FSK Logo
Social responsibility and corporate sustainability report 2015
RU

Corporate Governance

Federal Grid Company builds its corporate governance system in compliance with all relevant legislation and follows the Moscow Exchange listing rules and recommendations of the Russian Corporate Governance Code. When developing all elements of the system, adjusting them in response to new requirements and challenges of the external environment, we are constantly guided by the key principles of corporate governance set out in the Federal Grid’s Corporate Governance Code.

General Meeting of Shareholders

The General Meeting of Shareholders (GMS) is the supreme governing body of Federal Grid Company whose competence is set out by the Federal Law “On Joint Stock Companies” and the Company’s Articles of Association and includes, among other things, such serious matters as approval of annual reports and annual financial statements, election of an external auditor, election of members of the Board of Directors and the Audit Commission and termination of their powers, payment of dividends.

Board of Directors

The Board of Directors is responsible for strategic management of the Company and plays a key role in the Federal Grid’s corporate governance system.

In 2015, the Board of Directors held 59 meetings, of which 10 in the form of joint presence, and considered 751 matters of current operations

Its main functions:

  • to shape the Company’s strategy and monitor its implementation;
  • to ensure the exercise and protection of rights and legal interests of Federal Grid’s shareholders; to protect the Company’s assets;
  • To ensure establishing and maintaining sound internal control and risk management system;
  • To monitor activities of the executive bodies, to undertake regular performance evaluation of senior managers and to establish and maintain effective incentive schemes and development programmes for them;
  • to ensure timely disclosure of full and fair information on the Company’s operation;
  • to establish a system for managing subsidiaries and associates;
  • to monitor the Company’s corporate governance practice. G4-35

Corporate Governance Scheme G4-34

* As at 31 December 2015, the Russian Federation represented by the Federal Agency of State Property Management (Rosimuschestvo) owned 0.59% of shares of Federal Grid Company. In this context, an agreement has been signed between the Company’s major shareholder PJSC ROSSETI and Rosimuschestvo regarding the managing and voting in Federal Grid Company. The above agreement regulates shareholder relationships with regard to the implementation of their rights with respect to Federal Grid Company for the purposes set out by the Decree of the RF President No.1567 dated 22 November 2012. The Company’s interaction with the State as a shareholder has a specific procedural character determined by the regulatory acts of the President and the Government of the Russian Federation. In particular, the State representatives in the Company’s governing bodies are committed to vote on certain matters as instructed by the Government.

As at 31 December 2015, no member of the Federal Grid’s Board of Directors hold ordinary shares of Federal Grid Company, except Oleg Budargin whose share in the Company’s ordinary stock was 0.0006403563%.
In 2015, there were no dealings in the Company’s shares by the Board members.

All critical concerns, if any, are submitted for consideration of the Board of Directors by the collective executive body. G4-49

At weekly meetings, senior executives communicate all critical concerns to the Chairman of the Company’s Management Board. Key issues are submitted for consideration of the Board of Directors. G5-50

Board focus on risk management system during the year

  • A Register of key risks of Federal Grid Company has been approved, the Chairman of the Management Board was instructed to ensure that an annual report on key operational risks of Federal Grid Company is submitted for consideration and approval of the Board of Directors (with prior consideration by the Audit Committee)
  • A Report on key risks for 2014 was considered. Following the consideration of the Report, the Board of Directors has made decisions aimed at improving the effectiveness of the Company’s risk management system
  • In accordance with the recommendations of the Corporate Governance Code, the Regulations on Risk Management System have been approved G4-45 G4-46

The Board shall include 11 members. This number of Board members best fits scope of the Company’s business and ensures compliance with the following principles when composing the Board:

  • ensuring a balance within the Board, including with respect to skills, experience, knowledge and business qualities of its members;
  • election of independent directors1 to the Board in the amount not less than one-fifth of the membership of the Board of Directors, but at least three;
  • members of the Management Board may not constitute more than 25% of the Board composition.

    The company also strives to ensure that the Board of Directors includes representatives of minority shareholders to maintain the balance within the Board in the best interests of all existing shareholders of the Company.

    Members of the Board of Directors elected at the General Meeting of Shareholders on 26 June 2015 G4-38

    Name Status and Committee Membership Year of election to the BoD

    Vyacheslav Kravchenko

    Non-executive Director
    Chairman of the Board of Directors
    Chairman of the Investment Committee
    2012

    Maxim Bystrov

    Non-executive Director
    Deputy Chairman of the Board of Directors
    Chairman of the Strategy Committee
    2014

    Oleg Budargin

    Non-executive Director 2010

    Pavel Grachev

    Independent Director
    Member of the Audit Committee and HR
    and Remuneration Committee
    2013, re-elected in 2015

    Andrey Demin

    Non-executive Director
    Member of the Strategy Committee
    2014

    Boris Kovalchuk

    Non-executive Director 2012

    Mikhail Kolesnikov

    Independent Director (at the time of election) Member of the Audit Committee and HR and Remuneration Committee 2015

    Sergey Mironosetsky

    Independent Director Chairman of the Audit Committee and HR and Remuneration Committee 2014

    Andrey Murov

    Executive Director 2013

    Sergey Shmatko

    Non-executive Director 2008, re-elected in 2013

    Nikolai Shulginov

    Non-executive Director Member of the Strategy Committee 2013

    Membership of the Board of Directors acting from 27 June 2014 to 26 June 2015

    Name Status Position as of the election date

    Oleg Budargin

    Board Chairman, Non-executive Director General Director of PJSC ROSSETI

    Vyacheslav Kravchenko

    Deputy Chairman, Non-executive Director Deputy Minister of Energy of the Russian Federation

    Maxim Bystrov

    Non-executive Director Chairman of the Management Board of Non-profit Partnership Market Council

    Andrey Demin

    Non-executive Director First Deputy General Director for Economic Affairs and Finance, member of the Management Board of PJSC ROSSETI»

    Boris Kovalchuk

    Non-executive Director Chairman of the Management Board of PJSC INTER RAO

    Sergey Mironosetsky

    Non-executive Director Member of the Board of Directors of Siberian Generating Company, LLC

    Andrey Murov

    Executive Director Chairman of the Management Board of Federal Grid Company

    Georgy Nozadze

    Non-executive Director Assistant of the Expert Directorate of the Executive Office of the RF President

    Denis Fedorov

    Non-executive Director General Director of JSC Centerenergoholding
    General Director of GazpromEnergoholding LLC

    Sergey Shmatko

    Non-executive Director Special Representative of the President of the Russian Federation on International Cooperation in the Electric Power Industry of the Executive Office of the RF President

    Nikolay Shulginov

    Non-executive Director First Deputy Chairman of the Management Board of JSC SO UES

    According to the amendments to its Corporate Governance Code, the Company is committed to provide all opportunities for Board members to receive all information they need to perform their duties, especially for newly-elected Board members. For this purpose, presentations with the Management Board are held, among other things. In the reporting year, such a meeting was held on 29 September 2015. G4-43

    Given the ownership structure of Federal Grid Company, the issue of electing the Board of Directors and shaping the position of the major shareholder in respect of the nominated candidates is regulated by the procedure set out by the decisions of the Government of the Russian Federation.

    Evaluation of candidates against their compliance with the independence criteria (provided for in the Listing Rules) is conducted at the stage of selecting candidates by the Commission for selecting independent directors at the Rosimuschestvo with the confirmation of compliance by the Moscow Stock Exchange.

    Necessary information on each candidate (biographical data, availability of written consent) was submitted to shareholders as part of the materials for the Annual General Meeting of Shareholders. G4-40

    The Board of Directors, while providing strategic guidance to the Company, regularly considers issues related to the improvement of management efficiency, implementation of the corporate environmental and social policies, and maintenance of financial sustainability. These issues determine the tasks that are set for the Company’s executive bodies, and their implementation is controlled. G4-35

    For further details about membership and activities of the Board of Directors, please, see the 2015 Annual Report of Federal Grid Company (the “Corporate Governance Report/ Governance System/Board of Directors” section).

    Structure of matters considered by the Board of Directors in 2015 G4-38

    * Number of matters considered

    Board Committees

    In order to improve performance of the Federal Grid’s Board of Directors and to provide in-depth consideration of matters within its competence, special-purpose advisory bodies within the Board of Directors – Board Committees have been established and are working actively.

    The key role of each Committee is to provide preliminary consideration of the most important matters, which are reserved for the Board, and to develop recommendations, which the Board follows when making decisions on relevant matters.

    When expert advice is necessary on issues requiring specialised knowledge, the Committees are entitled to involve outside experts within the limits of Committee budgets approved by the Board.

    At least once a year, each Committee submits a report on work performed to the Board of Directors.

    Federal Grid’s Board of Directors has four permanent committees: for Audit, HR and Remuneration, Strategy, and Investment.

    The work of each Committee is regulated by the corresponding Regulations approved by the Board of Directors that include, among other things, the procedure for creation, composition, working arrangements, rights and obligations of Committee members.

    In 2015, the Board of Directors approved new versions of the Regulations for each Committee updating them in accordance with the recommendations of the Russian Corporate Governance Code.

    Audit Committee

    The role of the Audit Committee is to assist the Board of Directors in providing oversight of the Company’s financial and business operations.

    The Committee:

    • monitors the completeness, accuracy, and reliability of the Company’s accounting (financial) statements;
    • monitors the robustness and effectiveness of the risk management and internal control system and the corporate governance system, including the review of their effectiveness and drafting proposals on their improvement;
    • ensures the independence and objectivity of the Company’s internal audit function;
    • reviews the external auditor’s independence, objectivity and absence of conflict of interest, evaluates candidates for the Company’s external auditors and makes recommendations to the Board of Directors regarding the appointment of external auditors and their fees, reviews audit quality and quality of the auditor’s opinion;
    • reviews the efficiency of a system of reporting on potential fraud and other irregularities on the part of any of the Company’s employees and third parties, as well as other violations in the Company.

    In 2015, the Committee held ten meetings (8 in absentia and 2 in person). Among other matters, it preliminary approved the RAS financial statements for 2014, reviewed the results of the external auditor’s analysis of the Company’s accounting policies, considered reports of the Internal Control and Risk Management Department.

    For further details about activities of the Audit Committee, see the 2015 Annual Report (the “Corporate Governance Report Governance System Board of Directors” section).

    HR and Remuneration Committee G4-52

    The role of the HR and Remuneration Committee is to assist the Board of Directors in establishing efficient and transparent remuneration practices and developing HR and succession policies.

    The key responsibilities of the HR and Remuneration Committee include preliminary consideration, review and making recommendations to the Federal Grid’s Board of Director on the following matters:

    • annual evaluation of the Board performance and that of its committees and individual directors;
    • approving an organisational structure of the Company’s Executive Office and candidates for senior executive positions;
    • approving terms and conditions of agreements concluded with the Chairman and members of the Management Board, determining their remuneration and compensation;
    • appointing a Corporate Secretary of Federal Grid, determining his/her additional remuneration, preliminary evaluation of his/her performance for the year;
    • reviewing the Company’s remuneration policies for the Board of Directors and executive bodies, including the approval of KPI target values.

    In 2015, the Committee held 3 meetings in absentia and 1 meeting in person Among other matters, it approved the organisational structure of the Federal Grid’s Executive Office, reviewed the report on implementing KPIs for Federal Grid senior management, the Methodology for Calculation and Evaluation of Key Performance Indicators for Federal Grid Senior Management.

    For further details about activities of the HR and Remuneration Committee, see the 2015 Annual Report (the “Corporate Governance Report Governance System Board of Directors” section).

    Strategy Committee

    The role of the Strategy Committee is to assist the Board of Directors in improving the Company’s performance efficiency in the long term.

    The Strategy Committee is responsible for preliminary consideration, review and making recommendations to the Federal Grid’s Board of Director on the following matters:

    • the Company long-term performance evaluation;
    • approving the Federal Grid’s long-term development programme, amendments thereto and reviewing its progress reports;
    • setting out strategic objectives, monitoring the delivery of the Company’s strategy, adjusting the exiting development strategy;
    • determining the Company’s business priorities;
    • drafting recommendations on the Company’s dividend policy;
    • approving the Company’s business plan (adjusted business plan).

    In accordance with the ‘road map’ on implementing key provisions of the Russian Corporate Governance Code, as well as amendments made to the Company’s internal documents in 2015, Federal Grid has planned to perform an annual evaluation of the Board performance facilitated by an independent consultant. At the beginning of 2016, the Company conducted the Board performance evaluation for 2015. It included evaluation of the Board performance and that of its committees and individual directors. According to the matters reserved for the HR and Remuneration Committee, results of evaluation are submitted for consideration of the Board of Directors with the preliminary consideration by the Committee . G4-44

    In 2015, the Committee held eight meetings (5 in person and 3 in absentia). Among other matters, the Committee reviewed the Company’s Business Plan Progress Report for H1 2015, approved adjustments to the Federal Grid’s Long-Term Development Programme for 2015–2019, the Regulations on Quality Control System, Business Plan for 2016, Procedures for improving the investment and operating efficiency and reducing costs.

    For further details about activities of the Strategy Committee, see the 2015 Annual Report (the “Corporate Governance Report Governance System Board of Directors” section).

    Investment Committee

    The role of the Investment Committee is to assist the Board of Directors in improving and developing the Company’s investment policy.

    The key responsibilities of the Investment Committee include preliminary consideration, review and making recommendations to the Federal Grid’s Board of Director on the following matters:

    • approving the Federal Grid’s investment programme, including its adjustments, and reviewing its progress reports;
    • reviewing internal documents related to investing activities, including standards for technological and price audit of investment projects;
    • reviewing progress of certain investment projects of the Company;
    • approving the Federal Grid’s innovative development programme, including R&D programme, and reviewing progress reports on its implementation
    • determining the Company’s procurement policy;
    • reviewing schemes and development programmes of the UES of Russia;
    • considering issues related to technological connection to electric grids.

    In 2015, the Committee held nine meetings (6 in person and 3 in absentia). Among other matters, the Committee reviewed the Report on the results of onsite audits of the RF Ministry of Energy of the progress of the Federal Grid’s investment projects, management reports on implementing the corrective action plan, draft adjustments to the Federal grid’s investment programme, the results of estimation of the planned construction cost for projects within the Federal Grid’s investment programme, the annual report on the technological and price audit of the investment projects.

    For further details about activities of the Investment Committee, see the 2015 Annual Report (the “Corporate Governance Report Governance System Board of Directors” section).

    Remuneration of the Board of Directors and its Committees

    The Federal Grid Directors’ remuneration system has been designed to ensure the Company’s effective governance, meet its long-term interests, attract and retain highly competent professionals. It is outlined in the Regulations on Remuneration and Compensation Payable to Members of the Board of Directors of Federal Grid Company approved in 2015.

    In accordance with the above Regulations, remuneration is paid to Board members out of the Company’s net profit based on their performance for the corporate year and subject to the relevant resolution of the General Meeting of Shareholders. G4-53

    The amount of remuneration to each Board member depends on the following factors:

    • His/her involvement in the activities of the Board including the number of Board meetings he/she attended
    • Total number of Board meeting held during the corporate year
    • The Company’s revenue for the fiscal year, which determines the basic part of remuneration

    Remuneration for the Chairman of the Board of Directors is increased by 30%. Increase is also set for members of the Board for their work in committees: the Chairman of the Committee receives a 20% bonus, and a Committee member receives 10%.

    The total remuneration for each Board member, given all premiums, cannot exceed RUB900 thousand.

    The Regulations provide for compensation of actual expenses of Board members, including travel expenses incurred in travelling to the place of the Board or Committee meeting and back, accommodation costs and expense not related to the meeting attendance but related to the Company’s activities.

    The Company has established the governing and control bodies that interact effectively, their responsibilities are clearly separated and work is strictly regulated by the Federal Grid’s internal documents. The Company’s Board of Directors is balanced enough in terms of qualifications and experience of its members, as well as consideration of interests of all shareholders. Performing its key role of strategic leadership, the Board is responsible for the effective oversight of the executive bodies’ activities. A highly professional management team of Federal Grid is responsible for day-to-day management of the Company and the delivery of its strategic goals and objectives. G4-42 G4-50

    The 2016 General Meeting of Shareholders on 29 June 2016 will resolve on remuneration to the members of the Board of Directors for 2015.

    During the reporting year, the Company did not provide any loans (credits) to the Board members.

    In the reporting year, the Board of Directors approved the Regulations on Remuneration and Compensation Payable to Members of Committees of the Board of Directors of Federal Grid Company that cover matters of paying remuneration to members of the Board committees who are not members of the Board of Directors or persons with whom the Company has concluded an employment agreement, as well as persons with respect to whom there are no legislative restrictions for or prohibition on receiving any payments from commercial organisations.

    On a quarterly basis, the above committee members shall be paid remuneration for each meeting attended. The amount of remuneration is equal to three minimum monthly wage rates for a first category worker set by the sectoral tariff agreement of the FR electric energy complex at the date of the meeting. Remuneration to the Committee Chairman is increased by 50%.

    The total amount of remuneration paid to members of the Board committees in 2015 was RUB997.1 thousand.

    For further details about remuneration of the Board members, see the 2015 Annual Report of Federal Grid Company (the “Corporate Governance Report Governance System Board of Directors” section).

    Avoiding Conflicts of Interest in the Board of Directors G4-41

    There are mechanisms in Federal Grid Company designed to avoid conflicts of interests in the highest governing body – Board of Directors. Board members are recommended to refrain from dealing in the Company’s securities during the period when they have access to insider information. Obligations of members of the Board of Directors concerning non-disclosure of insider information stipulated by the Regulations «On insider information», shall remain in force for a period of at least 3 (three) months from the date of elimination of the grounds on which the person is an insider, unless a longer period is stipulated in the contract between the insider and the Company, or internal documents of the Company.

    Members of the Board of Directors are obliged to disclose their holdings of the Company securities.

    If a conflict of interest arises, a Board member shall make it known to the colleagues and refrain from voting on the relevant issues.

    Federal Grid Company strives to carry out, at its own expense, liability insurance of members of the Board of Directors, so that in the event of damages to the Company or to third parties by the actions of Board members, an insurance company could reimburse these losses.

    The Management Board and the Chairman of the Management Board are responsible for the day-to-day operations of Federal Grid Company and report to the General Meeting of Shareholders and the Board of Directors.

    The Chairman is responsible for implementing the Company’s strategy and setting goals and objectives for business and financial activities, accounting and reporting, production & commercial activities, HR, R&D, investment and corporate policies, safety and security arrangements, legal and organisational support of the Company’s activities.

    The Chairman of the supreme governing body is not an executive officer. G4-39

    Members of the Management Board can hold positions in the governing bodies of other organisations only upon approval by the Company’s Board of Directors. In accordance with Federal Grid Company’s internal documents, a person who acts as a sole executive body cannot be the Chairman of the Company’s Board of Directors. Members of the Management Board cannot hold more than 25% of seats in the Board of Directors.

    If a conflict of interest arises, the Chairman and members of the Management Board shall make it known to the Board of Directors and refrain from voting on the relevant issues.

    The Chairman and members of the Management Board must disclose their holdings of Federal Grid Company’s securities and about their sale (divestiture) and / or purchase in accordance with the laws of the Russian Federation.

    The Board of Directors plays a key role in prevention, detection and resolution of internal conflicts between the Company’s bodies, shareholders and employees.

    Issues of identifying potential conflicts of interests are regulated at all governance levels in the Company.

    According to the Regulations on the Board of Directors, each Board members is obliged to disclose his/her current or potential membership in governing bodies of other companies.

    As for the Company’s operating activities, the Regulations on Procurement includes requirements for contractors to disclose their chain of ownership (including beneficiaries) during procurement procedures.

    Thus, the likelihood of conflict of interests is regulated by the preventive measures.

    Board Performance Evaluation

    In accordance with the ‘road map’ on implementing key provisions of the Russian Corporate Governance Code, as well as amendments made into the Company’s internal documents in 2015, Federal Grid has planned an annual evaluation of the Board performance facilitated by an independent consultant.

    At the beginning of 2016, an independent organisation JSC VTB Registrar, engaged through competitive procurement procedures, conducted the Board performance evaluation for 2015. It included evaluation of the Board performance and that of its committees and individual directors.

    The evaluation was conducted by questioning members of the Board and its committees, members of the Federal Grid’s Management Board, as well as interviewing some Board members, Committee members and the Corporate Secretary.

    In addition, experts performed a review of the internal and administrative documents of Federal Grid Company that regulate relevant issues.

    4.7scores out of 5
    quantitative evaluation of the Board as a governing body
    5scores out of5
    Quantitative evaluation of the Board Chairman
    87%
    Board meeting attendance coefficient
    86%
    in-person meeting attendance coefficient

    Experts developed recommendations on further improving work of the Board of Directors, including identification of the Board and committee priorities for the year, holding an offsite meeting of the Board (within the facilities of Federal Grid Group), as well as other recommendations.

    According to the matters reserved for the HR and Remuneration Committee, results of the evaluation are submitted for consideration to the Board of Directors with the preliminary consideration by the Committee. Results of the evaluation for 2015 were considered at the Board meeting on 20 April 2016 (Minutes No. 26 dated 20 April 2016).

    Management Board and its Chairman

    The Management Board and the Chairman of the Management Board – collective and sole executive bodies – are responsible for the day-to-day operations of Federal Grid Company and report to the General Meeting of Shareholders and the Board of Directors. The Management Board acts in accordance with Articles of Association and the Regulations on the Management Board approved by the GMS. G4-36

    In accordance with the requirements of Article 69 of the Federal Law “On Joint Stock Companies”, the executive bodies (the Management Board and its Chairman) are responsible for the implementation of resolutions of the General Meeting of Shareholders and Board of Directors. Subject to paragraph 20.2 of Article 20 of the Articles of Association, the Management Board and its Chairman are accountable to the General Meeting of Shareholders and the Board of Directors.

    For further details on the membership of the Management Board, see the 2015 Annual Report of Federal Grid Company (the “Corporate Governance Report/ Governance System /Management Board” section).

     

    Key matters reserved for the Management Board

    • Developing and submitting for the Board’s consideration the Company’s business priorities and long-term plans for their implementation
    • Preparing reports on the implementation of resolutions of the General Meeting of Shareholders and the Board of Directors of Federal Grid Company
    • Exercising of powers of General Meeting of Shareholders of wholly-owned subsidiaries of the Company
    • Submitting for the Board’s consideration business and financial performance reports of the Company’s subsidiaries and associates
    • Addressing other issues of managing the day-to-day operations of Federal Grid Company in accordance with its Articles of Association, resolutions of the General Meeting of Shareholders and the Board of Directors

    Key matters reserved for the Chairman of the Management Board

    All matters of managing the day-to-day operations of the Company, except of those reserved for the General Meeting of Shareholders and the Board of Director: the Chairman is responsible for implementing the Company’s strategy and setting goals and objectives for business and financial activities, accounting and reporting, production & commercial activities, HR, R&D, investment and corporate policies, safety and security arrangements, legal and organisational support of the Company’s activities.

    Dealing with Conflicts of Interest of Executives

    The Company has developed and now implements a comprehensive system for dealing with conflicts of interest of members of the executive bodies that enables us to prevent possible conflict situations and minimise an adverse effect for the Company’s interests.

    In 2015, there were no dealings in the Company’s shares by the members of the Management Board.

    A ‘conflict of interest’ of Company employees, including the executives, is defined by the Company’s internal documents, and the following obligations of the latter are provided:

    • To declare his/her affiliation
    • To report a conflict of interest or likelihood of conflict and its cause, including interests in transactions
    • To refrain from actions that will or may lead to a conflict between his/her interests and the Company’s interests
    • To refrain from discussing and voting on matters in which he/she has a conflict of interest
    • To report on his/her holding of the Company securities and transactions therewith

    Annual and Semi-Annual KPIs

    Annual KPIs Semi-Annual KPIs
    • Total Shareholder Return (TSR)
    • Return on Invested Capital (ROIC)
    • R eduction in unit operating expenses (costs)
    • Level of electricity losses
    • Achieving reliability level of services
    • Reduction in unit investment costs
    • Meeting schedules for commissioning
    • Meeting deadlines for technological connection
    • Workforce productivity
    • Reliability indicator: no increase in major accidents
    • Zero increase in the number of injured in accidents
    • Financial stability indicator: financial leverage ratio

    In 2015, the Management Board held 78 meetings and considered 788 matters, of which 647 assignments of the Board of Directors.

    All external appointments of the Management Board members are subject to the consent of the Company’s Board of Directors.

    For further details about the activities of the Management Board, see the 2015 Annual Report of Federal Grid Company (the “Corporate Governance Report Governance System Management Board” section).

    Remuneration of the Management Board

    In accordance with the Regulations on Terms and Conditions of Employment Agreements and Determination of Remuneration and Compensation for Senior Managers of Federal Grid Company, remuneration for senior managers is determined by their employment agreements. Remuneration includes a fixed component (salary) and a variable component (bonuses). Bonuses are tied to key performance indicators (KPIs) of senior managers.

    In 2015, the Company applied a system of quarterly and annual bonuses based on the Methodology for Calculation and Evaluation of Key Performance Indicators for Federal Grid’s Senior Management.

    Details about major changes to the Methodology are available in the 2015 Annual Report (the “Corporate Governance Report / Governance System / Management Board” section).

    In case any of the KPIs is not met, then the bonuses of all members of the Management Board, including the Chairman, are decreased by a certain percent depending on the indicator significance level. The most significant quarterly KPIs are No increase in major accidents (40% weighting) and Preventing Increase in the Number of Injured in Accidents (40% weighting). The most significant annual KPIs, with a 15% weighting each, are ROIC, Achieving Reliability Level of Services, and Meeting Deadlines for Technological Connection.

    Remuneration of the Management Board in 2015, RUB thousand (All members of the Management Board, including the Chairman ) G4-51

    Type of remuneration Value
    Remuneration for contributions to the Management Board’s operations 0
    Salary 110,601
    Bonuses 194,291
    Commission 0
    Benefits 0
    Reimbursement of expenses 0
    Other types of remuneration 28,770
    TOTAL 333,662

    Corporate Secretary

    As part of the implementation of ‘road map’ on introducing key provisions of the Russian Corporate Governance Code into the Federal Grid’s corporate governance system, a position of Corporate Secretary was established in the Company in the reporting year.

    Key responsibilities of the Corporate Secretary are as follows:

    • to ensure effective shareholder engagement;
    • to coordinate the Company’s efforts aimed at protecting shareholder rights and legitimate interests;
    • to implement the corporate disclosure policy;
    • to facilitate the effective work of the Board of Directors.

    The Corporate Secretary is functionally subordinate and reports to the Board of Directors that ensures his/her sufficient independence from the Company’s management.

    The Corporate Secretary’s activities are subject to the provisions of the Regulations on Corporate Secretary of Federal Grid Company approved by the Board of Directors in 2015.

    For further details about the Corporate Secretary, see the 2015 Annual Report of Federal Grid Company (the “Corporate Governance Report Governance System Corporate Secretary”).

    Audit Commission

    The Audit Commission is a permanent body, which is elected annually by the General Meeting of Shareholders and is responsible for exercising control over the Company’s financial and business operations, its governing bodies and structural units.

    In its operations, the Audit Commission is governed by the Federal Grid’s Articles of Association and the Regulations on the Audit Commission a revised version of which was approved by the Annual General Meeting of Shareholders in 2015.

    The main functions of the Audit Commission are as follows:

    • To confirm the reliability of data contained in the Company’s annual report, accounting balance sheet, and profit and loss statement
    • To analyse the Company’s financial position, discover ways for improving thereof, and develop recommendations to the governing bodies
    • To organise and perform audits (revisions) of the Company’s financial and business operations

     

    Members of the Audit Commission

     (elected at the Annual General Meeting on 26 June 2015) 
      Year of birth Education Position1
    Nikolay Varlamov 1974 Higher Deputy Director – Chief of Staff of PJSC ROSSETI
    Marat Izmailov 1983 Higher Head of Division of Department of the Russian Ministry of Energy
    Marina Lelekova 1961 Higher Head of the Control Department of PJSC ROSSETI
    Denis Kant Mandal 1987 Higher Deputy Head of Department of the Federal Agency for State Property Management (Rosimuschestvo)
    Roman Litviniov 1982 Higher Deputy Head of Division of PJSC Gazprom

    Members of the Audit Commission

    (acting from 27 June 2014 to 26 June 2015)
      Year of birth Education Position1
    Nikolay Varlamov 1974 Higher Deputy General Director for Control and Audit of JSC ROSSETI
    Anna Drokova 1985 Higher Head of the Department of organisations of Fuel and Energy Sector of the Department of Property Relations and Privatisation of the Federal Agency of State Property Management
    Marina Lelekova 1961 Higher Head of the Control and Internal Audit Department of JSC ROSSETI
    Vladimir Skobarev 1952 Higher Director General of MOORE STEPHENS RUS, Ltd
    Alan Khadziev 1981 Higher Director on Internal Audits of JSC Far East Energy Management Company
    1 Positions are as at the election date .

    The total remuneration paid to the members of the Federal Grid’s Audit Commission in 2015 amounted to RUB573.5 thousand.

    For further details about the activities of the Audit Committee, see the 2015 Annual Report of Federal Grid Company (the “Corporate Governance Report Control System Audit Commission and Auditor” section).

    Improving the Corporate Governance System in 2015

    In order to implement the Russian Corporate Governance Code recommendations, the Company developed and the Board of Directors approved in March 2016 an Action Plan (‘road map’) that covered all aspects of the Federal Grid’s corporate governance system and practice.

    All commitments made within the ‘road map’ were fully met by the Company:

    • In June 2015, the Annual general Meeting of Shareholders approved an updated version of the Articles of Associations, updated versions of the Regulations on the General Meeting of Shareholders, Board of Directors, Management Board, Audit Commission, the Regulations on Remunerations and Compensations to Members of the Board of Directors and on Remunerations and Compensations to Members of the Audit Commission
    • Following the update of the above documents, the Board also approved new Regulations on the Board committees and on remunerations to committee members
    • A position of Corporate Secretary was established, and the Board approved Regulations on the Corporate Secretary
    • The Federal Grid’s Information policy was updated, including with regard to new requirements of the Bank of Russia to securities issuers

    When implementing measures envisaged by the ‘road map’, the Company continued to review and update the other internal documents as required by the recommendations of the Russian Corporate Governance Code, including the Regulations on the Investment Committee, Risk Management System, and Internal Audit.

    In addition, the Company has reviewed its corporate governance practices’ compliance with the principles and recommendations of the Russian Corporate Governance Code based on the Recommendations of the Bank of Russia on reporting compliance with the Corporate Governance Code principles and recommendations1.

    Being a company whose Global Depository Receipts are traded on the London Stock Exchange, Federal Grid Company strives to achieve high international standards in corporate governance, including the compliance with the UK Corporate Governance Code.

    Full Report on Federal Grid’s compliance with the Corporate Governance Code principles and recommendations, as well as the Report on compliance with the main principles of the UK Corporate Governance Code are available in the 2015 Annual Report (Appendix 3 to the Report).

    Corporate Governance Rating

    In August 2015, the corporate governance rating of Federal Grid Company was confirmed at

    7+
    level “Well-Developed Corporate Governance Practice”

    The results of the Company’s efforts to improve its corporate governance system were positively assessed by experts of the Russian Institute of Directors – an external independent consultant of Federal Grid Company that has been monitoring the corporate governance practice of the Company since 2012 and assigns a National Corporate Governance Rating (NCGR).

    New Corporate Governance Code

    In 2015, the Board of Directors approved a new version of the Federal Grid’s Corporate Governance Code.

    A revised document has a better structure within which the Company has declared the main corporate governance principles, defined key participants of its corporate governance system, their roles, working environment and terms of engagement.

    Taking into account the recommendations of the Russian Corporate Governance Code, the Code of Federal Grid Company has covered an extended range of issues concerning the rights of shareholders, specified principles of Board structure and composition, independence criteria of Board members, set out the basic provisions relating to the Corporate Secretary and to the ensuring of transparency of the Company’s activities.

    Among the major achievements of Federal Grid Company, experts noted the following:

    • Improving the balance of the Board of Directors by increasing the number of independent directors
    • Establishing the position of Corporate Secretary
    • Expanding the role of the Board of Directors with regard to monitoring and reviewing the effectiveness of the Company’s internal audit function

    For further details about CSR and SD management system, see the 2014 Social Report, page 39.

My Report

Your page has been added successfully.