Remuneration and Motivation

The Company remunerates the staff of its divisions and SDCs on the basis of strict compliance with the existing legislation, collective bargaining agreements, and local regulations.

The key principles of the Company’s approach to personnel remuneration include:

  • prohibition of any discrimination in determining or changing a salary level and other remuneration conditions;
  • dependence of employee remuneration on: his or her qualification level; complexity of the work and responsibility in performing it; fair performance of work duties; compliance with the workplace discipline requirements; conditions, amount, quality, and productivity of work; personal and collective performance;
  • salary growth rate contingent on the productivity growth rate;
  • the main (base) part of salary is paid on the basis of the time worked and compliance with the established norms (for those working under piecework conditions – on the basis of the amount of work done) regardless of the performance of the respective business unit and the Company as a whole;
  • the variable part of salary depends on achieving the performance indicators and targets established by the employer for the worker, business unit and the Company as a whole (fulfillment of production targets, plans and programs with the conformance to technical specifications and standards taken into account; ensuring the requisite quality of the work performed; increased labor productivity; cost reduction achieved by reasonable means; observance of the corporate culture norms; initiation of reasonable proposals leading to improvement of the effectiveness of operations).

The Company’s remuneration system is aimed at providing incentives for employees to contribute to the fulfillment of operational and strategic objectives of the Company, and to achieve growth of labor productivity as a foundation for a competitive remuneration level.

The compensation package provided by the Company to its employees includes a salary and a social package.

Structure of the compensation package at the Group’s Russian entities, 2009 (%)

Salary (92.5%) consists of the following parts:

  • base salary, including additional payments and allowances for working conditions, payments in accordance with the regional multipliers and “northern allowances” for long service in the Far North and equivalent areas, payment for the time not worked etc.;
  • regular bonuses;
  • bonuses linked to collective and personal performance.

Social package (7.5%) includes benefits and compensation payments provided for by the Russian legislation and collective bargaining agreements, as well as additional monetary incentives provided to employees under corporate social programs.

The entities operating in Norilsk and the Taimyr Municipal District account for the larger part of the remuneration costs – about 70.0%.

Salary

The main objective of the Company’s remuneration policy ultimately aimed at motivating personnel for high performance is achieving a competitive salary level of salaries, while making effective use of payroll funds.

Employee remuneration is based on a grading system designed to differentiate and balance salaries, depending on the level of qualification, degree of employee’s responsibility and complexity of the work.

Employees of entities operating in the Far North and equivalent areas receive, in addition to the salary according to the grading system, additional payments based on regional multipliers and “northern allowances”.

The Company’s personnel remuneration policy (applicable, among others, to the top management of the Company, its SDCs and their subdivisions) links remuneration to collective and individual key performance indicators, which may include growth in output and labor productivity, reduction in planned production costs, reduction in non-productive use of resources, occupational health and safety status, the level of labor discipline, observance of corporate culture norms, etc.

In 2009, despite the financial crisis, the Company management was charged with preserving jobs and maintaining the level of employees’ salary and social guarantees in order to ensure social stability in labor collectives and the Group’s regions of operations.

In the reporting year, the Company succeeded in achieving the growth in labor productivity and finding funds to pay a year-end bonus to employees of the Group’s Russian entities, based on the anticipated operational and economic performance. As a result, the Company has kept its leading position in terms of remuneration level among Russia’s major mining and metallurgical companies.

In 2009, the average monthly salary of the Group’s employees increased by 2.2% compared to the previous year, reaching RUB 48.8 thousand (USD 1.5 thousand), which is almost 2.6 times higher than the Russian average, and 2.3 times higher than the average for the Russian metallurgical industry. The average salary at the Polar Division in the reporting year was RUB 57.6 thousand (USD 1.8 thousand), or 3.7% higher than in the previous year.

Social package

The Company’s social package includes the following main benefits and payments (RUB 3,850 million):

  • subsidized vouchers for health resort treatment and recreation provided to employees and their family members (RUB 897 million);
  • coverage of travel and baggage expenses to and from vacation sites paid once in two years to employees of the operations located in the northern regions and their family members1 (RUB 1,358 million);
  • supplementary pension plans and other forms of social guarantees and benefits provided for by the existing collective bargaining agreements and local regulations (RUB 1,595 million).

The first two types of benefits meet the vital needs of those living in the Far North for vacations in a milder climate and health resort treatment. The inclusion of these benefits in the social package ensures effective use of social funds and encourages employees to use their vacations for improving their health.

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1 According to the Russian legislation, this benefit is considered a social payment. Other social payments include severance payment, financial assistance to employees in difficult life situations, payment for health services provided to employees, etc.