Management personnelcompensation policy

General information about the adopted compensation system for members of the Management Board

Compensation system for members of the Management Board

Principles of compensation for members of the Company’s Management Board defined in the Resolution of the Extraordinary GM of TAURON of 15 December 2016 on the principles for determining compensation of members of the Management Board, as subsequently amended, and detailed by the Company’s Supervisory Board pursuant to the resolution of 19 December 2016 on determining compensation of members of the Management Board of TAURON Polska Energia S.A., as subsequently amended, had been in force at the Company until 20 November 2019.

With a view to clarifying the principles of compensation for members of the Company’s Management Board, at the request of the Company’s shareholder, the State Treasury, the Extraordinary General Meeting of TAURON was held on 21 November 2019, which, by way of a resolution, defined the new the principles of compensation for members of the Company’s Management Board (Rules for determining compensation), thereby repealing the rules in force thus far.

The above Principles for determining the compensation were specified in detail by the Company’s Supervisory Board by way of a resolution of 27 January 2020, on the amendment of Resolution No. 94/IV/2016 of the Supervisory Board of TAURON Polska Energia S.A. of 19 December 2016 on determining the compensation of Members of the Management Board of TAURON Polska Energia S.A. At TAURON, the principles of compensation for members of the Company’s Management Board are compliant with the provisions of the Act of 9 June 2016 on the Principles for Determining the Compensation of the Management Personnel of Certain Companies, as subsequently amended.

The adopted Principles for determining compensation define the compensation system for members of the Company’s Management Board in connection with the outstanding tasks aimed at the implementation of the adopted Strategy, directions of expansion and financial plans. The overriding objective of the adopted compensation system is to ensure an incentive-based compensation of the most senior management staff and to create the foundations for their development.

The Policy of compensation for members of the supervisory and management authorities, including the description of the principles for determining such policy at TAURON Polska Energia S.A. (Compensation Policy), adopted by the Company’s Supervisory Board on 23 October 2017, was in force in 2019.

The overall objectives of the Compensation Policy include:

  1. ensuring a consistent and motivational compensation system for members of the Management Board;
  2. linking the compensation rules with the monitoring of the implementation of the adopted strategic plans and implementation of financial plans;
  3. setting the level of compensation for the Company’s Management Board members in connection with the implementation of the management objectives set;
  4. increasing the Company’s value through the development of the most senior management staff;
  5. improving the compensation systems leading to the implementation of the Company’s strategy and expansion directions.

The model of compensation for members of the Company’s Management Board is based on a two-component system for determining compensation, where the total compensation of a member of the Company’s Management Board is composed of a fixed part, constituting a monthly base wage, and a variable part, constituting the supplementary compensation for the Company’s financial year, dependent on achieving specific management objectives (KPI).

The system of compensation for members of the Management Board assumes linking the variable part of the compensation with the outstanding management objectives stemming from the provisions of the Act of 9 June 2016 on the Principles for Determining Compensation of the Management Personnel of Certain Companies, as subsequently amended, and set, based upon these provisions, by the GM and the Company’s Supervisory Board. The goal of adopting, in the system of compensation, the dependence of the compensation’s variable part on achieving the management objectives set is aimed, in particular, at implementing the adopted Strategy, the directions of the Company’s expansion and financial plans, and it also shapes a new organizational culture of the Company.

Taking into account the applicable regulations, the level of compensation for members of the Management Board is determined by the Supervisory Board within the range determined by the Company’s GM.

The variable compensation of members of the Management Board of TAURON constitutes up to 60% of the fixed compensation for the financial year, assuming the management objectives, set by the GM and detailed by the Supervisory Board for a given financial year, have been achieved.

The variable compensation for achieving financial management objectives is granted based on the data from the audited consolidated financial statements of the Company for a given financial year. The variable compensation for achieving non-financial management objectives is due in connection with achieving specific goals in a given financial year based on the assessment of their achievement by the Supervisory Board.

The overall management objectives set by the GM include:

  1. achieving EBITDA at the level approved in the Material and Financial Plan for a given financial year;
  2. achieving the Net debt/EBITDA ratio at the level approved in the Material and Financial Plan for a given financial year;
  3. maintaining the rating of TAURON Polska Energia S.A. at an investment grade rating;
  4. achieving the effects of the implemented restructuring programs or programs aimed at improving the efficiency of the TAURON Group;
  5. implementing the Strategy, investment projects in accordance with the optimal schedule and budget from the point of view of project profitability and the condition of the TAURON Group;
  6. implementing the key investment projects for energy security, in particular with respect to electricity generation and distribution, including investment projects related to BAT in 2020–2021;
  7. selling new products (sales of products that include electricity and products that are synergic with electricity and gas);
  8. improving quality indicators for customer service or other operational indicators;
  9. increasing the TAURON Group’s innovations through the implementation of research and development works, pilot projects as well as deployments, taking into account the effective use of the funds allocated for this purpose

Members of the Management Board of the Company are neither covered by the bonus program based on the Company’s capital nor do they receive any compensation or awards due to the performance of their functions in the governing bodies of the TAURON Group’s subsidiaries.

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System of compensation for members of the Management Board of the TAURON Group’s subsidiaries

In all of the TAURON Group’s subsidiaries for which TAURON is a parent company within the meaning of Article 4, sec. 3 of the Act of 16 February 2007, on the Protection of Competition and Consumers, as subsequently amended, the principles of compensation for the members of the management authorities are applied in accordance with the Act of 9 June 2016 on the Principles of Determining Compensation of the Management Personnel of Certain Companies, as amended. The above was defined in the Policy for determining the compensation for the members of the authorities of the Subsidiaries and the Principles of determining compensation for the members of the corporate authorities of the Subsidiaries, as adopted by the TAURON Management Board.

The principles of compensation for members of the management bodies (authorities) of the subsidiaries are, similar as at TAURON, based on a two-component system for determining compensation, where the total compensation is composed of a fixed part and a variable part dependent on fulfilling specific result based criteria, i.e. achieving the management objectives. Linking of the compensation’s variable part to achieving the management objectives set is of major importance in the TAURON Group’s management process and is aimed at prioritizing the directions for expansion of the individual subsidiaries.

The management objectives to which the variable compensation is linked may, in particular, include:

  1. increase in the net profit or EBITDA or a positive change of the growth rate of one of those figures;
  2. achievement or change of the production or sales value;
  3. amount of the revenue, in particular revenue from sales, from the operating activities, from other operating or financing activities;
  4. reduction of losses, reduction of the overhead costs or costs of the business operations conducted (operating expenses);
  5. implementation of the strategy or restructuring plan;
  6. achievement or change of certain indicators, in particular profitability, financial liquidity, management efficiency or solvency;
  7. implementation of investment projects, taking into account in particular the scale, rate of return, innovations, on-time implementation (delivery);
  8. change of the company’s market position, calculated as market share or according to other criteria or relationships with counterparties (business partners, contractors) designated as the key counterparties (business partners, contractors) according to the defined criteria;
  9. implementation of the conducted personnel policy and increase in workforce commitment.
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General information about the adopted compensation system for key managers

The principles concerning the compensation and bonus system for the key managers and other employees are defined in the Rules and Regulations of the Compensation for the Employees of TAURON Polska Energia S.A., adopted for application by the Company’s Management Board.

In 2019, the Principles of Compensation in the TAURON Group were in force, constituting the guidelines for the TAURON Group’s subsidiaries with respect to the personnel compensation systems, particularly taking into account the bonus system for the key managers based on the management by objectives system, consistent throughout the TAURON Group, representing a combination of the planning process, efficiency (performance) measurement process, and assessment process.

The compensation and bonus system for the key managers in force envisages that the level of compensation should be tied to the financial situation of the TAURON Group and the Company over a year’s time frame, in connection with the achievement (implementation) of the strategic goals.

The overarching assumption of the compensation system in force is to ensure the optimum and motivating compensation level, based on the value and type of work on a given position as well as the quality of work and effects achieved by the employees.

The structure of the compensation is composed of the following elements:

  1. fixed part – constituting the base salary determined in accordance with the table of level (tier) categories applicable at the Company and the monthly rates of the personal level (tier). The allocated level of the basic salary reflects the value and type of work as well as the quality of the employee’s work, defined based on the assessment of the employee’s competence level;
  2. variable part – which is dependent on the performance results, defined based on the level of accomplishing the targets and tasks within the MBO bonus system;
  3. benefits – which are defined in the internal regulations of the Company.

The MBO bonus system based on the market principles of awarding bonuses ensures focusing of the activities of the key management staff on attaining the objectives aimed at implementing the Strategy, as well as the individual strategic objectives and expansion directions of the TAURON Group’s individual subsidiaries. This system allows the cascading of the objectives defined by the Company’s Management Board at the TAURON Group level and at the Company level, down to the concrete, parameterized tasks vested with the employees at lower levels of the organization. In addition, the MBO bonus system has been linked with the process based management system implemented in the TAURON Group, inter alia by aligning the objectives with the Mega-processes defined within the TAURON Group. Therefore, the Management by Objectives culture introduced reflects the specific features of the individual functions implemented at the Company and allows for the use of the mechanisms enabling a dialogue between the superior and the subordinate during the process of setting and assessing the objectives, leading to the attainment of the overall efficiency throughout the entire organization.

At the same time, this tool enables a precise correlation of the KPIs defined for the members of the Management Board with the objectives defined for a given year for the key managers of the Company. An initial assessment of the accomplished objectives takes place after the elapse of the first 6 months, and after the year has ended, the members of the Management Board make the final assessment of the KPI performance by the key managers.

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The compensation of members of the Company’s Management Board is determined by the Company’s Supervisory Board. The total amount of compensation understood as the value of salaries, awards and benefits received in cash, in kind or in any other form, due or paid by the Company to the members of the Management Board in 2019 reached the gross amount of PLN 4,557 thousand.

The compensation of the members of the Company’s Management Board in 2019, broken down into components, is presented in the Table below.

# First and last name Period of holding the position in 2019 Compensation*
(PLN ‘000)
Variable compensation* (PLN ‘000) Other benefits* (PLN ‘000) Total
(PLN ‘000)
1. Filip Grzegorczyk 01.01.2019 – 31.12.2019 793 407 3 1,203
2. Jarosław Broda 01.01.2019 – 31.12.2019 740 444 0 1,184
3. Kamil Kamiński 01.01.2019 – 21.09.2019 536 436 14 986
4. Marek Wadowski 01.01.2019 – 21.09.2019 740 444 0 1,184
Total 2,809 1,731 17 4,557
* excluding markups

The Company does not have any obligations towards the former members of the Management Board due to pensions or benefits of a similar nature.

At the same time, it is indicated that, because of the Company’s obligations towards the former members of TAURON’s Management Board, the total amount of PLN 517 thousand was paid out in 2019 due to the payment of the compensation for refraining from performing competing activities (non-compete clauses).

Members of TAURON’s Management Board did not receive compensation or bonuses for performing the functions in the corporate bodies (authorities) of the TAURON Group’s subsidiaries in 2019.

All members of the Company’s Management Board received compensation in 2019, in accordance with the applicable contract for the provision of the management services in accordance with the Act of 9 June 2016, on the Principles of Determining Compensation of the Management Personnel of Certain Companies.

The compensation of the members of the Management Boards of the TAURON Group’s subsidiaries is determined taking into account the scale of a given subsidiary’s operations, in particular:

  1. average annual headcount;
  2. annual net revenue from the sales of goods, products and services as well as the financial operations;
  3. total assets on the balance sheet at the end of the year.

Based on the above criteria, the categories of subsidiaries are defined, which determine the amount of the fixed compensation of the members of the subsidiaries’ management authorities.

The principles of determining the compensation for the members of the Management Boards of the TAURON Group’s subsidiaries are published on the website.

The contracts on the provision of management services concluded both with the members of TAURON’s Management Board as well as with members of the Management Boards of the TAURON Group’s individual subsidiaries, envisage, in case of the termination or renouncement of the agreement by the Company for reasons other than defined therein, a payout of the severance payment in the amount of three times the fixed part of the compensation, on condition they have performed their function over a period of at least 12 months prior to the termination of the agreement.

Furthermore, due to the members of TAURON’s Management Board as well as the members of the Management Boards of the TAURON Group’s individual subsidiaries having access to confidential information the disclosure of which could expose the Company and the Group’s subsidiaries to losses, the agreements on the provision of the management services include the non-compete clauses applicable after the expiry of the term of office. Under the above mentioned agreements, the members of the Management Board are obligated to refrain from conducting competitive activities for a specified period in return for compensation.

Members of the Company’s Management Board had not held the positions of members of the Management Boards of the TAURON Group’s subsidiaries prior to being appointed as members of the Company’s Management Board.

Non-financial components of compensation due to members of the Management Board and key managers

Members of the Management Board, in accordance with the agreements on the provision of the management services, are entitled to the reimbursement by the Company of the cost of training up to the net amount of PLN 15,000 in a calendar year, and as of February 2020, to have the Company refinance their basic contribution to the participation in the Employee Pension Program operated at the Company.

Non-financial components of the compensation of key managers

Staff members employed at the key positions by the Company are entitled to take advantage of the following benefits and non-financial components of the compensation offered by the Company:

  1. participation in the Employee Pension Program operated by the employer (under the condition of being employed by the Company or one of the TAURON Group’s subsidiaries over a period of at least 1 year);
  2. use of the medical package financed with the Company’s funds;
  3. use of a company car allocated for their exclusive use;
  4. use of a company apartment where the availability of an employee is required due to the nature of their work and scope of responsibilities

Assessment of the functioning of the compensation policy in terms of the fulfillment of its objectives, in particular the long-term growth in shareholder value and stability of the company’s performance

The applied compensation system for members of the Management Board is in accordance with the Act of 9 June 2016 on the Principles for Determining Compensation of the Management Personnel of Certain Companies. The incentive based and consistent system is provided, linked with the monitoring of the annual financial plans and the adopted Strategy and development (expansion) directions. The Policy of compensation for members of the supervisory and management authorities, including the description of the principles for determining such a policy at TAURON Polska Energia S.A. in force at the Company is in line with the Best Practices 2016 principles and defines, in particular, the form, structure and the manner of determining the compensation of members of the Management Board.

The form, structure and level of the compensation correspond to the market conditions and are oriented towards enabling the recruitment and retention of the individuals fulfilling the criteria required to manage the Company in a manner that would take into account shareholders’ interests (building the Company’s value for the shareholders) as well as prevent conflicts of interest among members of the Management Board and the shareholders. At the same time, they are structured in a manner that is transparent for the investors so as to build their confidence in the Company and enable them to express their opinions using the applicable procedures.

The disbursement of the variable components of the compensation is linked to the pre-defined, measurable management objectives that support the long-term stability of the Company and the TAURON Group.

The criteria the fulfilment of which determines obtaining of the variable components of the compensation and the level thereof are defined in accordance with the SMART methodology, i.e. they display such features as: precision, measurability, achievability, materiality and timing references.

The compensation and bonus system for both members of the Management Board of the Company as well as the key managers in force at TAURON supports the accomplishment (implementation) of the strategic goals and takes into account the determination of the compensation depending on the financial situation of the Company and the TAURON Group over one year period.

Compensation system for members of the Supervisory Board

In 2019, the system of compensation for members of the Supervisory Board of the Company defined in the Resolution of the Extraordinary GM of TAURON of 15 December 2016 on determining compensation for members of the Supervisory Board, as subsequently amended, was in force, adopted as the implementation of the provisions of the Act of 9 June 2016 on the principles for determining compensation of the management personnel of certain companies (Journal of Laws of 2016, item 1202).

In accordance with the above mentioned Resolution of the Extraordinary GM the monthly compensation of members of the Supervisory Board is determined as a product of multiplying the assessment base mentioned in Article 1(3)(11) of the Act of 9 June 2016 on the principles for determining compensation of the management personnel of certain companies, and the multiplier:

  • •for the chairperson of the Supervisory Board – 1.7
  • for the other members of the Supervisory Board – 1.5.

Members of the Supervisory Board are entitled to receive the compensation irrespective of the frequency of the formally convened meetings.

The compensation is not due for a month in which a member of the Supervisory Board was not present at any of the formally convened meetings, for unjustified reasons. The decision on excusing or a failure to excuse the absence of a member of the Supervisory Board at its meeting is taken by the Supervisory Board by way of a resolution.

The compensation is calculated on a pro rata basis, in relation to the number of days when the function was performed, in case the appointment or dismissal occurred in the course of the calendar month.

The Company covers the costs incurred in connection with the performance of the functions assigned to the members of the Supervisory Board, in particular: the costs of the round trip between the place of residence and the venue of the Supervisory Board’s meeting or a meeting of the Supervisory Board Committee, the costs of the individual supervision and the costs of accommodation and board.

The compensation of the members of the Company’s Supervisory Board in 2019 is presented in the following table.

# First and last name Period of holding the position in 2019 Compensation (PLN ‘000)
1. Beata Chłodzińska 01.01.2019 – 31.12.2019 102
2. Teresa Famulska 01.01.2019 – 31.12.2019 90
3. Jacek Szyke 01.01.2019 – 31.12.2019 90
4. Radosław Domagalski – Łabędzki 01.01.2019 – 08.05.2019 32
5. Barbara Łasak – Jarszak 01.01.2019 – 31.12.2019 90
6. Paweł Pampuszko 01.01.2019 – 08.05.2019 32
7. Rafał Pawełczyk 08.05.2019 – 26.07.2019 20
8. Grzegorz Peczkis 06.12.2019 – 31.12.2019 6
9. Jan Płudowski 01.01.2019 – 31.12.2019 90
10. Marcin Szlenk 01.01.2019 – 31.12.2019 90
11. Katarzyna Taczanowska 08.05.2019 – 31.12.2019 58
12. Agnieszka Woźniak 01.01.2019 – 31.12.2019 90
Total 790

The Company does not have any obligations towards the former members of the Supervisory Board due to pensions or benefits of similar nature.

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