Annual remuneration report
This section summarises remuneration paid out to directors for the 2020 financial year and details of how the Remuneration Policy will be implemented in the 2021 financial year.
Executive director’s remuneration
In 2020, 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 director’s fee (US$150,000) and any applicable fees for participation in the work of the Board committees as laid out in the section below on non-executive director remuneration.
However, the сommittee considers these fees to be incorporated in his base salary. Alexander Frolov’s current shareholding (9.66% of issued share capital as at 31 December 2020) provides alignment with the delivery of long-term growth in shareholder value. As such, the сommittee does not consider it necessary for the CEO to participate in any long-term incentive plans or to impose formal shareholding guidelines. However, the сommittee will continue to review this on an ongoing basis.
Single total figure of remuneration (audited)
|Alexander V. Frolov||2020 (US$)||2019 (US$)|
|Salary and director feesThe salary is paid in roubles and the amounts paid in the year are reconciled at the year-end so as to equal US$2,625,000.||2,625,000||2,625,000|
|Total Fixed Remuneration||2,651,909||2,657,970|
|Total Variable Remuneration||3,136,930||0|
The сommittee approved the CEO’s current salary on 1 January 2019 at the level of US$2,625,000 (which includes, for the avoidance of doubt, the director’s fee, fees paid for committee membership and any salary from subsidiaries of EVRAZ plc). This salary level will remain unchanged for 2021.
Pension and benefits (audited)
The CEO does not currently receive any pension benefit or allowance. 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 сommittee’s agreement and the Board of Directors’ approval.
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 2020 (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 2020, the following five indicators, each with an equal weighting of 20%, were considered when determining the CEO’s annual bonus: LTIFR, EBITDA, Free Cash Flow (adjusted), Cash Cost Index and the сommittee’s assessment of overall performance against strategic objectives.
The сommittee reviews the resulting bonus payout to ensure that it is appropriate considering the Group’s overall performance, as well as safety record and procedures.
In 2020, EVRAZ outperformed the threshold target for all of its operational and financial KPIs, resulting in an annual bonus payout of 59.75% of the maximum. Despite the negative impact on world economies caused by the COVID-19 pandemic, management has delivered a robust set of financial and operational results and continued to advance core strategic projects according to plan while, most importantly, doing everything it could to protect its people and support local communities during a pandemic.
|Threshold||Planned level (% of target)||Outstanding||Actual 2020||Bonus payout (% of max)|
|Cash cost index||110%||100%||90%||95%||76%|
|Discretion||Remuneration Committee assessment of overall performance against strategic objectives||50%|
Remuneration committee 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. During the year, the business continued to deliver in relation to key strategic priorities and create long-term returns for shareholders.
The сommittee determined that in 2020 the Group maintained stable production and showed good progress on strategic projects despite the global outbreak of COVID-19. The Group’s primary focus was on ensuring safe working conditions for employees, safeguarding local communities and preventing the spread of COVID-19. In recognition of this, the CEO received 100% of Discretion KPI. The key reasons for this are:
- Relatively limited impact of COVID-19 on the Groups’ business due to proactive safety measures undertaken to protect employees and ensure operational continuity.
- Completion of late-stage investment projects on schedule.
- Progress made on all key strategic priorities including environmental agenda, despite global uncertainty caused by the COVID-19 pandemic.
- Net debt of US$3,356 million, bringing the net debt/EBITDA ratio to 1.5, in line with the medium-term target that EVRAZ has set to maintain net debt below US$4 billion.
- The efficiency improvement programme delivered savings of US$192 million from a cost-cutting initiatives.
- The customer focus programme generated an EBITDA effect of US$234 million.
- A strong start of digital transformation projects which generated an efficiency improvement effect of US$17 million.
Annual bonus for 2021
For 2021, the bonus framework will be in line with 2020. The Board considers forward-looking targets 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 Group’s overall performance including underlying safety practices and resulting performance.
Non-executive directors’ remuneration
Non-executive directors’ fixed remuneration payable in respect of 2020 and 2019 is set out in the 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). The fee for employee engagement responsibilities is set at US$24,000.
|Non-executive director||2020 (US$ thousand)||2019 (US$ thousand)|
|Total feesTotal fees include annual fees and fees for committee membership or chairmanship (pro rata working days).||AdminThe 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|| ||AdminThe 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|
|Sir Michael Peat||224||30||254||224||30||254|
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, director’s fees and fees paid for committee membership).
Fees will remain unchanged for 2021.
Aggregate directors’ remuneration
The aggregate amount of directors’ remuneration payable in respect of qualifying services for the year ended 31 December 2020 was US$8,319 thousand (2019: US$5,116 thousand).
Share ownership by the Board of Directors (audited)
There were no formal minimum shareholding requirements in place, reflecting the CEO’s current shareholding in EVRAZ. However, the proposed policy includes these in relation to any future appointments.
The directors’ interests in EVRAZ shares as of 31 December 2020 were as follows.
There have been no changes in the directors’ interests from 31 December 2020 through 24 February 2021.
|Directors||Number of shares||Total holding, ordinary shares, %|
The CEO holds shares to the value of 345 times his salary as at 31 December 2020.
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 EVRAZ shares.
Policy on external appointments
The сommittee believes that the Group can benefit from executive directors holding approved non-executive directorships in other companies, offering executive directors the opportunity to broaden their experience and knowledge. EVRAZ’ 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.
Engagement with the workforce
EVRAZ is committed to regularly engaging with its workforce and realises the value of listening to and acting on employee views across the organisation. These insights are vital to attracting and retaining employees, which is key to delivering and executing the Group’s vision and strategy. It also allows for informative decisions to be made throughout the business. Considering the views of the wider workforce has been in place at the Group for many years. Employees participate in an employee engagement survey aimed at gathering wider workforce views on various topics.
The survey has historically been successful in driving numerous employee -focused initiatives and helps to set key priorities for the forthcoming year, aimed at improving the engagement of all employees.
The Board reviews the engagement data and is therefore aware of any trends, comments or concerns in relation to executive pay. The Board also receives a quarterly summary report of complaints made on the EVRAZ employee telephone hotline.
In 2020, EVRAZ has introduced additional tools aimed at engaging with employees during the pandemic. Virtual meetings with senior management were regularly held, allowing employees to participate and ask questions. The 24/7 corporate hotlines were opened for employees if they have questions or encounter problems.
In 2020, two non-executive directors, appointed in 2018 to be involved in town-hall meetings with employees, participated in virtual meetings. Alexander Izosimov took part in an online town-hall meeting with employees
The сommittee also considers executive remuneration in the context of the wider employee population and is kept regularly updated on pay and conditions across the Group. The proportion of variable pay increases with progression through management levels with the highest proportion of variable pay at executive director level, as defined by the Remuneration Policy. Variable pay cascades down through the next tiers of management with appropriate reductions in opportunity levels based on seniority. In addition, the Group operates pension arrangements in some of its businesses around the world, where this is relevant to the local conditions. The key element of remuneration for those below senior management grades is base salary and the Group’s policy is to ensure that base salaries are fair and competitive in the local markets. General pay increases take into account local salary norms, inflation and business conditions.
Gender pay gap and CEO pay ratio
EVRAZ had less than 10 UK employees during the year and does not therefore have any gender pay or CEO pay ratio information to report under the Regulations.
Relative importance of spend on pay
The following table shows a comparison of the total cost of remuneration paid to all employees between the current and previous years and financial metrics in US$ millions. EBITDA was chosen for the comparison as it is the KPI that best shows the Group’s financial performance.
|Total employee pay||1,331||1,464|
For more information on the definition of EBITDA, please read Definitions of selected alternative performance measures →
The following graph shows the Group’s performance as measured by total shareholder return compared with the performance of the FTSE 350 Basic Resources Index since EVRAZ plc’s admission to the premium listing segment of the London Stock Exchange on 7 November 2011. The FTSE 350 Basic Resources Index has been selected as an appropriate benchmark, as it is a broad-based index of which the Group is a constituent member.
The following table shows as a single figure the CEO’s total remuneration over the past eight years, along with a comparison of variable payments as a percentage of the maximum bonus available.
|Year ends||FTSE 350 Basic Resources Index||Evraz|
|(US$)||CEO single figure of total remuneration||Annual bonus payout (as a % of maximum opportunity)|
Percentage change in remuneration
The following table sets out the percentage change in the elements of remuneration for the directors of Evraz plc, 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, and so are subject to a similar external environment and pressures.
The population of employees the calculation has been performed for includes administrative personnel in the Head Office and the Ural and Siberia management companies. This provides a representative calculation across the Russian businesses.
|Role||SalaryTotal fixed remuneration for NEDs.||Benefits||Annual bonus|
|Russia-based administrative personnel||3%||40%||2%|
|Alexander Frolov (CEO)||0%||(9%)||100%|
|Alexander Abramov (NED)||0%||n/a||n/a|
|Alexander Izosimov (NED)||9%||n/a||n/a|
|Eugene Shvidler (NED)||0%||n/a||n/a|
|Eugene Tenenbaum (NED)||0%||n/a||n/a|
|Karl Gruber (NED)||0%||n/a||n/a|
|Sir Michael Peat (NED)||0%||n/a||n/a|
|Deborah Gudgeon (NED)||0%||n/a||n/a|
|Laurie Argo (NED)||24%||n/a||n/a|
This section details the Remuneration Committee’s composition and activities undertaken over the past year.
The сommittee’s composition remains the same as in 2019, its current members are:
- Alexander Izosimov.
- Deborah Gudgeon.
- Sir Michael Peat.
- Laurie Argo.
All members of the Committee are independent non-Executive Directors. This is fundamental to ensuring Executive Directors and senior executives remuneration is set by people who are independent and have no personal financial interest, other than as shareholders, in the matters discussed. There are no potential conflicts of interest arising from cross-directorships and there is no day-to-day involvement in running the business. No-one is allowed to participate in any matter directly concerning the details of their own remuneration or conditions of service. The сommittee may invite other individuals to attend all or part of any committee meeting, as and when appropriate and necessary, in particular the CEO, the head of human resources and external advisers.
The Remuneration 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, which were reviewed and updated in the year to reflect changes made to the UK Corporate Governance Code. A copy can be found on the Group’s website.
The сommittee’s main responsibilities are to:
- Set and implement the Remuneration Policy covering the chairman of the Board, the CEO, the company secretary and other senior executives.
- 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 2018 UK Corporate Governance Code and associated guidance.
- Review and consider remuneration trends across the Group and the alignment of incentives and rewards with culture when setting the Remuneration Policy.
- Review regularly the Remuneration Policy’s appropriateness and relevance.
- Determine the total individual remuneration package of the chairman of the Board, the company secretary and other senior executives, including pension rights, bonuses, benefits in kind, incentive payments and share options, or other share-based remuneration within the terms of the agreed policy.
- Approve awards for participants where existing share incentive plans are in place.
- Review and approve any compensation payable to executive directors and other 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 the Remuneration Policy, and that such compensation is otherwise fair and not excessive for the Group
- Oversee any major changes in the structure of employee benefits throughout the Group and report on what engagement has taken place with the workforce on executive pay.
During 2020, the сommittee met four times. The main 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 2019 results; to approve the 2020 long-term incentive plan (LTIP) awards for key senior management and to be updated on pay across the workforce.
The сommittee has appointed Korn Ferry (UK) Limited (Korn Ferry) to provide independent remuneration consultancy services to the Group. Korn Ferry 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 the website of RCG.
During the year, Korn Ferry principally advised the сommittee on developments in the regulatory environment and market practice, and on the development of the Group’s pay arrangements. The total fee for advice provided to the сommittee during the year was £20,824.
The сommittee is satisfied that the advice it has 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.
|Number of votes||For||Against||Withheld||Total votes as % of issued share capital|
|To approve the Directors Remuneration Policy as set out at the 2019 Annual Report and Accounts||1,189,736,031 (95.85%)Percentage of votes cast.||51,449,970 (4.15%)||3,329,067||85.20%|
|To approve the Annual Remuneration Report set out at the 2019 Annual Report and Accounts||1,227,370,864 (98.62%)||17,138,237 (1.38%)||5,966||85.42%|
Signed on behalf of the Board of Directors,
24 February 2021