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Investor Presentaiton

CONSOLIDATED FINANCIAL STATEMENTS | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | OTHERS 6.2 SHARE-BASED PAYMENTS Share based incentive plans KONE has two separate share-based incentive plans, one performance share plan and one restricted share plan. On January 28, 2021, KONE's Board of Directors decided on a new performance share plan, which replaced the existing performance share plans. The new performance plan continues to emphasize profitable growth and as a new measure sustainability. It consists of annually commencing individual share plans, each with a three-year rolling performance period, after which the potential share awards vest. 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 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 target group and targets within the plan as well as possible rewards are decided upon annually by the Board. As part of the performance share plan for the senior management, a long- term target for their ownership has been set. For the Executive Board members, the long-term ownership target is 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 is at least two years' base salary. The 2021 performance share plan is targeted to approximately 55 members of the top management, including the President and CEO, members of the Executive Board and other top management, and approximately 500 other selected key personnel of KONE Group. 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. The restricted share plan serves as a complementary long- term share plan to be used as a commitment instrument for retention and recruitment purposes for top management (excluding the President and CEO) and other selected key persons. The restricted share plan does not have a performance condition. The plan has a commitment period up to three years, after which the potentially granted share Accounting principles Share-based payments KONE has a share-based incentive plan to the senior management of KONE and other key personnel. Pursuant to the share ownership plan, the reward to the management will be settled as a combination of KONE class B shares and cash when the criteria set in the terms and conditions for the plan are met. The fair value of the share-based payments settled with KONE class B shares has been determined at the grant date and will be recognized as an expense over the vesting period. The total amount to be expensed over the vesting period is determined based on the Group's estimate of the number of the shares that are expected to be vested by the end of the vesting period. The impact of any non- market vesting conditions have been excluded, but they are included in assumptions about the number of shares that are Share based incentive plan expected to be distributed. At each statement of financial position date, the Group revises its estimates of the number of shares that are expected to be distributed. It recognizes the impact of the revision of original estimates in the statement of income. The fair value of the cash settled part of share-based payments reward has been determined so that it covers taxes and taxable benefit costs that are incurred. The liability shall be measured, initially and at each reporting date until settled, based on the fair value of the shares expected to be distributed and expensed based on the extent to which the employees have rendered service to date. KONE recognizes the impact of the revision of original estimates, if any, in the statement of income. Share-based payments recognized as an expense in the statements of income, MEUR Jan 1-Dec 31, 2021 28.0 11.4 Jan 1-Dec 31, 2020 23.4 16.3 To be paid in shares To be paid in cash awards will be paid to the participant, provided that their employment or service relationship with KONE Group is in force at the time of payment. As part of the previous share-based incentive plan a total of 171,231 KONE class B shares were delivered in April 2021 to the management as a reward due to the achievement of the targets for the year 2020 and 155,115 shares in January 2021 to other key personnel. During the year 2021 a total of 8,849 of those KONE class B shares were returned to KONE Corporation. The maximum number of shares to be delivered in the first quarter of 2024 as part of the 2021 share-based incentive plan is 751,334 KONE class B shares based on the performance period 2021-2023, reduced by an amount of shares equivalent to the taxes and similar charges that are incurred by the receipt of shares. As part of the restricted share plan, the maximum number of shares granted in 2021 and to be delivered in 2023 is 6,700 KONE class B shares (gross before deduction for applicable taxes) and 8,950 KONE class B shares (gross before deduction for applicable taxes) to be delivered in 2024. 6.3 RELATED PARTY TRANSACTIONS KONE's related parties comprise its subsidiaries as well as the Board of Directors, the President & CEO, and the Executive Board including any companies controlled or significantly influenced by them. The Corporate Controlling function evaluates and monitors transactions between the Group and its related parties to ensure that any conflicts of interest are taken into account appropriately in KONE's decision making process. Except for management remuneration there have not been any material transactions between KONE and its members of the Board of Directors, the President & CEO, the Executive Board including any companies controlled or significantly influenced by them. Information concerning management remuneration is disclosed in note 6.1 and shares held by the 80 KONE ANNUAL REVIEW 2021
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