Letter from the Chairman of the Remuneration Committee

Dear Shareholder,

In early 2016 we launched our new strategy. We also revised the business structure of the company and Leadership Team roles to be better equipped to grow the company in the coming years. We expect that the changes implemented during the year will further improve our competitiveness and financial position in the future.

The Remuneration Committee agenda for 2016 focused on ensuring that the reward practices are market competitive and support strategy execution. Compensation practices in the IT sector vary considerably due to the diverse competition, including large global players, Asian companies as well as smaller local companies and start-ups with innovative niche solutions.

The aim of Tieto’s reward practices is to ensure that we can hire and retain key talent and offer market competitive total compensation. Also, we want to reward our employees for high performance in achieving both individual and company objectives. At the same time, we pay attention to constantly ensuring stable cost structures that build a solid foundation for growth.

To recognize the improvement achieved in our financial and commercial performance in the past years and to ensure competitive compensation compared to other Finnish listed companies of similar size, the base salary of the CEO and President was increased by 9% in 2016. In addition, the Board of Directors decided on a special share-based long-term incentive to the CEO related to the successful execution of the new strategy by 2020. The salaries of the Leadership Team members were also reviewed and revised where needed to reflect their new responsibilities and performance.

At the beginning of 2016, the Remuneration Committee approved the incentive payouts for the financial year 2015. Tieto paid out a total of EUR 27.5 million to the management and employees as short-term incentives and bonuses. That reflects the positive development of profitability while the amount is somewhat below the target-level incentives due to the tough targets we had set for ourselves. The 2015 short-term incentive payout to the President and CEO was based on both the agreed financial goals and success in strategy execution. During the year, the Remuneration Committee also reviewed the short-term incentive performance targets for 2016 and ensured that they are aligned with our new growth strategy. The committee closely followed up the progress and performance throughout the year.

In March 2016, the final share delivery of the 2012–2014 Long-Term Incentive Plan was completed. For the President and CEO and the Leadership Team members, the related shares were already delivered in March 2015. However, the shares have a restriction period of two years and are free to be traded only in 2017.

In early 2016, the Board of Directors approved a new Long-Term Incentive Plan for 2016–2018 based on the recommendation from the Remuneration Committee. The purpose of the Long-Term Incentive Plan is to ensure that the company will meet the long-term targets and to align the interests of the management and shareholders. It is also a key element in the total compensation of the management, which directly links the paid compensation to the company’s success. For the 2016–2018 plan, the performance metrics were agreed to be earnings per share, total shareholder return and growth. At the end of 2016, the Remuneration Committee started preparing a new long-term plan for the coming years with a continued focus on growth and profitability.

In 2014, the Board of Directors approved a share-based reward plan beyond the regular Long-Term Incentive Plans. The President and CEO as well as a group of senior leaders, who were identified to be critical for the success of Tieto, were nominated to the plan. The share delivery from the plan took place in early 2017 following the criteria for the plan.

Markku Pohjola
Chairman of the Remuneration Committee