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      1. 3.2 Corporate governance system
      2. 3.2.1 General meeting of stockholders
      3. 3.2.2 Board of directors
      4. 3.2.3 Board of directors committees
      5. 3.2.4 General director and executive board
      6. 3.2.5 Remuneration and compensation policy

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3.2.5 Remuneration and compensation policy

CALCULATION OF REMUNERATIONS DUE TO THE BOARD OF DIRECTORS

The Annual General Meeting of Stockholders, conducted on 18.06.2015, adopted Amended and Restated Regulations of Remunerations and Compensations due to the Board of Directors at OAOOpen Joint-Stock Company IDGCInterregional Distribution Grid Company of Urals. In compliance with the Regulations, remunerations comprise a lump sum payment for participation in the Board activities and additional payment from the net profit if Company’s market value increases during the Board’s tenure.

The exact amount of remunerations due to each Board member for the service shall be calculated, factoring in the total number of Board meetings conducted during the previous corporate year and number of attended meetings. The basic amount of remunerations (Rbase) shall be set upon the annual RASRussian Accounting Standards revenues of the Company. The following increments shall be added to the remunerations: 30% for the Board Chair, 20% for the Chair of a Board Committee, 10% for a membership in a Board Committee. Increments for the Chair and/or membership in a Board Committee shall not be paid in case there were less than three Board meetings during the corporate year. Overall remunerations and increments shall not exceed Rbase. Remunerations shall not be paid to a Board member, if such member missed more than 50% of Board meetings (conducted during his service).

Additional remunerations, due to each Board member, for the increased market value of the Company shall total 0.0175 per cent of increased market value of the Company (IMC), calculated for a period between his/her election and election of a new Board. IMC remunerations shall be paid only if average monthly traded value of the Company’s common shares during the Board’s tenure totals at least RUR 1.5 mn. Overall remunerations, paid to the Board members, shall not exceed 5% of RASRussian Accounting Standards annual net profit. Remunerations shall be paid within 60 days since the annual general meeting. Remunerations shall not be charged and paid to the Board Chairperson and members, subject to legal restrictions or prohibition of any allowances from businesses.

Meeting-related expenses of a Board member shall be reimbursed in compliance with Company’s trip reimbursement rates existing at the moment, when a meeting was conducted. Compensations shall be paid within three business days since the filing of documents certifying incurred costs.

Visit “Incorporating Documents and Bylaws” Section of our official web-site to view the Regulations.

CALCULATION OF REMUNERATIONS DUE TO THE EXECUTIVE BOARD AND GENERAL DIRECTOR

Achievement of Company’s priorities is assessed by the KPIkey performance indicators system, applied by the Company. OAOOpen Joint-Stock Company IDGCInterregional Distribution Grid Company of Urals General Director’s KPIkey performance indicators system was set by the Board of Directors(74). The resolution established the following FY2018 KPIkey performance indicators composition and targets:

QUARTERLY INDICATORS:

The list of KPIs FY2017 achievements FY2018 targets FY2018 achievements
1. EBITDAearnings before interest, taxes, depreciation and amortization 1Q – 53.3% 3,6,9M ≥ 0;
12M ≥ 3.0%
1Q – 51.2%
2Q – 46.7% 2Q – 54.2%
3Q – 45.8%
4Q – 25.8%
2. Consolidated net debt / EBITDAearnings before interest, taxes, depreciation and amortization 1Q – 1.1 1, 2, 3, 4 Q ≤ 3.0 1Q – 0.8
2Q – 1.0 2Q – 1.0
3Q – 0.8
4Q – 1.0
3. Completion of receivables reduction action plan 1Q – 174.9% ≥ 100.0% 1Q – 111.3%
2Q – 223.7% 2Q – 168.2%
3Q – 171.4%
4Q – 131.3%
4. Lack of increase in occurrence of large-scale incidents 1Q – 0 Zero increase 1Q – 0
2Q – 0 2Q – 0
3Q – 0
4Q – 0
5. Lack of increase in casualties 1Q – 0 Zero increase 1Q – 0
2Q – 0 2Q – 1
3Q – 0
4Q – 0

ANNUAL INDICATORS:

The list of KPIs FY2017 achievements FY2018 targets
1. Consolidated net cash flow RUBruble 1,256.2 million ≥ -6,091.9 million
2. Reduction of per-unit opex 3.4% ≥ 2.0%
3. Enhancement of grid facility load done done
4. Electricity loss level 7.85% ≤ 7.97%
5. Reduction of per-unit investment costs 1.00 ≤ 1.00
6. Increase in labor productivity 14.85% ≥ 2.00%
7. Efficiency of innovative activities 103% ≥ 90%
8. Compliance with the facility launch schedule 95% ≥ 90%
9. Compliance with connection terms 1.0 ≤ 1.1
10. Service reliability 0.67 ≤ 1.00

At the time of report preparation, the Board of Directors has not approved real KPIkey performance indicators values for 3-4Q and FY2018, with due regard to the timeline of the reports used for their calculation. The KPIkey performance indicators system enforced by the Company is coupled with variable remuneration of the management: each indicator has its own weight, quarterly and annual remunerations are to be paid as long as the relevant KPIs are completed.

Total remunerations and/or compensations due to each governing body:

Type of remunerations, RUBruble thousand Board of Directors Executive Board
Service remunerations 13,475 0
Salary 0 48,432
Bonuses 0 61,624
Commission fees 0 0
Other types 0 0
TOTAL 13,475 110,056

Amount of individual annual remuneration due to each Board of Directors member, Company’s expenses on D&O insurance:

The Board of Directors members receive service remunerations and reimbursement of meeting-related expenses. FY2018 payments to the Board of Directors are as follows:

In 2018 the Company has concluded a contract with AOJoint-Stock Company SOGAZ on D&O insurance for the period starting 01.07.2018 and ending 30.06.2019, with a RUBruble 1,371 thousand premium paid to the insurer.

Total annual remunerations of:

a) at least 5 top-paying members of executive bodies and other key management personnel, with a breakdown by category of remunerations;

b) all executive bodies and other key management personnel covered by the Company’s remuneration policy, with a breakdown by category of remunerations:

Information in clauses a) and b) covers a group of the Executive Board members, net of the General Director. Total remuneration of the Executive Board members in 2018 is RUBruble 63,251 thousand:

Total annual remunerations of the sole executive body received or to be received from the company (legal entity from the group of entities to which the company belongs) with a breakdown by category of remunerations for the SEB and other services:

Total remuneration of the SEB (General Director) in 2018 is RUBruble 46,935 thousand, namely:

Information on borrowings (loans) issued by the company (legal entity from the group of entities to which the company belongs) to the Board of Directors and Executive Board members, compliance of borrowing terms with market terms:

The Board of Directors and Executive Board members received no borrowings and loans in 2018.