Annual Remuneration for Management

BOARD OF DIRECTORS

Annual fixed remuneration of the members of the Board of Directors

As of 1 January 2009, the members of the Board of Directors have been entitled to the following fixed net remuneration after each Annual General Meeting:

    • Members of the Board of Directors   25,000 EUR/year
    • Chairmen of the Committees   31,250 EUR/year

Members of the Board of Directors who are not Hungarian citizens and do not have a permanent address in Hungary are provided with gross 1,500 EUR for each Board or Committee meeting (maximum 15 times a year) when they travel to Hungary.

Incentive based on share allowance

From January 1, 2012 the incentive based on share allowance serves as a long-term incentive for the members of the Board of Directors.

The aim of the new share based incentive is to ensure the interest in long-term stock price growth and to maintain motivation related to the dividend payment. To ensure these, a 1 year retention obligation (restraint on alienation) has been also determined for 2/3 of the shares (the retention obligation terminates at the date of the expiration of the mandate).

The incentive consists of two parts: share allowance and cash allowance related thereto.

    • Share allowance

Number of shares as from January 1, 2015:

      • in case of the members of the Board of Directors: 150 pieces of series “A” MOL ordinary shares with a nominal value of HUF 1 000 per month
      • in case of the chairman of the Board of Directors: additional 50 pieces of series „A” MOL ordinary shares with a nominal value of HUF 1 000 per month

If the Chairman is not a non-executive director, the deputy chairman (who is non-executive) is entitled to this extra remuneration (50 pieces/month).

The share allowance is provided once a year, within 30 days after the Annual General Meeting closing the given business year.

In line with MOL’s 8-for-1 share split (26 September 2017) each ordinary share of series “A” with a nominal value of HUF 1,000 was replaced by 8 pieces of series “A” ordinary shares with a nominal value of HUF 125. Accordingly, the share allowance of Board of Directors is subject to change after share split as following:

      • in case of the members of the Board of Directors: 1,200 pieces of series „A” MOL ordinary shares with a nominal value of HUF 125 per month
      • in case of the chairman of the Board of Directors: additional 400 pieces of series „A” MOL ordinary shares with a nominal value of HUF 125 per month.
    • Cash allowance

The incentive based on share allowance is a net incentive, which means that the Company ensures to pay the taxes, contributions and other payables incurred upon acquisition of the shares in line with the relevant and effective laws. Such cash-based coverage of taxes and contributions does not include any further tax(es) or cost(s) incurred in relation to exercising rights attached to the shares or disposal of the shares (e.g. dividend tax, income tax); these shall be borne by the respective members of the Board of Directors.

In line with this, there is a further cash allowance part of the incentive system, the rate of which is the gross value of taxes, contributions and other payables incurred upon acquisition of the shares in line with the relevant and effective laws, including also the tax difference and contributions incurring in the country of tax-residence in case of non-Hungarian members of the Board of Directors.

Other benefits

The members of the Board of Directors are entitled to receive further non-financial benefits*, including life and accident (79,000 HUF/person/year) and travel (18,000 HUF/person/year) insurance.

Besides, as a non-financial benefit an annual health screening (84,000 HUF/person/year) and an additional healthcare package (350,000 HUF/person/year) is available for the members of the Board of Directors.

* Rounded to 1000 HUF (In case of EUR, calculated based on January 25, 2017 exchange rate; source: www.mnb.hu)

Executive Board and management

Incentive system for the Top Management, MOL Group Executive Board

The aim of MOL’s remuneration system is to provide incentives for the top management to carry out the company’s strategy and reward them for the achievement of strategic goals through a combination of short-term and long-term incentives. The Corporate Governance and Remuneration Committee recognizes that remuneration plays an important role in supporting the achievement of these goals. Through the design of its incentive schemes, MOL aims to ensure that executive remuneration is aligned with and supports the company’s strategic objectives within a framework that closely aligns the interests of MOL executives to those of our shareholders.

The Executive Board (EB)'s remuneration mix consists of three key pillars:

  • Annual Base Salary (BS): fixed annual amount paid to the individuals
  • Short-Term Incentive (STI): annual bonus, based on individual and company performance
  • Long-Term Incentive (LTI): promotes performance driven culture and enhances the focus on the top management team to be aligned with the interests of shareholders

The remuneration mix of the EB on 31 December 2017:

  Annual Base Salary Target Short-Term Incentive Target Long-Term Incentive
Chairman-CEO 28% 28% 44%
Group CEO 30% 30% 40%
Other EB members 35% 30% 35%

 

The incentive system for the top management included the following elements in 2017:

1. Short Term Incentive system

The basis of the short term incentive is a target of 85%-100% of the annual base salary. The amount thereof is defined in line with the evaluation of performance of the given manager.

Based on MOL Group’s decision making authorities the C-CEO and G-CEO annual performance is evaluated by the Corporate Governance and Remuneration Committee with final approval of the Board of Directors.

Performance Measures for the STI

The aim of MOL Group STI scheme is to motivate the participants to achieve operative, business and individual performance targets which can be reached within a year, and support MOL Group’s long term strategy.

In 2017, the Executive Board’s STI framework was designed to include key focus areas in a mix of financial and non-financial KPIs in order to achieve the targets of the Group.

Financial KPIs:

In 2017, the key focus of the Executive Board was to deliver the EBITDA and CAPEX targets to achieve the 2030 strategic targets of MOL Group. These performance indicators are represented in the C-CEO and G-CEO annual performance targets:

Business line KPI
C-CEO and Group CEO Clean CCS EBITDA
CAPEX utilisation

 

Furthermore, Executive Board members with divisional responsibilities are assessed on a number of operative and financial measures reflecting annual priorities and the strategic direction of each business division within the framework of the Group’s long-term strategy.

Business line KPI
Group Downstream Clean CCS EBITDA
CAPEX utilisation
NxDSP EBITDA Impact
Group Exploration and Production Confirmed put in operation Reserves
Clean CCS EBITDA
CAPEX utilisation
Production Unit Cost
General operating costs
Group Innovative Businesses and Services Clean CCS EBITDA
CAPEX utilisation
Implementation of the strategy of new business lines
Operating costs

 

Non-financial KPIs:

Executive Board members are also accountable for non-financial targets alongside financial ones. Safety is a number one Group priority, which is why the Corporate Governance and Remuneration Committee consistently defines divisional SD&HSE-related performance indicators.

In 2017, MOL Group set the fulfillment of TRIR indicators of the Group and each divisions, as this uniformly shows the commitment of the Group for conducting safe, sustainable and compliant operations at all times.

In line with MOL Group 2030 strategy, a culture development journey started in 2017. This was set as a performance target across the whole management of MOL Group cascaded from the L1 such that they act as a role model in living the corporate values, and accelerate the culture change.

STI results

The choice of the aforementioned performance measures reflects a desire from the Corporate Governance and Remuneration Committee to assess the participants based on a broad range of corporate and divisional measures that mirrors the corporate strategy and its related KPIs.

The results of the STI are not driven by a purely formulaic approach, as no specific weight has been assigned to each performance measure in order not to create an overemphasis on one at the expense of others. The Corporate Governance and Remuneration Committee rigorously assesses performance at the end of the period and judges whether the results against the performance measures are a reflection of the underlying performance of MOL Group.

Changes in 2018 regarding the Short Term Incentive system of the MOL Group Executive Board

The Board of Directors of the MOL Plc. decided on 6 December 2017 that instead of their short-term incentive the top management can select a share ownership scheme in each year from 1st January 2018 which in case of Hungary will be operated via a MOL-independent legal entity, called MOL Plc. Employee Share Ownership Program Organization which in compliance with the act on the Employee Share Ownership Program (‘MRP’) incentive works in alignment with the provisions of the so-called Employee Share Ownership Program (Munkavállalói Résztulajdonosi Program, ’MRP’) legislation. The optional share ownership program works similarly to the short-term incentive, but the basis of the entitlement is a certain number of shares equal to the short-term incentive entitlement, which the managers hold during the performance and evaluation period. The payment is made in MOL shares. The first performance period will be 2018, with payment in 2019.

2. Long Term Incentive

The purpose of the long-term incentive system is to drive and reward the delivery of sustainable value and to provide full alignment between MOL Group executive team and MOL shareholders.

The long-term incentive was reviewed in the last quarter of 2016 and the MOL Plc. Board of Directors decided to transform the current long term incentive programs to real share-based programs according to the provisions ofMRP act on 13 October 2016. With this change, the programs can even better serve the further improvement of financial performance and efficiency in accordance with the corporate principles and the long term strategic objectives of MOL Group.

Changes in 2017

The long-term incentives were modified according to the MRP legislation from 1st January 2017. The former Stock Option was transformed into the Absolute Share Value Based Remuneration and the Performance Share Plan program was modified to the Relative Market Index Based Remuneration. The entitlements of the managers were increased according to the international benchmarks and reward strategy.

Stock Option and Performance Share Plan programs which started before 2017, continue to run and will be paid according to the previous rules.

In line with MOL’s 8-for-1 stock split, which was implemented in September 2017, the share-based long-term entitlements increased eightfold automatically. In the meantime, the strike price of the Stock Option and the new Absolute Share Value Based Remuneration decreased to one-eighth from September 2017. This it is ensured that the value of the payouts do not change.

The main characteristics of the two new, modified incentive schemes are as follows:

a) Absolute Share Value Based Remuneration (former Stock Option)

As of 1st January 2017 the basis of the remuneration is a share entitlement, which can be realized as a difference between a past strike price and a selected spot price. The incentive scheme has the following characteristics:

  • It starts annually and covers a 4-year period. The incentive period can be split into a 1-year performance period, a 1-year vesting period and a 2-year exercising period. The share entitlement lapses if not exercised by 31 December of the last final of the exercising period.
  • The value of the incentive is the difference between the strike price and a selected spot price for each unit of the entitlement.
  • The strike price is defined before the performance period begins. The strike price is the average price of MOL Plc. shares weighted with the volume in HUF on the Budapest Stock Exchange in the last quarter of the year before the performance year.
  • The spot price is the average price of MOL shares in HUF on the Budapest Stock Exchange on the day of redemption. The trading day is freely selected by the eligible manager however it is limited by applicable insider trading prohibitions.
  • The share entitlement is defined based on the position grade, but the final share entitlement is based on the individual performance evaluation during the performance period. During the individual performance evaluation, an individual short-term bonus payout percentage (between 0% and 150%) is set which acts as a multiplier of the share entitlement.
  • The payment of the entitlement is in shares or their cash equivalent. The value of the remuneration will be converted to shares based on the 30 days average MOL share price preceding the redemption date. In the case of cash-settlement the remuneration will be paid in Hunagrian forints and will be transferred to that bank account number of the participant, to which the regular salary of the is paid by the employer of the Participant.
  • Dividend equivalent: the final remuneration will be corrected with the value of the dividend per share paid for MOL Plc. shares in the vesting period after the performance period, in alignment with the share entitlement. The aim of the correction is to correct the long term incentive with the change of the share price caused by the dividend payment. The dividend equivalent is paid at redemption.

The final share entitlement is influenced also by the individual bonus payout percentage for the performance period:

Individual Bonus Payout %   % of Stock Options
0%  > x0%
Between 1% and 149%  > Based on individual bonus payout percentage
150%  > x150%

 

Overview:

Stock Option Strike Price Exercise Period
2013 2 247 HUF 1 Jan 2015-31 Dec 2017
2014 1 824 HUF 1 Jan 2016-31 Dec 2018
2015 1 472 HUF 1 Jan 2017-31 Dec 2019
2016 1 669 HUF 1 Jan 2018-31 Dec 2020
Absolute Share Value Based Remuneration Strike Price Redemption Period
2017 3 106 HUF 1 Jan 2019-31 Dec 2020

 

b) Relative Market Index Based Remuneration (former Performance Share Plan)

The program is a 3-year share-based incentive using the MOL Plc. comparative share price methodology with the following characteristics:

  • A new program starts in each year on a rolling scheme with a 3-year vesting period. Payments are due after the 3rd year.
  • The target is the development of MOL’s share price compared to relevant and acknowledged CEE regional and industry specific indexes: the CETOP Index and the Dow Jones Emerging Market Titans Oil & Gas 30 Index.
  • MOL’s share price performance is compared to the two above mentioned benchmark indices. Basis of the evaluation is the average difference in MOL’s year-on-year (12 months) share price performance in comparison to the benchmark indices. Comparisons are made on a USD basis. There are defined payout ratios which are based on the measured difference in MOL’s share price performance compared to the two indices, noticed in each year. Final payout ratio will be determined by the average of the three noticed payout ratios over the vesting period.
  • The expected payout amount is additionally linked to individual short-term performance, as the potential payout is based on three years’ individual factors in the annual performance evaluation for each participant. This ensures that constant individual over-performance on a long-term basis is rewarded and the consequences of long term underperformance are managed.
  • The basis of the remuneration is a share entitlement and will be paid in MOL Plc shares or in a form of cash settlement.

The following chart provides an overview about the former Performance Share Plan results for the 3-year programs completed after Long Term Incentive system revision in 2013:

PSP Plan Payout Ratio
2013-2015 98.28%
2014-2016 180.99%
2015-2017 213.22%

 

Performance measures of the long-term incentive plans

The choice of the long-term incentive plans is linked to the share price and dividend payment reflecting the Board’s strategic priority on reaching continuous and sustainable value creation. Through its long term incentives schemes, MOL prioritizes to provide its shareholders with a return on their investment through both the appreciation of the share price as well as through the payment of dividends.

The choice of CETOP20 and Dow Jones Emerging Market Titans Oil & Gas 30 Index reflects the fact that MOL competes for investor flows on a regional basis (Central and Eastern Europe) as well as with the global emerging market Oil & Gas sector. By applying these two indices, MOL’s incentive system provides competitive remuneration to executives and future investors on regional and global oil and gas markets taken in broader meaning as well.

Changes in 2018 regarding the Long Term Incentive system of the MOL Group Executive Board

As of 1st January 2018 the payment of both remuneration policies - the Absolute Share Value Based Remuneration and the Relative Market Index Based Remuneration – will be made only in MOL shares.
The Absolute Share Value Based Remuneration will be paid from 2019, the Relative Market Index Based Remuneration will be paid first in 2020 by the MRP organization.

Other Fringe Benefits

MOL Group is offering standard benefits in-line with market practice for EB members. These include:

  • Dedicated status car for both business and private purposes;
  • life and accident insurance;
  • travel insurance;
  • liability insurance;
  • annual health screening and special healthcare services.

Supervisory Board

Remuneration of the members of the Supervisory Board

Members of the Supervisory Board receive gross 4,000 EUR/month, while the Chairman receives gross 6,000 EUR/month. In addition to this monthly fee, the Chairman of the Supervisory Board is entitled to receive gross 1,500 EUR for participation in each Board of Directors or Board Committee meeting, up to fifteen (15) times per annum. The Chairman of the Audit Committee is entitled to receive gross 1,500 EUR for participation in each Board Committee meeting, up to fifteen (15) times per annum.

Besides the monthly remuneration both the Chairman of the Supervisory Board and the members are entitled to receive further 1,500 EUR for each extraordinary meeting that is held in addition to the scheduled annual meetings. This remuneration is provided maximum two times a year.

Other benefits

The members of the Supervisory Board are entitled to receive further non-financial benefits, including life & accident (79,000 HUF/person/year) and travel (18,000 HUF/person/year) insurance. Besides, as a non-financial benefit an annual health screening (84,000 HUF/person/year) and an additional healthcare package (350,000 HUF/person/year) is available for the members of the Supervisory Board.

* Rounded to 1000 HUF (In case of EUR, calculated based on January 25, 2017 exchange rate; source: www.mnb.hu)