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SHARE-BASED INCENTIVES AND OPTIONS

KONE has a share-based long-term incentive plan. KONE no longer has option programs in place.

Share-based long-term incentive plan

KONE Corporation's Board of Directors decided on January 28, 2021 to launch a new share-based long-term incentive plan. To support long term value creation and align interests of shareholders and management, the new performance share plan measures performance over three years compared to one-year performance in the previous performance share plans. The new plan will replace the existing performance share plans.

The new performance share plan continues to emphasize profitable growth and as a new measure sustainability. Incorporating sustainability measures into the performance share plan for management ensures a strong focus in driving transformation and achieving our sustainability ambitions.

The target group and targets within the plan as well as possible rewards are decided upon annually by the Board. The company's Board Members are not included in the plan. The performance share plan consists of annually commencing individual share plans, each with a three-year rolling performance period. If the participant's employment or service relationship with KONE Group terminates before the end of the performance period, the participant, as a rule, forfeits the share award without compensation. The potential reward will be paid as a combination of KONE class B shares and a cash payment equivalent to the taxes and similar charges that are incurred from the receipt of the shares. A long-term target for share ownership has been set as part of the plan for the senior management of KONE.

The commencement of each individual plan within the performance share plan structure is subject to a separate approval of the Board.

In addition to the above, KONE operates a restricted share plan that serves as a complementary long-term share plan to be used as a commitment instrument for retention and recruitment purposes for top management and other selected key persons. The plan has a commitment period up to 3 years, after which the potentially granted share awards for an individual plan will be paid to the participant in KONE class B shares, provided that their employment or service relationship with KONE Group is in force at the time of payment. This number of shares represents gross earnings, from which the applicable withholding tax is deducted and the remaining net amount is paid to the participant in shares.

Performance share plan 2021

The first plan according to the new incentive plan commences as of the beginning of 2021 and any potential share awards under the plan will be paid out in spring 2024, if the performance criteria set by the Board for 2021-2023 are achieved.

The performance criteria applied to the 2021 performance share plan are based on annual growth in sales, adjusted EBIT margin and improvements in sustainability. The sustainability performance condition is a combination of reductions in carbon footprint, diversity and inclusion as well as safety related targets. KONE's Board of Directors has the possibility to change the basis of the target setting annually.

Approximately 55 members of the top management and 500 other selected key persons of KONE Group are eligible to participate in the 2021 performance share plan.

Previous share-based incentive plans

In December 2015, KONE’s Board of Directors decided that KONE’s share-based remuneration will be based on two separate plans starting from the financial year 2016.

One share-based incentive plan was targeted for the senior management of KONE including the President & CEO, members of the Executive Board and other top management, consisting of approximately 60 individuals. A second plan was targeted for other key personnel of KONE, totaling approximately 450-500 individuals. The potential reward was based on KPIs as decided by the Board on an annual basis in line with the strategic targets. In 2020, the reward was based on sales growth and profitability as well as growth of KONE’s digital services in both plans. The potential reward is to be paid as a combination of KONE class B shares and a cash payment equivalent to the taxes and similar charges that are incurred from the receipt of shares.

The share-based incentive plans had a vesting period of three years, including the performance period. If the participant’s employment or service contract was terminated during the vesting period, they were either obliged to return the shares already received or lost the entitlement to the shares they had not yet received. As part of the plan for the senior management, a long-term target for their ownership was set. For the Executive Board members, the long-term ownership target was that the members have an ownership of KONE shares corresponding to at least five years’ annual base salary. For other selected top management positions the ownership target was at least two years’ base salary.

As part of the share-based incentive plan a total of 294,497 KONE class B shares were granted in April 2020 and a total of 38,013 KONE class B shares were granted in May 2020 to the management as a reward due to the achievement of the targets for the year 2019 and 217,499 shares in January 2020 to other key personnel. April 2021, a total of 175,461 class B shares will be granted to the senior management as a reward due to the achievement of the targets for the year 2020. To the other key personnel of KONE the total reward from the year 2020 is based on the value of 186,265 KONE class B shares to be delivered in January 2023 and reduced by such an amount of shares to be equivalent to the taxes and similar charges that are incurred by the receipt of shares.

Option programs

KONE no longer has option programs in place. More information on the previous option rights can be found below.

Previous option rights

Option rights 2007 were granted according to the decision of the Board of Directors on December 5, 2007 to approximately 350 employees of its global organization based on the authorization received from the shareholders meeting at February 26, 2007. The stock options were marked with the symbol 2007 and a maximum total of 2,000,000 options were offered. The original share subscription price on April 1, 2010 was EUR 22.845. The share subscription price was reduced in situations mentioned in the terms, for example with dividends distributed before the subscription of the shares. Each stock option entitled its holder to subscribe for two (2) class B KONE share. The share subscription period for stock options 2007 was April 1, 2010 - April 30, 2012. The Board of Directors confirmed on January, 26 2010 that the criteria of the stock option program 2007 had been attained and therefore resolved that the share subscription period would begin on April 1, 2010 as stated in the terms. The share subscription period was to begin only if the average turnover growth of the KONE Group for financial years 2008 and 2009 exceeded market growth and if the earnings before interest and taxes (EBIT) of the KONE Group for the financial year 2008 exceeded the EBIT for the financial year 2007, and the EBIT for the financial year 2009 exceeded the EBIT for the financial year 2008. KONE 2007 option rights were listed on the NASDAQ OMX Helsinki Ltd list on April 1, 2010 respectively. The subscription period for the 2007 option rights ended on April 30, 2012.

Option rights 2010 were granted according to the decision of the Board of Directors on July 20, 2010 to approximately 430 key employees. The decision was based on the authorization received from the Shareholders Meeting on March 1, 2010. A maximum total of 3,000,000 options could be granted. The original share subscription price for the option was EUR 17.50 per share and it was further reduced in situations mentioned in the terms, for example with dividends distributed before the subscription of the shares. Each option entitled its holder to subscribe for two (2) new class B share. The share subscription period for the stock option 2010 was April 1, 2013 - April 30, 2015. The share subscription period began on April 1, 2013, as the financial performance of the KONE Group for the financial years 2010–2012, based on the total consideration of the Board of Directors, was equal to or better than the average performance of key competitors of KONE. The 2010 stock options were listed on the NASDAQ OMX Helsinki Ltd as of April 2, 2013. The subscription period for the KONE 2010 option rights expired on April 30, 2015. The 896,000 KONE 2010 option rights held by KONE Capital Oy, a subsidiary of KONE Corporation, and otherwise unused 105 KONE 2010 option rights have expired upon the expiry of the subscription period.

Option rights 2013 were granted according to the decision of the Board of Directors on January 24, 2013 to approximately 480 employees. The decision was based on the authorization received from the shareholders' meeting on March 1, 2010. A maximum total of 750,000 options were granted. The original share subscription price for the stock option was 29.125 euros per share and it was further reduced in situations mentioned in the terms, for example with dividends distributed before the subscription of the shares. Each stock option entitled its holder to subscribe for two (2) new class B KONE shares. The share subscription period for the stock options 2013 was April 1, 2015 - April 30, 2017. The share subscription period began because the financial performance of the KONE Group for the financial years 2013-2014, based on the total consideration of the Board of Directors, was equal to or better than the average performance of the key competitors of KONE. The subscription period for the KONE 2013 option rights expired on April 30, 2017. The 55,000 KONE 2013 option rights held by KONE Capital Oy, a subsidiary of KONE Corporation, expired upon the expiry of the subscription period.

Option rights 2014 were granted according to the decision of the Board of Directors on December 20, 2013 to approximately 550 employees. The decision was based on the authorization received from the shareholders' meeting on March 1, 2010. The stock options were to be marked with the symbol 2014 and a maximum total of 1,500,000 options were granted. Each stock option entitled its holder to subscribe for one (1) new class B KONE share. The share subscription period for the stock options 2014 was April 1, 2016 - April 30, 2018. The share subscription period began as the financial performance of the KONE Group for the financial years 2014-2015 based on the total consideration of the Board of Directors was equal to or better than the average performance of the key competitors of KONE. The original share subscription price for the stock option was 31.80 euros per share and was further reduced in situations mentioned in the terms, for example with dividends distributed before the subscription of the shares. The subscription period for the KONE 2014 option rights expired on April 30, 2018. The 133,000 KONE 2014 option rights in possession of KONE Corporation’s subsidiary, and the 4,060 KONE 2014 option rights not exercised during the subscription period expired upon the end of the subscription period.

Option rights 2015 were granted according to the decision of the Board of Directors on December 18, 2014 to approximately 560 employees. The decision was based on the authorization received from the shareholders' meeting on March 1, 2010. The stock options were marked with the symbol 2015 and a maximum total of 1,500,000 options were to be granted. Each stock option entitled its holder to subscribe for one (1) new class B KONE share. The share subscription period for the stock options 2015 was April 1, 2017 - April 30, 2019. The share subscription period began as the financial performance of the KONE Group for the financial years 2015-2016 based on the total consideration of the Board of Directors was equal to or better than the average performance of the key competitors of KONE. The original share subscription price for the stock option was 36.20 euros per share and was further reduced in situations mentioned in the terms, for example with dividends distributed before the subscription of the shares. The share subscription period for the 2015 option rights ended on April 30, 2019. The 131,000 KONE 2015 option rights in possession of KONE Corporation’s subsidiary, and the 6,110 KONE 2015 option rights not exercised during the subscription period have expired upon the expiry of the subscription period.

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