Remuneration for management bodies [GRI 102-36]

Taking into account the structure of the Company’s management bodies and the subordination of their members, the Company has two documents governing the payment of remuneration: for members of the Board of Directors who are accountable to the General Meeting of Shareholders and people elected by them, and for members of the Management Board who are appointed and accountable to the Board of Directors.

The remuneration policy for Inter RAO management and the Board of Directors is based on the principles enshrined in the Corporate Governance Code.

The procedure for paying remuneration to members of the Board of Directors and the Management Board is regulated by the following regulatory documents:

  • Remuneration is paid to members of the Board of Directors and members of committees of the Board of Directors in accordance with the Regulation on the Payment of Remuneration and Compensation to Members of the Board of Directors of PJSC Inter RAO Approved by the Annual General Meeting of Shareholders of PJSC Inter RAO on May 20, 2019 (Minutes No.19 dated May 20, 2019). ;
  • The procedures for determining the amount of remuneration for the CEO and members of the Management Board and its payment is specified in the Regulation on Material Incentives for the Chairman and Members of the Management Board of PJSC Inter RAO Approved by a resolution of the Company’s Board of Directors dated November 1, 2013 (Minutes No.103 dated November 5, 2013) with amendments and additions dated December 29, 2016 (Minutes No. 189 dated December 30, 2016) and December 9, 2014 (Minutes No.129 dated December 12, 2014). .

These documents are tentatively reviewed by the Nomination and Remuneration Committee of the Board of Directors. Their use is limited solely to members of the PJSC Inter RAO Board of Directors and members of the PJSC Inter RAO Management Board. Remuneration for members of the Strategy and Investment Committee who are not members of the Board of Directors is determined by the Regulation on this Committee.

Report on adherence to the principles of the remuneration policy for members of the Board of Directors and the Management Board and CEO [GRI 102-35]

The Nomination and Remuneration Committee of the Board of Directors reviews the remuneration system on an annual basis. In the event of changes in the internal and external environment, the Committee makes the appropriate recommendations.

The report is based on principle 2.1.4 of the Corporate Governance Code, which asserts the role of the Board of Directors as a body that determines the policy on remuneration and/or the reimbursement of expenses (compensation) of members of the Company’s Board of Directors, executive bodies, and other key managers.

In 2019, the report on the practical implementation of the principles of the remuneration policy and the practice of its implementation, including the application of the effective ratio of fixed and variable parts of remuneration, was considered at an in-person meeting of the Committee on December 11, 2019 Minutes No.110 dated December 11, 2019 . When preparing the report, 29 recommendations of the Corporate Governance Code concerning the remuneration policy were analyzed. Detailed information about compliance with the provisions of the Code is provided in Appendix of this Report.

Upon reviewing the Report, the Nomination and Remuneration Committee of the Board of Directors noted:

  1. The remuneration system for members of the PJSC Inter RAO Board of Directors fully complies with the principles set forth in the Corporate Governance Code.
  2. The remuneration policy contains transparent mechanisms for determining the amount of remuneration for members of the Board of Directors and also regulates all types of payments, benefits, and privileges granted to these persons.
  3. Fixed annual remuneration is the only form of monetary remuneration for members of the Board of Directors. No forms of short-term incentive or additional financial incentives are used for members of the Board of Directors.
  4. In accordance with the recommendations of the Nomination and Remuneration Committee dated December 13, 2018 Minutes No.92 dated December 13, 2018 , which were prepared by the Committee based on an analysis of the incentive system for members of the Board of Directors of the largest Russian issuers with comparable market capitalization, the new version of the Regulation on the Payment of Remuneration and Compensation to Members of the PJSC Inter RAO Board of Directors was submitted to the Annual General Meeting of Shareholders for approval in 2019. The Regulation was approved by the Annual General Meeting of Shareholders on May 20, 2019. As a result, the basic component of remuneration for members of the PJSC Inter RAO Board of Directors was increased to RUB 6 mln in 2019 and reached the median level compared with major Russian issuers. The level of remuneration for members of the Board of Directors is sufficient to attract recognized experts to work on the Board of Directors, including in comparison with peer companies.
  5. The option program approved by the Board of Directors in February 2016 was completed in 2018. A new long-term incentive program for the Company’s management should not be developed until the updated Inter RAO Development Strategy is approved for the next long-term period. The review of the updated Development Strategy is included in the work plan of the PJSC Inter RAO Board of Directors for May 2020.

Procedure for determining remuneration for the Board of Directors

The amount of remuneration paid to members of the Board of Directors is calculated using the following formula Generalized indicators. Presented in full in the Regulation on the Payment of Remuneration and Compensation to Members of the Board of Directors. :
Rmbd
The amount of remuneration per member of the Board of Directors


Rbasic
The basic component of remuneration, which amounts to RUB 6 mln per corporate year


j
The number of meetings attended (in person and in absentia)


m
Total number of meetings (in person and in absentia)


n
Number of meetings attended (in person)


k
Total number of meetings (in person and in absentia)


T
The period during which a member exercises powers (months)

Remuneration is increased by 30% for the Chairman of the Board of Directors, by 15% for chairmen of committees of the Board of Directors, and by 10% for committee members for participation in the work of each committee. These supplements are cumulative. Remuneration is not paid if a member of the Board of Directors attends less than 50% of the meetings held (from the time the member is elected until the termination of the member’s powers) (both in person and in absentia).

Regulation the on Payment of Remuneration and Compensation to Members of the PJSC Inter RAO Board of Directors

The Regulation also envisages reimbursement for members of the PJSC Inter RAO Board of Directors based on actual expenses, such as expenses for traveling to and from the meeting place of the Board of Directors and its committees as well as accommodation expenses, and also regulates the ownership of Company shares by members of the Board of Directors.

The Company does not employ other forms of remuneration, including short-term and long-term forms of incentive that depend on financial results or share-based forms of incentive (stock options). In the event of the early termination of the powers of a member of the Board of Directors, no other payments are made apart from those envisaged by the Regulation on the Payment of Remuneration and Compensation to Members of the PJSC Inter RAO Board of Directors.

The Regulation does not apply to members of the Company’s Board of Directors who are members of the Company’s Management Board.


The Regulation is available on the website.

Amount of remuneration for the Board of Directors
Personal remuneration for the Chairman and members of the Board of Directors in 2019 (net of tax), RUBRemuneration is indicated only for work on the PJSC Inter RAO Board of Directors. Apart from CEO Boris Kovalchuk, members of the Board of Directors do not hold positions in management bodies or executive positions at the Group’s organizations. Information on remuneration for the Company’s CEO for work in the management bodies of the Company’s controlled entities is presented in the section ‘Remuneration for the CEO and members of the Management Board’ of this Report.
Name Total, Value Basic component, for attending meetings of the Board of Directors Additional remuneration, including Compensation for expenses associated with attending meetings of the Board of Directors
For chairing the Board of Directors (30%) For chairing the committees of the Board of Directors (15% of basic component) For membership in the committees of the Board of Directors (10% of basic component)
Boris Ayuyev 5,220,000.00 5,220,000.00
Andrey Bugrov 6,133,500.00 4,906,800.00

736,020.00

(1 committee)

490,680.00

(1 committee)

Anatoly Gavrilenko 4,275,860.61 4,275,860.61
Alexander Lokshin 5,222,723.43 4,747,930.39

474,793.04

(1 committee)

Andrey Murov 4,593,600.00 4,593,600.00
Ronald James Pollett 7,047,000.00 5,220,000.00

783,000.00

(1 committee)

1,044,000.00

(2 committees)

240,560.72
Yelena Sapozhnikova 5,971,680.00 4,593,600.00

1,378,080.00

(3 committees)

Igor Sechin (Chairman) 4,543,669.70 3,495,130.54 1,048,539.16
Denis Fedorov 3,967,200.00 3,967,200.00
Total 46,975,233.74 41,020,121.54 1,048,539.16> 1,519,020 3,387,553.04 240,560.72
Changes in remuneration for members of the Board of Directors, RUB thousand Remuneration for the Chairman of the Board of Directors is transferred for charitable purposes.

The remuneration due to Chairman of the Board of Directors Igor Sechin in the amount of RUB 7,305,300, which the Company transferred for charitable purposes in 2016, included remuneration accrued for 2015 in the amount of RUB 3,405,300 and remuneration accrued for 2016 in the amount of RUB 3,900,000.
Changes in remuneration for members of the Board of Directors

Procedure for determining remuneration for members of the Management Board and CEO

Principle of transparency

In order to increase information transparency, the Nomination and Remuneration Committee decided to publish information on the amount of remuneration for the CEO and members of the Management Board on Inter RAO’s official website.

The remuneration system for members of the PJSC Inter RAO Management Board aims to ensure their financial interest in achieving strategic goals and improving the economic efficiency of management.

The remuneration system for members of the Company’s Management Board was developed based on an analysis of the incentive practices of leading Russian and international companies and aims to ensure a fair and competitive level of remuneration.

The financial interest of members of the Management Board in achieving the Company’s strategic goals is achieved through short-term and long-term incentive systems.

The amount of variable payments to members of the Company’s Management Board depends on the fulfillment of key performance indicators (KPIs), which enables management to focus on achieving Inter RAO’s annual strategic and priority objectives/indicators that must be fulfilled in order to implement the Strategy/Long-Term Development Program.

Target ratio of the total income components of the CEO and members of the PJSC Inter RAO Management Board
Target ratio of the total income components of the CEO and members of the PJSC Inter RAO Management Board

The terms of employment contracts with members of the Management Board and the CEO are approved by the Board of Directors in accordance with the Company’s Charter.

The Company employs a procedure that ensures the return to the Company of bonuses that were wrongly received by members of the executive bodies and other key managers of the Company Changes to the Regulation on Material Incentives for the Chairman and Members of the Management Board were approved by a resolution of the Company’s Board of Directors dated December 29, 2016 (Minutes No.189 dated December 30, 2016). . There have been no such cases in the practice of PJSC Inter RAO.

The amount of one-time compensation paid to an employee in the event of the termination (early termination) of an employment contract at the employer’s initiative is recorded in employment contracts with members of the Management Board and the CEO in the amount of three average monthly salaries.

In 2018, the Group decided to cancel remuneration for representatives of management on the boards of directors of controlled entities.

Main components of the incentive system for the Company’s executive bodies
Salary The salary level is consistent with market conditions, which ensures the stability of the Company’s management. The official salaries of the CEO and members of the PJSC Inter RAO Management Board were indexed in 2019 based on a recommendation from the Nomination and Remuneration Committee of the Board of Directors. Minutes No. 251 dated June 28, 2019.
Short-term incentives for management

Annual bonus based on the fulfillment of KPIs.

A manager’s annual bonus is calculated based on the actual KPI values achieved per the Company’s performance results. The Company’s KPI system is interconnected with its business plan, including the Company’s Investment Program, strategy, and executive discipline.

In 2019, a new version Minutes No. 259 dated November 25, 2019. of the Regulation on Key Performance Indicators of PJSC Inter RAO was approved that takes into account the requirements of the Federal Agency for State Property Management.

Special bonus for achieving EBITDA.

Additionally, based on the results of the fulfillment of annual net profit indicators, the Company’s directors are paid a special annual bonus that is calculated based on the Company’s consolidated financial statements prepared in accordance with IFRS. A condition for the payment of the bonus is the achievement of the indicator ‘Implementation of the Company’s strategic priorities.’ The special bonus for the Chairman of the Management Board is 0.1% of EBITDA, while for other managers it is calculated using a special formula depending on the bonus amount for the CEO.

Based on the decision of the Board of Directors, members of the Management Board may receive (one-off) bonuses for completing especially important tasks.
Long-term incentives for management

Option program (executed in 2018).

The basic principles of the new long-term incentive program will be presented as part of the updated PJSC Inter RAO Development Strategy.

Benefits and other types of remuneration

Insurance coverage:
› Using voluntary health insurance programs
› Professional liability insurance (D&O)
› Accident insurance
› Use of corporate mobile communications
› Motor transport service
Other types of compensation and remuneration in accordance with the employment contract, whose terms are determined by the Company’s Board of Directors.

Remuneration for senior officials at controlled companies

Remuneration and financial incentives for the sole executive bodies of the Group’s subsidiaries are set on the basis of an employment contract as well as the Regulation on Financial Incentives for the CEO approved by the Board of Directors of the respective controlled entity, which establish the following components of the system:

  • Official salary
  • Additional incentives and compensation payments to directors
    – A bonus to directors upon the Company’s fulfillment of annual KPIs
    – A one-time bonus payment to directors for their contribution to the Company’s development or in connection with awards for directors
    – Financial incentives for directors in accordance with an additional resolution of the Board of Directors concerning incentives for the director of the Company

The amount of the official salary as well as bonuses for the director of a controlled entity are determined by a resolution of the Board of Directors in accordance with the Regulation.

KPI system

The Board of Directors approves the list of annual KPIs and BPs as well as their target values for the CEO and members of the Company’s Management Board as determined on the basis of the approved strategic development priorities and the business plan. At the end of the year, the Company’s Board of Directors considers the fulfillment of the KPIs and BPs for the relevant period based on the recommendations of the Nomination and Remuneration Committee. If the Company fulfills all the BPs and achieves the target ‘Lower Level’ value for the relevant KPIs, a decision is made on the appropriate remuneration for managers based on the Company’s performance results.

Financial and economic indicators of the KPI and BP system of PJSC Inter RAO in 2019

Return on equity (ROE) KPI
The indicator determines the efficiency of equity usage, i.e. the Company’s income per ruble of its own funds. It indicates the efficiency of the use of the portion of equity that belongs to shareholders, rather than all equity (or assets).

Weight:

20%

Lower level
95% (13.08)

Target level
100% (13.77)

Upper level
110% (15.14)

Mandatory indicator

Total shareholder return (TSR) KPI
The indicator determines the market return for the Company and represents the shareholders’ rate of return as a result of changes in stock exchange quotations and the distribution of dividends.

Weight:

10%

Lower level
N/A

Target level
≥ AvgAvg – The Company’s TSR is equal to or higher than the weighted average liquidity value of the TSR for companies included in the Moscow Exchange Electricity Index (MICEX PWR) for the reporting year.

Upper level
≥ Avg (+) Avg (+) – the Company’s TSR is higher than the average weighted TSR value in terms of liquidity for companies included in the Moscow Exchange Electricity Index (MICEX PWR) for the reporting year and is positive. The fulfillment percentage increases by 10 p.p.

Mandatory indicator

Operating cash flow KPI
The indicator describes the ability to maintain a certain level of solvency and ensure coverage of existing debt obligations with the required liquidity. This indicator is not part of the list of mandatory financial and economic indicators and, per the Regulation, falls within the category of an Indicator at the Discretion of the Board of Directors.

Weight:

15%

Lower level
95% (81,217)

Target level
100% (85,492)

Upper level
110% (94,041)

Optional indicator

EBITDA/person KPI
This indicator determines the labor productivity of the Company’s employees and describes the efficiency of manpower utilization. Positive trends in this indicator are achieved through implementing measures that aim to improve the attributes of personnel and the organizational structure of the Group’s companies. Per the Regulation, this indicator falls within the category of an Indicator at the Discretion of the Board of Directors.

Weight:

15%

Lower level
95% (2.2)

Target level
100% (2.3)

Upper level
110% (2.5)

Optional indicator
The total weight of the financial and economic indicators is 60% of the sum of the weight of all the indicators of PJSC Inter RAO, which is consistent with the requirements of the Regulation.

The list of KPIs and PBs of PJSC Inter RAO for 2019 was compiled taking into account the requirements of the Regulation on Key Performance Indicators of PJSC Inter RAO, which was approved by a resolution of the PJSC Inter RAO Board of Directors dated December 25, 2014Minutes No. 131 dated December 29, 2014.. Per the Regulation, the list of KPIs and PBs contains financial, economic, and industry-specific indicators as well as bonus cancelation indicators (PB). The total number of financial and economic indicators is limited to seven, while their total sum should range from 50% to 70% of the total sum of all indicators. The Regulation also identifies a list of mandatory indicators from which indicators with a total weight of at least 30% of the total weight of all the Company’s indicators can be selected.

Per the Regulation, the total number of industry-specific indicators should be no more than four, and the total weight of these indicators should range from 30% to 50% of the sum of the weight of all the Company’s indicators. The list of industry-specific indicators is publicly available in accordance with the Regulation.

The following indicators have been set for PJSC Inter RAO in 2019 as industry indicators that take into account the specifics of the Company’s activities and the state policy regarding the development of the Company and the industry as a whole.

Sectoral indicators of the KPI and BP system of PJSC Inter RAO in 2019

Investment Program fulfillment KPI
This indicator is set to achieve the following strategic objectives:
› Ensuring reliability and energy security
› Improving the operating efficiency of generating assets
› Ensuring modernization and technological development
› Increasing installed capacity through the implementation of investment projects within the set time limits and the approved estimated cost
This KPI is used to assess the fulfillment of the Investment Program in terms of the funding and spending of capital investments and the commissioning of generating capacity.

Weight:

20%

Lower level
80%

Target level
100%

Upper level
100%
(+savings)

Mandatory indicator

Integrated innovation index fulfillment KPI
An integrated innovation index is established to assess the effectiveness of innovative activities and, among other things, envisages a combination of four indicators: the number of the Inter RAO Group’s intellectual property items for the reporting year; the percentage of R&D expenditures in the Inter RAO Group’s revenue; the percentage of new advanced technologies in the total capacity of the Group’s TPPs; and the quality of the drafting (updating) of the innovative development program/implementation of the innovative development program.

Weight:

20%

Lower level
90%

Target level
100%

Upper level
110%

Mandatory indicator

The total weight of the industry-specific indicators is 40% of the sum of the weight of all indicators of PJSC Inter RAO, which is consistent with the requirements of the Regulation.

The total weight of all key performance indicators of PJSC Inter RAO established for 2019 is 100%.

To enhance the efficiency of the Company’s business management, bonus cancelation indicators (targets) are used per the Regulation.


The list of cancelation indicators is publicly available in accordance with the Regulation. The following bonus cancelation indicators for PJSC Inter RAO were set for 2019:

PB for the implementation of the instructions of the PJSC Inter RAO Board of Directors
This indicator describes the accuracy and timeliness with which the Company’s management fulfills the instructions of the Board of Directors.

Weight for the purpose of financial incentives for the CEO Up to 25%

PB for the implementation of the (routine and priority) instructions of the Chairman of the PJSC Inter RAO Management Board
This indicator describes the accuracy and timeliness with which members of the Management Board fulfill the instructions of the CEO.

Weight for the purpose of financial incentives for members of the Management Board Up to 100%

Debt/EBITDA PB
This indicator is a generally recognized global indicator that describes the Company’s level of debt burden and its ability to pay off existing liabilities.

Weight for the purpose of financial incentives for the CEO and members of the Management Board 25%

PB for reducing operating expenses by 2-3% annually
This indicator aims to improve the Company’s operating efficiency through the implementation of targeted cost optimization parameters based on the corresponding cost items.

Weight for the purpose of financial incentives for the CEO and members of the Management Board 20%

PB for the absence of fatal accidents or group accidents involving employees of the Inter RAO Group
This indicator describes the Group management’s performance with regard to ensuring occupational health and safety.

Weight for the purpose of financial incentives for the CEO and members of the Management Board Up to 15%

Information about target KPIs for the current and subsequent years is presented in the section ‘Report on the fulfillment of key performance indicators’ of this Report.

Amount of remuneration for members of the Management Board and CEO

In 2019, no agreements were concluded with members of the Company’s management bodies in which the terms differ significantly from market conditions or entail property (financial) benefit (except for loans).

Remuneration for the CEO, RUB thousand
Indicator 2019
Salary 101,054.8
Bonuses (short-term incentive) 201,985.4
Compensation
Other types of remuneration
Total 303,040.2
Remuneration for the CEO and members of the Management Board, RUB thousand
Indicator 2019
Salary 364,772.8
Bonuses (short-term incentive) 802,393.3
Compensation 0
Other types of remuneration 6,818.7
Total 1,173,984.8

In 2019, members of the Company’s Management Board received RUB 17,017,000 for their participation in the management bodies of the Group’s companies. The amounts are given after tax. When converting foreign currency into rubles, the exchange rate as of December 31, 2019 was used. These funds comprise the amount of remuneration for performing the functions of the sole executive bodies paid in accordance with the law. Members of the Management Board and other employees of the Company do not receive remuneration for participating in the work of the boards of directors (supervisory boards) of controlled entities.

Information disclosing the amount of remuneration is available on the Company’s official website.