Remuneration of members of the parent entity’s bodies and of other key managers of the Group

The detailed rules for setting remuneration of Management Board members have been defined by the Supervisory Board which, acting under the authority granted by the Extraordinary General Meeting of KGHM Polska Miedź S.A., approved the forms of management services contracts for members of the Company’s Management Board. The provisions in the contract forms are consistent with the “Remuneration Policy for Members of the KGHM Polska Miedź S.A. Management Board and Supervisory Board” adopted by the General Meeting, and prior to its adoption they were consistent with resolutions adopted by the General Meeting on the rules for setting remuneration of Management Board and Supervisory Board Members.

The management services contracts were signed for the period, in which Management Board members discharge their functions in the Management Board during one term of office. This means that the termination of a contract will occur on the final day on which the function is served, with no notice period and without the need to take additional actions.

The total remuneration received on their basis consists of a fixed component constituting the monthly base salary and a variable component constituting additional compensation for the Company’s financial year.

The monthly fixed remuneration for individual Management Board Members is within the range from seven to fifteen times the average monthly remuneration in the corporate sector without profit-sharing in the fourth quarter of the previous year, as announced by the President of Statistics Poland.

Variable remuneration depends on the level of achievement of the management goals set by the Supervisory Board for each financial year and may not exceed 100% of the fixed remuneration in the period when the subject matter of the contract was performed (provided that it is longer than 3 months).

In 2020, new rules were introduced for granting bonuses to general directors, Divisions and departments. The changes were driven by both market trends as well as the need to update the existing rules.

In Q4 2020, the conceptual work on the Performance Management process platform was launched. The work on the platform should be completed at mid-year.

Based on the Statutes of KGHM Polska Miedź S.A., the Supervisory Board Bylaws, the management services contracts, resolution no. 8/2016 of the Extraordinary General Meeting, the Supervisory Board set Management Objectives for the KGHM Polska Miedź S.A. Management Board for 2020.

Payment of variable remuneration is made following the submission by individual members of the Management Board of reports on the achievement of the Management Objective. Payment of this variable remuneration is contingent on the approval by the General Meeting of Shareholders of: the Management Board Report on the Company’s activity, the Company’s financial statements for the prior financial year, and the granting of a discharge to the Management board member on his or her performance of duties. On this basis, the Supervisory Board evaluates the fulfilment of the aforementioned goals and determines the amount of the variable remuneration due.

Members of the Management Board may join the Employee Pension Programme under the terms of the existing Collective Agreement, with the proviso that the amount of the monthly contribution under this Programme is included in the amount of the fixed remuneration for the given period.

By decision of the Supervisory Board, since 2020 a Manager has been allowed to be covered, at the Company’s expense, with life insurance under the group life insurance policies in place in the Company, including death, accident or illness insurance. The scope of this insurance is analogous to that provided to the management staff, the sole difference being that if a Management Board Member selects a unit-linked life insurance product then the premium corresponding to the unit-linked part will not be financed by the Company.

The management services contracts also regulate issues involving the application (utilisation) of all of the Company’s resources (tools) required to carry out the contractual duties and to maintain the requirements of security in terms of collecting and transmitting data, including in particular:

• office space together with technical equipment and infrastructure, including a personal computer with wireless Internet access and other necessary equipment, means of communication, including a mobile phone;
• local housing appropriate to the function served (in respect of which the Company covers the cost of such housing to the net amount of PLN 2,500);

• participation in conferences, seminars or business meetings related to the Company’s operations and, if necessary to carry out these obligations, business trips in Poland and abroad;
• the incurring by the Company of costs related to services performed outside of the Head Office which must be incurred to properly perform the services, in particular such as costs of travel and accommodation in a standard appropriate to the function performed;

• use of a company car for business purposes;
• civil liability insurance for the Management Board Member related to serving in the function; and
• incurring or refinancing costs of individual training for the Management Board Member related to the Contract in question and contractual obligations, in each case with the prior consent of the Chairperson of the Supervisory Board.

The Contracts also provide that if the Management Board Member serves as a member of a body in a subsidiary of the Company within the Group, the Management Board Member will not receive any additional remuneration for this function. In addition, the Management Board Member is obligated to inform the Supervisory Board of the possession of shares in publicly-listed companies and to gain the consent of the Supervisory Board for accepting a position or serving in a function in the body of another commercial law company – excluding companies of the Group, the acquisition or possession of shares in another commercial law company, as well as performing work or services on behalf of other entities based on a labour contract, mandate contract or based on any other legal relationship.

The contracts signed with the Members of the Management Board regulate the question of compensation in the case of termination, with or without notice, of the management services contract for reasons other than breach of the contract’s basic obligations. The contracts foresee that the Company will pay severance pay of no more than three times the amount of the fixed part of monthly remuneration (if the management board member discharged the function for at least 12 months).

The contracts with Management Board Members contain regulations forbidding engagement in competitive activity both during the period of employment as well as following the period of employment. In particular, they establish that for a period of six months from the date when employment in the function ceases, the Management Board Member is not allowed to engage in any activities which would represent a conflict of interest. On account of the non-compete clauses, KGHM will pay to the former Management Board member, for the non-compete period, monthly compensation of 50% (100% in the case of the Management Board President) of the fixed monthly remuneration. The payment of compensation is conditional on the Management Board Member’s having served in the function for at least 6 months. If a Management Board Member breaches this clause in the contract, he/she will be required to pay a contractual penalty equal to the full amount of the compensation received. Payment of the contractual penalty does not deprive the Company of the right to seek compensation in an amount exceeding that amount under general rules.

The remuneration of Supervisory Board members was set on 7 June 2019 by the General Meeting pursuant to the provisions of the Act of 9 June 2016 on the terms of setting the remuneration of individuals managing certain companies and then in the “Remuneration Policy for Members of the KGHM Polska Miedź S.A. Management Board and Supervisory Board” adopted by the Ordinary General Meeting in 2020. The amount of monthly remuneration of individual members of the Supervisory Board depends on the function served and is set as 2.2x or twice the average monthly remuneration in the corporate sector excluding payments from profit in the fourth quarter of the previous year, announced by the President of the Statistics Poland. Supervisory Board Members are not remunerated for any month in which they did not attend any of the formally convened meetings for unjustified reasons, which are assessed and qualified by the Supervisory Board.

In addition to the above remuneration, Supervisory Board Members do not receive any additional remuneration, including bonuses or other cash benefits.

According to the Commercial Company Code, the Company covers or reimburses costs incurred by Supervisory Board Members in relation to participation in the work of the Supervisory Board.

Detailed information on the amount of remuneration, bonuses or benefits for Supervisory Board members and Management Board members are presented in note 12.10 to the standalone and consolidated financial statements.

Key managers receive remuneration based on employment contracts. During their term, employees are entitled to:

• basic monthly remuneration, which amounts – depending on the function served – from 5- to 11-times the average monthly remuneration in the corporate sector, excluding payments from profit, in the fourth quarter of the previous year, announced by the President of the Statistics Poland.
• an annual bonus, paid in accordance with the principles for bonuses set by the Management Board, based on a system of business measures (KPIs) and individual goals (MBO). Principles of setting and granting annual bonuses (STIP – Short-Term Incentive Plan) have been in place in KGHM Polska Miedź S.A. since 2013. In 2020, new rules were introduced for granting bonuses to general directors, Divisions and departments. The changes were driven by both market trends as well as the need to update the existing rules. This system is based on collective, individual and task-related KPIs, which were derived from the key performance indicators for the Management Board as well as on goals arising from the Company’s strategy. At present the STIP system applies to 117 managers in the Company
• additional benefits, such as life insurance, the Employee Pension Programme, a Health Care Package, and a company car.

The audit firm auditing the Company’s financial statements rendered permitted non-audit services to the Company. In each instance, the Audit Committee assessed the independence of the audit firm and gave its consent for the provision of the services.

Detailed information on the amount of the fees payable to the entity authorised to audit financial statements for the review and audit of financial statements and the fees for other services is provided in Note 12.10 to the standalone and consolidated financial statements.

The Company has implemented the policy of selecting an audit firm to audit financial statements (hereinafter: the Selection Policy) and the policy for the provision of permitted non-audit services by the audit company conducting the audit, entities related to this audit company and a member of the audit company’s network (hereinafter: the Provision Policy).

Key principles underlying the Selection Policy:

• the maximum uninterrupted period of providing financial statements audit services is 5 years, which must be followed by a grace period of at least 4 years,
• all procedures in the audit firm selection process must be transparent, accurate and fair
• all audit firms, which meet the Company’s requirements, must have equal opportunity of selection
• persons designated within the Company to implement the Selection Policy must have the appropriate expertise and exercise due care
• the selection and evaluation procedures must be documented in a manner that ensures the transparency of activities

Key principles underlying the Provision Policy:

• the scope of permitted non-audit services contracted with the audit firm or its affiliates must be limited; the maximum aggregate fees for providing such services are limited to 70% of the average annual fee paid over the last three financial years for the provision of statutory audit services.
• each purchase of a non-audit service from an audit firm or its affiliate must be verified in terms of justification and necessity
• the Audit Committee actively participates in the process of assessing threats to and safeguards of the audit firm’s independence during the provision of permitted non-audit services
• an agreement may be signed and services provided, or the scope of the services or remuneration may be changed only after the required consent of the Audit Committee

The entity authorised to audit the financial statements for 2019-2021 is PricewaterhouseCoopers Polska spółka z ograniczoną odpowiedzialnością Audyt sp.k. The audit firm was selected following an organised selection procedure that met the applicable criteria.