REMUNERATION OF MANAGEMENT AND SUPERVISORY BOARD MEMBERS

General terms and conditions of the annual bonuses

Members of PKN ORLEN’s Management Board are entitled to an annual bonus (variable pay) on the terms set out in their respective contracts, which include the Rules of the Incentive Scheme for the Management Board as an appendix. The level of annual bonus depends on the performance against individual targets (both qualitative and quantitative), set by the Supervisory Board for individual Members of the Management Board. Based on the general set of Management Objectives established by the PKN ORLEN General Meeting, the Supervisory Board sets from four to ten individual bonus targets per year, which are recorded in a Member’s MBO Sheet. The Supervisory Board may also set a separate objective or objectives for a particular year, which must be met as a precondition to bonus payment for that year.

Assessment of a Management Board Member’s performance against individual bonus targets (both quantitative and qualitative) and achievement of separate objectives is made on an annual basis by the Supervisory Board, on the President of the Management Board’s recommendation which contains an assessment of individually performed bonus targets for all Members of the Management Board, the Management Board’s recommendation regarding achievement of the separate objective/objectives, reports on the performance against individual bonus targets by Members of the Management Board, PKN ORLEN’s financial statements and other documents which the Supervisory Board considers appropriate to examine.

The Supervisory Board passes a resolution to grant a Management Board Member an annual bonus (variable pay) for a given financial year, specifying the bonus amount, or a resolution not to grant the annual bonus. Such resolution is the basis for payment of the annual bonus provided that the Company’s consolidated financial statements for the financial year have been approved by the General Meeting and provided that the Management Board Member has been granted discharge in respect of his duties. 

The Supervisory Board set the following six quantitative targets for all Members of the Management Board for 2020:

• Reported EBIT of the Group,
• LIFO EBITDA of the Group,
• Maintenance CAPEX of the Group + general and personnel costs of the Group,
• Growth CAPEX of the Group,
• Stock performance ratio: TSR of PKN ORLEN relative to the market,
• Accident rate: TRR of the Group and its external contractors and assigned relevant bonus thresholds to these targets. The Supervisory Board also set two qualitative targets for each Member of the Management Board, associated with the Group’s key challenges in a given year.

Additionally, in accordance with the resolutions of the PKN ORLEN General Meeting, the Supervisory Board set the following separate objectives, which must be met as a precondition to receipt of an annual bonus for 2020:

• compliance with the principles of remuneration for members of management and supervisory bodies in line with the Act across all Group companies,
• discharge of the obligations referred to in Art. 17-20, Art. 22 and Art. 23 of the Act on State Property Management of December 16th 2016 (Dz.U. of 2019, item 1302, as amended) within the Company’s subsidiaries within the meaning of Art. 4.3 of the Act on Competition and Consumer Protection of February 16th 2007 (Dz.U. of 2019, item 369, as amended).

Compensation for non-compete obligations and for termination of employment

In accordance with the contracts, Members of PKN ORLEN’s Management Board are required to refrain from any activities that are in competition with the Company’s business for a period of six months after the contract termination. During that period, they are entitled to receive a compensation equal to six times their monthly base pay, payable in six equal monthly instalments. Provisions of the contracts regarding non-competition after termination as a Management Board Member come into force only after a Management Board Member has held their position for at least three months.

In addition, the contracts provide for a severance payment in the case of termination by the Company for reasons other than a breach of primary, essential obligations under the contract, provided that the position of Management Board Member is held for a period of at least 12 months. Such severance benefit amounts to three times the monthly base pay.

In accordance with the contracts, Members of the Management Boards of ORLEN Group companies are typically required to refrain from any activities that are in competition with the respective company’s business for a period of six months after the contract termination. During that period, they are entitled to receive a compensation equal to 50% or 100% of six times their monthly base pay, payable in six equal monthly instalments. The non-compete clauses come into force only after a Management Board Member had held their position for at least three or six months. Severance payments for Members of the Management Boards of ORLEN Group companies are typically governed by the same rules as those applicable to Members of the PKN ORLEN Management Board.

Directors reporting directly to the PKN ORLEN Management Board are, as a general rule, bound by non-compete clauses for a period of six months after the contract termination. During this period they receive a salary equal to 50% of six-month base pay, payable in six equal monthly instalments. The severance pay for termination of contract by the Company is typically equal to six-fold monthly base pay.

For more information on the terms of remuneration, conditions for granting annual bonuses, and non-competition agreements, seesection ‘Corporate governance’ of this Report.