1. In General

The Board of the Securities Market Association approved the Finnish Corporate Governance code in June 2010. The Board of the Exchange adopted the code as a part of the Exchange self-regulation. Finnish listed companies shall comply with the code and according to the Commission of European Union listing companies shall inform how they will comply with the code. The corporate governance system of Finnish listed companies is based on Finnish legislation, and the code complements the statutory provisions. The level of compliance with the corporate governance code has been under scrutiny since it was published in Finland. Executive compensations and other rewarding measures have especially inflamed public opinion and have been the source of newspaper headlines.

  1. The purpose of corporate governance code and remuneration committee

The purpose of the code is to enhance the transparency of Finnish listed companies. It harmonises the practices of listed companies and information given to shareholders and the public. According to the Board of the Securities Market Association, the code also improves the transparency of administrative bodies, management remuneration and remuneration systems. Remuneration and other rewarding systems should be as open to scrutiny as possible in order to retain confidence among investors and general public. This especially concerns State-owned companies.

According to the code, the board of the company may establish a remuneration committee to improve the efficient preparation of matters pertaining to the appointment and remuneration of the managing director and other executives. The establishment of a remuneration committee is to promote transparency in order to avoid misunderstandings and offences in rewarding. The remuneration committee shall act independently, and the board of the company shall define its duties.

  1. Recent development in Finland

On 13 August 2012, the Cabinet Committee for Economic Policy of Finland clarified provisions of the remuneration guidelines of State-owned companies. State-owned companies that operate in competitive markets are presumed to operate according to the terms and conditions of normal business practice. They are not presumed to be more privileged or burdened than their competitors. These companies are allowed to have, if necessary, a remuneration system which is presumed by the State to be fair and reasonably drafted. Compensation shall be predictable and transparent so that everyone involved can assess its efficiency. The State of Finland expects its companies to serve as an example to other companies and to create new best practises, not to just comply with the rules. One of the aims of the statement is to provide a model for State-owned companies to use when drafting their remuneration guidelines so that the highest level of remuneration would be given only rarely and only if very strict conditions are met. Compensation which is based on the achievement of objectives shall be justified by good performance of the company and the employees who receive compensation.

The statement includes nine principles and clarifications thereof. The statement is divided into three categories: listed companies and equivalent unlisted companies, unlisted companies which operate in a competitive market and companies with a special purpose. Each category has its own remuneration guidelines which should be comparable to their competitors. A few examples are as follows:

  1. Only independent members of the board shall participate in the decision making of compensation
  2. Supplementary pension compensation shall not be used in rewarding
  3. The initial salary of new CEO shall be lower than the salary of outgoing CEO

The statement given by the Cabinet Committee for Economic Policy of Finland will substantially clarify the remuneration systems of Finnish State-owned companies. There was a clear need for such statement. While the new guidelines are meant for State-owned companies, it can be presumed that also other listed companies will implement some of the rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.