Russia's Finance Ministry proposes incentivizing management of state-owned companies via shares or instruments linked to shares
MOSCOW. July 23 (Interfax) - Russia's Finance Ministry has prepared a draft government resolution on implementing a long-term incentive program for senior management of companies with state participation, and whose shares are already traded on the stock market or are planned for public offering, with the corresponding document having been posted on the regulation.gov.ru portal for public discussion that which lasts until August 5.
"The initiative is designed to incentivize top management [...] to work on improving financial and economic results, increasing capitalization, and placing company shares on organized trading. Employee remuneration is provided in the form of company shares or financial instruments, the profitability of which depends on changes in the value of the security," the Finance Ministry said.
The ministry announced plans to improve the incentive system for management of state-owned companies at the end of last year. Capitalization "is the most integral, comprehensive indicator" that tells shareholders how effectively the company's activities are managed, the Finance Ministry said.
The new incentive system is also connected with the Finance Ministry's plans to bring state-owned companies to the equity capital market. "When we ask any consultants what is the most important aspect to do for companies with state participation, so that they are interested in participating in IPOs and placing their shares, they say to change the incentive system for management, namely to tie the incentive system for management to the value of shares," Deputy Finance Minister Ivan Chebeskov said.
The current incentive system for senior management of companies with state participation is based on key performance indicators (KPI) and functional key performance indicators (FKPI).
Long-term incentivization forms are the key to effective operations of the management of state companies, whose shares are traded on the stock market. The mechanism meets the interests of shareholders and future investors interested in growth in the value of shares, Andrei Vorontsov, director of the Finance Ministry's Department for Regulating Property Relations, said in the statement. This incentivization "would positively affect the investment attractiveness of shares and would contribute to achieving the national goal of ensuring growth in stock market capitalization to at least 66% of GDP by 2030," Vorontsov said.
The draft resolution describes the long-term incentive program as "a set of internal documents and decisions of the board of directors of an organization that is a joint-stock company [with state participation], whose shares are admitted to organized trading or are planned for public offering at organized trading, aimed at the long-term incentivizing of individual employees, including senior management, of the organization to improve the financial and economic performance of the organization, the placement of its shares at organized trading, and the growth of its capitalization, establishing the possibility of paying remuneration to individual employees, including senior management officials, of the organization by providing shares of the organization or financial instruments linked to growth in the value of the organization's shares, and also determining the procedure, timeframe, and grounds for the payment."
The Finance Ministry has proposed not including remuneration received as part of the long-term incentive program in the annual personal remuneration of senior managers. Specific parameters would be determined at the level of the boards of directors of companies, while they must not contradict the basic principles of implementing long-term incentive programs agreed by the working group under the government commission on optimization of budget expenditures.
