The Company introduced KPIs to translate its strategy and the Long-Term Development Programme into specific day-to-day management performance indicators, evaluate progress against targets, and create a basis for efficient management decision-making. A strong motivation tool for employees, KPIs ensure a step-by-step achievement of the Company’s strategic goals.
The Company’s KPI system seeks to decompose the Company’s strategy and Long-Term Development Programme into specific KPIs, cascade them to all management levels, evaluate progress against targets, and create incentives for efficient management decision-making. The KPI system ensures:
- focus on implementing the strategy and meeting the targets set in the Long-Term Development Programme;
- focus on consistently improving the Company’s financial and operating (industry-specific) results;
- compliance with directives and instructions of federal executive bodies, including annual cost-cutting targets;
- well-balanced integrated indicators motivating employees to achieve the Company’s main goals;
- transparency, measurability, minimum sufficiency, and consistency of KPIs;
- a top-down approach to cascading and breaking down KPIs.
There are both financial and industry-specific KPIs in place.
The KPIs comprise:
- corporate KPIs based on the key financial, economic, and industry-specific indicators from the Company’s consolidated business plan and business plans of its businesses;
- individual KPIs based on individual strategic goals for each top executive.
KPIs and targets for the senior management are set by Rosneft’s Board of Directors subject to preliminary discussion by the relevant committee on an annual basis.
The 2019 KPIs for Rosneft’s top managers are based on the business plan approved in December 2018, and adopted by the Board of Directors on 22 February 2019 (Minutes No. 16).
Corporate KPIs and the individual KPIs of the CEO for the year include:
- return on average capital employed (ROACE);
- hydrocarbon production rate;
- accident rate;
- workforce productivity;
- TSR equal to or above the Russian industry's average;
- cost reduction vs the previous reporting period on a comparable basis;
- financial leverage (net debt / EBITDA);
- integrated KPI for innovations;
- compliance ratio as regards instructions from the Board of Directors and the Management Board.
To calculate annual bonuses for managers and employees, the Company analyses progress against KPIs following the review of the annual performance based on the management accounts and audited public financial statements.
The Company’s Internal Audit Service annually assesses the performance against corporate and individual KPI set for the reporting period to calculate annual bonuses for the management of the Company and Group Subsidiaries. The audit results for top managers are subject to review by the HR and Remuneration Committee of the Board of Directors. The Board of Directors makes resolutions regarding annual bonus payments and their size depending on the management's progress against their KPIs.
Target KPIs are normalised to reflect the factors beyond the management’s control, such as FX volatility and global market prices in accordance with the Regulations on the KPI Normalisation Procedure Related to Management Performance Review and Assessment in the Reporting Period to Calculate Annual BonusesApproved by the Board of Directors (Minutes No. 27 dated 6 April 2015). and the Guidelines for KPI Normalisation Related to Performance Review against Business PlanApproved by Order No. 730 dated 12 December 2019..
|KPI||2019 (actual)||Progress in 2019||Progress in 2018|
|Return on average capital employed (ROACE)||15.7||Above target||Above target|
|Financial leverage (net debt / EBITDA)In RUB.||1.4||Above target||Above target|
|Injury rate, %||98.8||Above target||Above target|
|Integrated KPI for innovationsBased on the management accounts.,%||100||On target||On target|