Annual remuneration report
This section summarises remuneration paid out to directors for the 2016 financial year, and details of how the Remuneration Policy will be implemented in the 2017 financial year.
Executive director’s remuneration
In 2016, the CEO, Alexander Frolov, was entitled to a base salary, a performance-related bonus and provision of benefits. As a member of the Board, he is also entitled to a directors' fee (US$150,000) and any applicable fees for participation in the work of the Board Committees as laid out in the section below on non-executive director remuneration. However, the Committee considers these fees to be incorporated in his base salary. Alexander Frolov's current shareholding (10.68% of issued share capital as of 1 March 2017) provides alignment with the delivery of long-term growth in shareholder value. As such, the Committee does not consider it necessary for the CEO to participate in any long-term incentive plans or to impose formal shareholding guidelines. However, the Committee will continue to review this on an ongoing basis.
Single total figure of remuneration (audited)
|Alexander V. Frolov||2016 (US$)||2015 (US$)|
|Salary and director fees 1||2,500,000||2,500,000|
The current CEO salary was approved by the Committee on 23 May 2008 at US$2,500,000 (which includes, for the avoidance of doubt, the directors' fee, fees paid for Committee membership and any salary from an EVRAZ plc subsidiary).
For 2016, the CEO's salary will remain unchanged at US$2,500,000.
Pension and benefits (audited)
The CEO does not currently receive any pension benefit. Benefits consist principally of private healthcare.
The CEO is eligible for a performance-related bonus that is paid in cash following the year end, subject to the agreement of the Committee and approval by the Board of Directors. The bonus is linked to achieving performance conditions based on predetermined targets set by the Board of Directors. The target bonus is 100% of base salary with a maximum potential of 200% of base salary.
Annual bonus for 2016 (audited)
The bonus is linked to the Group’s main quantitative financial, operational and strategic measures during the year to ensure alignment with the key aspects of Group performance and strategy. For 2016, the following five indicators, each with an equal weighting of 20%, were taken into account when determining the CEO's annual bonus: LTIFR, EBITDA, Free Cash Flow (adjusted for disposals higher than US$50 million), Cash Cost Index and Board assessment of overall performance against strategic objectives.
The Committee reviews the resulting bonus payout to ensure that it is appropriate in light of the Group’s overall performance.
Despite a highly volatile business environment in 2016, EVRAZ generally outperformed its financial targets, resulting in an annual bonus payout of 40.78% of the maximum. Management focused on best utilisation of temporary market improvements: domestic steel price growth in Q2 and export coal and iron ore price rises in Q4. These efforts, along with tight control over operational efficiency and investments, have helped to overcome the market fall in Q1 and mitigate logistics issues in Russia. Free cash flow was negatively affected by transaction costs associated with earlier debt repayment. However, the working capital optimisation drive fully compensated for this.
The Committee determined that this level of vesting is reflective of the Company’s overall financial performance and commensurate with the shareholder experience.
|KPIs||Result Measurement||Actual 2016||Bonus payout (% of max)|
|Threshold||Planned level (% of target)||Outstanding|
|Cash cost index||110%||100%||90%||105%||24.4|
|BoD discretion||Committee assessment of overall Company performance during the year, including consideration of operational performance, financial performance, shareholder value creation, outcome of key projects and stakeholder relationship management.||See section Board assessment of overall performance||50.0|
Board assessment of overall performance
EVRAZ’ Remuneration policy stipulates that the discretionary portion of the bonus should reflect the CEO’s performance in relation to the Group’s key strategic priorities, as well as his efforts to ensure its long-term success. The key reasons to award the discretionary portion of the bonus in full are:
- The business stabilised in 2016
- Progress was made on all key strategic priorities amid very volatile times for the Group
- Net debt was reduced by 10% year-on-year
- In terms of portfolio development, EVRAZ continued to grow and retained its leadership positions in the targeted value-added segments (rails, long steel, and premium coking coal)
- Costs were reduced by more than US$300 million, allowing the Group to retain one of the world’s lowest cost positions
- The CEO placed a strong focus on developing senior management talent, which allowed them to implement appropriate and timely changes to strengthen the performance of EVRAZ’ executive team
Annual bonus for 2017
For 2017, the bonus framework will be in line with 2016. Forward targets are considered by the Board to be commercially sensitive; however, they will generally be disclosed in the subsequent year. In line with previous years, a malus arrangement will apply under which bonus payouts may be adjusted downwards to reflect the overall performance of the Group.
Non-executive directors’ remuneration
Non-executive directors’ remuneration payable in respect of 2016 and 2015 is set out in a table below.
A non-executive director’s remuneration consists of an annual fee of US$150,000 and a fee for Committee membership (US$24,000) or chairmanship (US$100,000 for chairmanship of the Audit Committee and US$50,000 for other committees). For reference, the fees payable for the chairmanship of a Committee include the membership fee, and any director elected as chairman of more than one Committee is generally entitled to receive fees in respect of one chairmanship only. The fee for the chairman of the Board amounts to US$750,000 from 1 March 2012 (this fee includes, for the avoidance of doubt, directors' fees and fees paid for Committee membership).
Fees will remain unchanged for 2017..
|Non-executive director||2016 (US$ thousand)||2015 (US$ thousand)|
|Total fees Total fees include annual fees and fees for Committee membership or chairmanship (pro rata working days).||Admin The Group contributes an annual amount of US$30,000 towards secretarial and administrative expenses of non-executive directors. In addition to the amounts disclosed above, the Group reimburses directors’ travel and accommodation expenses incurred in the discharge of their duties.||Total||Total fees Total fees include annual fees and fees for Committee membership or chairmanship (pro rata working days).||Admin The Group contributes an annual amount of US$30,000 towards secretarial and administrative expenses of non-executive directors. In addition to the amounts disclosed above, the Group reimburses directors’ travel and accommodation expenses incurred in the discharge of their duties.||Total|
|Alexander G. Abramov||750||30||780||750||30||780|
|Duncan Baxter Resigned on 14 March 2016||84||6.25||90.25||224||30||254|
|Olga Pokrovskaya Resigned on 14 March 2016||74.25||6.25||80.5||198||30||228|
|Sir Michael Peat||219||30||249||216.2||30||246.2|
|Terry Robinson Resigned on 18 June 2015||190||15||205|
Aggregate directors’ remuneration
The aggregate amount of directors’ remuneration payable in respect of qualifying services for the year ended 31 December 2016 was US$6,977 thousand (2015: US$5,968 thousand).
Share ownership by the Board of Directors (audited)
As set out earlier in this report, there are no formal minimum shareholding requirements currently in place, reflecting the CEO’s current shareholding in EVRAZ.
|Directors||Number of shares||Total holding, Ordinary shares, %|
There have been no changes in the directors’ interests from 31 December 2016 through 28 February 2017.
The shares held by Alexander Izosimov were acquired in 2012 when he was appointed as an independent non-executive director.
All shares held by directors are held outright, with no performance or other conditions attached to them, other than those applicable to all shares of the same class.
Other directors do not currently hold any shares in the Company.
Policy on external appointments
The Committee believes that the Company can benefit from executive directors holding approved non-executive directorships in other companies, offering executive directors the opportunity to broaden their experience and knowledge. Company policy is to allow executive directors to retain fees paid from any such appointment. The CEO does not currently hold a non-executive directorship of another company.
Relative importance of spend on pay
The graph below shows comparison of total cost of remuneration paid to all employees between current and previous years and financial metrics in US$ millions. EBITDA was chosen for the comparison as it is a KPI which best shows the Group’s financial performance.
For more information on EBITDA definition please see page.
The graph below shows the Group's performance measured by total shareholder return compared with the performance of the FTSE 350 mining Index since EVRAZ plc's admission to the premium listing segment of the London Stock Exchange on 7 November 2011. The FTSE 350 mining Index has been selected as an appropriate benchmark, as it is a broad-based index of which the Group is a constituent member.
The table below shows as a single figure the CEO's total remuneration over the past six years, along with a comparison of variable payments as a percentage of the maximum bonus available.
|CEO single figure of total remuneration, US$||Annual bonus payout (as a % of maximum opportunity)|
Percentage change in remuneration
The table below sets out the percentage change in the elements of remuneration for the director undertaking the role of CEO compared with average figures for Russia-based administrative personnel. This group of employees has been selected as an appropriate comparator, as they are based in the same geographic market as the CEO, so are subject to similar external environment/pressures.
|CEO||Russian administrative personnel|
Composition of the Remuneration Committee
This section gives details of the composition of the Committee and activities undertaken over the past year.
Members of the Committee
The composition of the Committee changed during the year. The current members of the Remuneration Committee are set out below:
- Alexander Izosimov (became Committee Chairman on 14 March 2016)
- Deborah Gudgeon (joined the Committee on 14 March 2016)
- Sir Michael Peat (joined the Committee on 14 March 2016)
Karl Gruber stepped down from the Committee and joined the Audit Committee on 14 March 2016.
Duncan Baxter who was Committee Chairman till 14 March 2016 stepped down from the Board of Directors on 14 March 2016.
No directors are involved in deciding their own remuneration. The Committee may invite other individuals to attend Committee meetings, in particular the CEO, the head of human resources and external advisers for all or part of any Committee meeting as and when appropriate and necessary.
Role of the Committee
The Committee is a formal committee of the Board and can operate with a quorum of two Committee members. It is operated according to its Terms of Reference, a copy of which can be found on the Group's website.
The main responsibilities of the Committee are:
- to set and implement the Remuneration Policy covering the chairman of the Board, the CEO, the company secretary and other executive directors, and to recommend and monitor the level and structure of remuneration for key senior management;
- to take into account all factors that it deems necessary to determine, such as framework or policy, including all relevant legal and regulatory requirements, the provisions and recommendations of the UK Corporate Governance Code and associated guidance;
- to review and take into account remuneration trends across the Group when setting the Remuneration Policy;
- to review regularly the appropriateness and relevance of the Remuneration Policy;
- to determine the total individual remuneration package of the chairman of the Board, the company secretary and other executive directors, including pension rights, bonuses, benefits in kind, incentive payments and share options or other share-based remuneration within the terms of the agreed policy;
- to approve awards for participants where existing share incentive plans are in place;
- to review and approve any compensation payable to executive directors and key senior executives in connection with any dismissal, loss of office or termination (whether for misconduct or otherwise) to ensure that such compensation is determined in accordance with the relevant contractual terms and Remuneration Policy, and that such compensation is otherwise fair and not excessive for the Group;
- to oversee any major changes in employee benefits structures throughout the Group.
During 2016, the Committee met three times. The purpose of the meetings was to consider and make recommendations to the Board in relation to the remuneration packages of the executive director and key senior managers; to approve the annual bonus for the 2015 results; and to approve the 2016 long-term incentive plan (LTIP) awards for key senior management.
The Committee received advice during the year from Deloitte LLP, which it selected to provide independent remuneration consultancy services to the Group. Deloitte is a member of the Remuneration Consultants’ Group and, as such, voluntarily operates under the code of conduct in relation to executive remuneration consulting in the UK. The code of conduct can be found at www.remunerationconsultantsgroup.com.
During the year, Deloitte advised the Committee on developments in the regulatory environment and market practice and on the development and disclosure of the Group’s pay arrangements. The total fee for advice provided to the Committee during the year was GBP29,900. Other parts of Deloitte provided unrelated tax and regulatory advisory services during the year.
Sir Michael Peat, an independent non-executive director of EVRAZ, is also an independent non-executive on the Board of Deloitte LLP. Both the chairman of the Board and the Committee chairman recognise the need to ensure that there is no conflict of interest arising from the appointment of Deloitte LLP as independent remuneration consultants.
The Committee is satisfied that the nature of Sir Michael's role at Deloitte LLP does not give rise to such conflict and that there are appropriate internal controls and segregation of duties in place. Sir Michael did not play a part in the tender and selection process.
The Committee is satisfied that the advice they have received has been objective and independent.
EVRAZ remains committed to ongoing shareholder dialogue and takes an active interest in feedback received from its shareholders and from voting outcomes.
Where there are substantial votes against resolutions in relation to directors' remuneration, the Group shall seek to understand the reasons for any such vote and will detail any actions in response to these.
The table below sets out actual voting results from the Annual General Meeting, which was held, in respect of the previous remuneration report and Remuneration Policy.
|Number of votes||For||Against||Withheld||Total votes as % of issued share capital|
|To approve the Annual remuneration report section of the directors' remuneration report for the year ended 31 December 2015||1,062,930,124 (99.00%) 1||10,684,012 (1.00%)||20,000||75.63%|
|That the Directors' Remuneration Policy contained in the directors’ remuneration report for the year ended 31 December 2013 be approved||1,024,608,770 (99.32%)||6,996,299 (0.68%)||10,265,194||68.48%|
These results illustrate the strong level of shareholder support for the directors' remuneration framework.
Signed on behalf of the Board of Directors,
Chairman of the Remuneration Committee
28 February 2017