Remuneration of the Parent Entity’s bodies and of other Key Managers of the Group

Detailed principles for setting the terms of remuneration of the Management Board Members were established by the Supervisory Board in accordance with „Policy of remuneration of Management Board and Supervisory Board Members of KGHM Polska Miedź S.A.” in the templates for the management services contracts for the Company’s Management Board.

The management services contracts were signed for the time Members of the Management Board serve in the Management Board, within one term. 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.

Total remuneration received on their basis consists of a fixed part – a basic monthly remuneration, as well as variable remuneration representing supplementary remuneration for the Company’s financial year.

The fixed monthly remuneration for individual members of the Company’s Management Board is for the President of the Management Board fifteen times, and for Vice Presidents of the Management Board fourteen times of the average monthly salary in the corporate sector, excluding payments from profit in the fourth quarter of the previous year, announced by the President of the Central Statistical Office.

Variable remuneration depends on the level of achievement of the management goals set by the Supervisory Board for a given financial year and may not exceed 100% of the annual fixed remuneration for the time during which the subject of a given contract is performed (with the provision that the contract was performed for a period longer than three months).

Based on the Statutes of KGHM Polska Miedź S.A., the Bylaws of the Supervisory Board, the management services contracts, resolution no. 8/2016 of the Extraordinary General Meeting and the Act on the terms of setting the remuneration of individuals managing certain companies, the Supervisory Board set Management Goals for the Management Board of KGHM Polska Miedź S.A. for 2021.

The Management Goals under which the variable remuneration for the financial year of the Company may be received are the following:

• application of the principles of remunerating members of management and supervisory bodies, pursuant to the act dated 9 June 2016 on the terms of setting the remuneration of individuals managing certain companies, in all of the Group’s companies;
• execution of the duties described in art. 17-20, art. 22 and art. 23 of the act dated 16 December 2016 on the principles of state assets management.

The Supervisory Board also established additional management goals for individual members of the Management Board according to the areas of competence assigned to them, including:

• business measures (KPIs)
  • adjusted EBITDA of KGHM and KGHM INTERNATIONAL LTD.,
  • volume of electrolytic copper production from own concentrate;
  • C1 cost of KGHM Polska Miedź S.A.;
  • Net debt/EBITDA ratio for the KGHM Polska Miedź S.A. Group;
  • LTIFR,
• other management goals related to the implementation of key strategic projects, such as:
  • efficiency increase of the KGHM Polska Miedź S.A. Group subsidiaries,
  • Climate Policy of KGHM Polska Miedź S.A.,
  • review and update of the strategy in the context of changes in the macroeconomic and legislative environment,
  • ensuring long-term financial stability
  • implementation of the Integrated Financial Management System at the Head Office, Divisions and in selected companies of the KGHM Group,
  • preparation and implementation of the Research Agenda,
  • development of the Core Production Line,
  • increasing the efficiency of the KGHM Polska Miedź S.A. Group through innovative activities,
  • optimization of procurement processes at KGHM Polska Miedź S.A.,
  • implementation of systemic external services management,
  • implementation of measures to maintain mining production at the level of 440 thousand tonnes of copper in ore,
  • realisation of Sierra Gorda’s planned ore processing
  • realisation of copper production plans by international assets,
  • Sierra Gorda financing,
  • preparation of a Long-Term Plan for Ensuring an Optimal Portfolio of Purchased Metalbearing Material Inputs ensuring the production level assumed in the Strategy of KGHM Polska Miedź S.A.

Payment of variable remuneration is made following the submission by individual members of the Management Board of reports on the achievement of the KPIs and goals. Payment of the variable part is contingent on the achievement by a manager of the management goals, approval of the Management Board’s report on the activities of the Company and the Company’s financial statements for the prior financial year, and the granting of approval by the General Meeting for the given Management Board Member’s performance of duties. On this basis, the Supervisory Board evaluates the execution of the aforementioned goals and sets the amount of the variable remuneration due.

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

From 2020, by a decision of the Supervisory Board, it is permissible for the cost of a Management Board Member’s life insurance policy, under the group life insurance policies in place in the Company, including in the case of death, accident or illness, to be covered by the Company. The scope of this insurance is analogous to that provided to management staff, the sole difference being that in the case of the selection by a particular Management Board Member of life insurance with a so-called equity insurance fund (ubezpieczeniowy fundusz kapitałowy), that portion of the contribution under this option 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, seminaries 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 travel costs 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 Chairman of the Supervisory Board of the Company

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 additional remuneration for this function, apart from the remuneration provided for in the management services contract. 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 its consent 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 an employment 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 provide severance pay of no higher than three times the amount of the fixed part of remuneration (if the contract was in force for at least 12 months).

The contracts with the Members of the Management Board – both during the period of employment as well as following the period of employment – deal with the question of forbidding competition. 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 competing activities. For adherence to the clause on forbidding competitive activities, KGHM pays the Management Board Member compensation throughout the period during which competitive activities are banned in the amount of 50% (and in the case of the President of the Management Board 100%) of the monthly fixed 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 Member of the Management Board breaches the aforementioned contract, he or she will be required to pay a contractual penalty in the amount of the entire 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 members of supervisory boards was set on 7 June 2019 by the General Meeting based on the Act dated 9 June 2016 on the terms of setting the remuneration of individuals managing certain companies. According to „Policy of remuneration of Management Board and Supervisory Board Members of KGHM Polska Miedź S.A.” 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 Central Statistical Office. Members of the Supervisory Board 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.

Apart from the above-mentioned remuneration, Members of the Supervisory Board are not entitled to receive any additional remuneration components, including bonuses or other cash benefits.

According to the Commercial Companies and Partnerships Code, the Company also covers or reimburses costs related to participation in the work of the Supervisory Board.

Detailed information on the amount of remuneration and other benefits for Supervisory Board and Management Board members may be found in note 12.9 of the separate and consolidated financial statement and will be presented in „Report on the remuneration of members of the Management Board and Supervisory Board KGHM Polska Miedź S.A. for 2021”.

The principles of the remuneration of key managers of KGHM Polska Miedź S.A. – the Executive Directors of the Head Office and the Executive Directors of the Company’s divisions – is set by the Company’s Management Board.

The employment contracts concluded with the abovementioned directors provide that they are entitled to the following components of remuneration and benefits:

• basic monthly remuneration, which amounts – depending on the function served – from 9- to 12-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 Central Statistical Office.
• an annual bonus up to 40% of the annual fixed part of remuneration, paid in accordance with the principles for bonuses based on a system of business measures and individual goals; the system is based on collective and individual KPIs and goals, the basis of which are the key performance indicators of the Management Board and goals resulting from the Company’s strategy,
• additional benefits, such as life insurance, the Employee Pension Program, a Health Care Package,
• a company car,
• a severance pay of no higher than three times the amount of the basic monthly remuneration, in the case of termination, of the contract by the Employer (if the contract was in force for at least 6 months).

KGHM Polska Miedź S.A. has no pension obligations or related benefits in respect of former management and supervisory staff or liabilities drawn in respect of such pensions.