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Transparent rules of remuneration in State Treasury companies

The Council of Ministers adopted a draft Act concerning the rules of designing remuneration of persons managing some companies, submitted by Minister of Treasury.

  • Dawid Jackiewicz, Minister of Treasury (in the middle) and Filip Grzegorczyk, Undersecretary of State at the Ministry of Treasury/ photo KPRM
    Dawid Jackiewicz, Minister of Treasury (in the middle) and Filip Grzegorczyk, Undersecretary of State at the Ministry of Treasury/ photo KPRM

- Following years of public sector salary cap act (so-called “Chimney Act”), which is archaic and has many gaps, the document was finally developed which streamlines the situation not only in companies where we hold over 50 per cent of share but also issues related to wages of management boards in companies where we hold below 50 per cent - said Dawid Jackiewicz, Minister of Treasury.

New remuneration rules were proposed for members of governing bodies (management boards) and members of supervisory boards (supervisory boards), to apply to companies with the State Treasury share, local government entities as well as state and municipal legal persons. In relation to such persons, the former provisions of the Act on remuneration rules for persons managing some legal entities (so-called “Chimney Act”) will not apply. New solutions will ensure transparent, harmonised and fair remuneration rules for members of management boards and supervisory boards of all companies and will contribute to professionalization of management staff.

The draft act, above all, significantly changes the method of establishing the level of remuneration of the management staff in all companies. The rules of designing the remuneration of management board members will be defined in the resolution of the general meeting of a given company and they will be non-confidential.

First of all, the mechanism making  the remuneration level of the management staff dependent on the size of the company and the scale of conducted activity and, at the same time, the level of accountability, has been introduced. The incentive-based remuneration policy has been also envisaged, assuming that bonus will be awarded to active managers, effectively building the value of the company.

As a principle, the total remuneration of a management board member will consist of a fixed part defined as an amount and a floating part, constituting a supplementary remuneration for the financial year of the company.

The fixed part of a monthly remuneration of a management board member will depend on the company scale of activities, in particular, on the value of its assets, gained revenues and level of employment. The floating part of remuneration of a management board member will depend on the level of accomplishment of governance objectives. The supplementary remuneration will be allocated after the approval of the report of the management board on operations of the company and the financial statements for the previous financial year as well as the discharge provided by the general meeting.

In the resolution concerning remuneration it will be also possible to indicate the level of the severance pay for members of the management board. In case of cancellation or termination of the contract the remuneration pay will not be higher than three fixed parts of the remuneration provided that a management board member acted in this capacity over a period of at least twelve months. The resolution related to remuneration may also define the level and conditions of granting compensation to management board members due to non-competition clause.

It will be possible to determine the non-competition clause only for a maximum period of 6 months and only if a management member acted in this capacity over a period of at least three months. In addition, it will not be possible to conclude a non-competition agreement after the termination or cancellation of the contract providing basis for acting in the capacity of a management board member. At the same time, in case of failure to preform or undue performance of the non-competition agreement, a management board member will be bound to pay liquidated damages to the company, not lower than the level of the compensation attributable for the entire period of effectiveness of the non-competition clause.

Simultaneously, the remuneration of liquidators of companies will be equal to half of the basic salary of a management board member. In case of completing the liquidation in accordance with the schedule, a bonus will apply following the completion of this process.

The draft Act also introduces the mechanism linking the remuneration of supervisory board members with the size of the company and the scale of conducted activities as well as taking into account the real work expenditure, i.e. fulfilling the specific function in the supervisory board and participation in its committees.

The new solutions will waive the fiction of the so-called “Chimney Act”. The former Act determined the maximum level of presidents of state and local government companies, simultaneously allowing for acquiring additional remuneration, e.g. in supervisory boards of subsidiaries, and allowing for concluding management contracts to which no remuneration limits were applied. In some companies, this practice prevented acquiring best managers who were paid better by private companies; on the other hand, in other companies pathologies emerged, such as lack of any control over components of remuneration of management board members and its level. A significant disadvantage of that Act is also the lack of a bonus system for effective managers, i.e. linking remuneration of the management staff with results of the company and achieved objectives. The new Act shall change this situation.

The Act will become effective after 30 days following its announcement in the Journal of Laws.

Medatdane

Published by: Piotr Krupa
Author:
Last change: 19.04.2016
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