by equity investments in Talvivaara Management on the part of the Participants, to a total amount of EUR 1,432,000, as well as by a loan of EUR 5,728,000 provided by Talvivaara. Some of the Participants financed their equity investments in Talvivaara Management by transferring part or all of their Talvivaara shares to Talvivaara Management.

As part of the plan, the Board of Directors of Talvivaara decided to grant Talvivaara Management an interest bearing loan of a maximum amount of EUR 6,000,000, to finance the acquisition of the Talvivaara shares. The loan will be repaid in full by 31 March 2014, at the latest. Under the applicable terms, should the plan be continued by one year at a time in 2013 or 2014, the term of the loan will be extended correspondingly. Talvivaara Management has the right to repay the loan prematurely at any time. It is also obliged to repay the loan prematurely by selling any Talvivaara shares it holds, in a situation where the quoted price of the Talvivaara share exceeds the average price of the Talvivaara shares acquired for the plan, multiplied by two, during a predetermined number of consecutive trading days.

The plan will be valid until the publication of Talvivaara’s financial statements 2013, after which the intention is to dissolve the plan in a manner to be determined later. The plan may be dissolved e.g. by merging Talvivaara Management with Talvivaara, or by selling the Talvivaara shares held by Talvivaara Management in some other manner. The plan will be continued one year at a time, in case the Talvivaara share price after the publication of Talvivaara’s financial statements 2013 is lower than the average price which Talvivaara Management paid for its Talvivaara shares. 

During the plan’s period of validity, the transfer of Talvivaara shares held by Talvivaara Management Oy is restricted.

	Annual Report 2011 - Remuneration Report