X5 Retail Group. Годовой отчет за 2022 год (на английском)

CORPORATE GOVERNANCE

REPORT OF THE SUPERVISORY BOARD

130

Composition and profile of the Supervisory Board

X5’s Supervisory Board determines its number of
members. The Supervisory Board currently consists
of six members, with a majority of four independent
members. On an ongoing basis, the Supervisory
Board reviews its size and composition profile,
taking into account the evolving nature of X5’s
business and activities and the desired expertise
and background of the members of the Supervisory
Board. The Supervisory Board profile is published
on X5’s corporate website.

2022 was a year of significant change in the
composition of the Supervisory Board. The
Supervisory Board deeply regrets that, following
unexpected developments early in the year,
Stephan DuCharme, Mikhail Fridman, Richard
Brasher, Geoff King, Michael Kuchment, Alexander
Tynkovan, and Marat Atnashev stepped down
during the first half of the year. In addition, at the
2022 Annual General Meeting of Shareholders, the
term of Nadia Shouraboura expired in accordance
with the Supervisory Board's retirement and
reappointment schedule, and she was not eligible
for reappointment. The Supervisory Board thanks
each of them for their invaluable and significant
contribution to the Company over many years.

The Supervisory Board immediately initiated the
search process to fill these vacancies. At the 2022
Annual General Meeting of Shareholders, Olga
Vysotskaya, Fedor Ovchinnikov and Vadim Zingman
were appointed as new members of the Supervisory
Board. Olga Vysotskaya was appointed due to her
proven track record and extensive expertise in
corporate finance, audit and assurance, and risk
management, as well as her in-depth board-level
experience.

Vadim Zingman was appointed for his strong
financial expertise combined with in-depth
experience in, and strong aptitude for, customer
service.

Later in the year, we were proud to announce the
nomination of Dmitry Alekseev, Vassilis Stavrou and
Leonid Afendikov. All three individuals were
appointed to the Supervisory Board at the
Extraordinary General Meeting of Shareholders
held on 30 November 2022. Dmitry Alekseev
strengthens the Supervisory Board with his proven
track record and extensive expertise managing
large retail companies, as well as his rich board-
level experience. Vassilis Stavrou was appointed for
his impressive track record and leadership
experience at a major global grocery retailer, while
Leonid Afendikov brings to the Supervisory Board
his strong financial expertise combined with
in‑depth experience in customer-focused
businesses.

Recognising the value and increasing importance
of having different perspectives at the table, the
Supervisory Board aims for a diverse composition
in particular areas of relevance for X5. Supervisory
Board candidates are evaluated against the
Supervisory Board's profile, existing balance of
skills, knowledge and experience, and the need for
the Supervisory Board to be prepared for
disruption and change. Supervisory Board
members are prompted to be mindful of diversity,
inclusiveness and meritocracy considerations when
examining and nominating Supervisory Board
candidates.

While the Supervisory Board is currently not gender
balanced, it recognises the benefits of gender
diversity and aims to achieve this. The Supervisory
Board is conscious of the public debate and
regulatory developments in this respect, in
particular the new act on gender diversity on the
boards of Dutch companies which entered into
force on 1 January 2022, and takes this into account
in its succession planning, in line with the Group’s
Leadership Diversity Policy. Meanwhile, faced with
the need in 2022 to rebuild the Supervisory Board
to a meaningful level within a relatively short time
frame, the Supervisory Board compromised on its
gender diversity targets with only one newly
appointed female Supervisory Board member.
Conscious of this, the Supervisory Board is
committed to improve its gender balance in line
with international best practice.

Report of the

Supervisory

Board

The Supervisory Board is responsible for supervising and
advising the Management Board and overseeing the
general course of affairs, strategy and operational
performance of the Company. In performing its duties,
the Supervisory Board acts in accordance with the
interests of the Company and its affiliated businesses,
taking into consideration the overall good of the
Company and the relevant interests of all its
stakeholders. In X5’s two-tier corporate structure under
Dutch law, the Supervisory Board is a separate body
operating fully independently of the Management Board.

1 On 8 March 2023 Fedor Ovchinnikov stepped down as member

of the Supervisory Board.

Composition of the committees

Induction and ongoing education

In 2022, the Supervisory Board held four regular
meetings and one additional meeting in May to
approve the 2021 Annual Report and to convene
the Annual General Meeting of Shareholders.
In addition, resolutions in writing were taken when
necessary during the year. Each of the four
meetings of the Supervisory Board was preceded
by meetings of the Audit and Risk Committee and
the Nomination and Remuneration Committee.

The plenary Supervisory Board meetings also
included a half-day strategy session, thus ensuring
sufficient time for the meetings and discussions on
specific themes, such as operational performance,
digital transformation and new businesses,
sustainability, and management development.
The CEO and CFO attended all meetings, and other
members of senior management were regularly
invited to present.

In 2022, the Supervisory Board held regular private
sessions without members of the Management
Board present to independently discuss matters
related to the performance, functioning and
development of members of the Executive Board.
The external auditor attended the meeting in May
at which the unaudited 2021 Annual Report and
financial statements were recommended for
adoption by the Annual General Meeting of
Shareholders.

At this meeting, the external auditor briefed the
Supervisory Board on its decision to suspend
audit services based on their interpretation of the
EU sanctions regime. In between Supervisory
Board meetings, several informal meetings and
telephone calls took place among Supervisory
Board members, members of the Management
Board and other members of Company
management, enabling consultations on various
topics and ensuring that the Supervisory Board
remained well informed about the running of the
Company’s operations.

The Supervisory Board confirms that all of its
members have adequate time available to give
sufficient attention to the Company’s affairs.
In 2022, the attendance rate was 100% for both
Supervisory Board and committee meetings.

While retaining overall responsibility, the Supervisory
Board assigns certain tasks to two committees: the
Audit and Risk Committee and the Nomination and
Remuneration Committee.

In light of the rapidly changing composition of the
Supervisory Board during the year, the Supervisory
Board resolved to reduce the number of committees by
integrating the responsibilities of the Sustainable
Development and Innovation Committee into the
functions of the full Supervisory Board and to
subsequently dissolve that committee.

When Olga Vysotskaya took office in June, she was
appointed Chair of the Audit and Risk Committee, while
Fedor Ovchinnikov joined the Nomination and
Remuneration Committee. As of 1 January 2023, Vassilis
Stavrou and Leonid Afendikov also were appointed to the
Nomination and Remuneration Committee, while Leonid
Afendikov joined the Audit and Risk Committee.

An overview of the current composition of the
Supervisory Board and its committees can be found in
the Corporate Governance Report.

Induction and permanent education are key elements of
good governance. Following their appointment, new
Supervisory Board members go through X5’s strategic,
financial, legal, and reporting affairs with senior
executives of the Company. In addition, prior to their
appointment, they are invited to meetings of the
Supervisory Board and its committees. On a regular
basis, and with members of senior management,
members of the Supervisory Board visit stores,
distribution centres and other operational facilities to
gain a more in-depth understanding of local operations,
opportunities and challenges.

As an additional source of informal learning, external
guest speakers with expert knowledge of topics that are
of particular relevance to the Company are regularly
invited to plenary Supervisory Board meetings.

The Supervisory Board remains committed to the
ongoing education of its members in order to comply
with the highest standards of excellence and
governance.

Meetings of the Supervisory Board

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1 On 8 March 2023 Fedor Ovchinnikov stepped down as member

of the Supervisory Board.

Activities in 2022

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132

1 See the Remuneration Report on pages 137–147.

On various occasions throughout the year,
the Supervisory Board discussed corporate governance
requirements to support an agile, entrepreneurial culture
in the increasingly competitive omnichannel retail
environment. In this context, the Supervisory Board
monitored the effectiveness of the Group’s operating
model launched in 2021.

Twice during the year, the Supervisory Board reviewed
X5’s progress against the medium- and long-term goals
set out in X5’s sustainability strategy, encouraging
management to set ambitious targets and making sure
that they were integrated into the Company’s overall
business strategy. The Supervisory Board acknowledged
that in the new macroeconomic environment the social
component of the sustainability plan gained in
significance.

Throughout the year, the Supervisory Board continued to
closely monitor external developments and reviewed
necessary adjustments to both executive and non-
executive remuneration policies through the work of its
Nomination and Remuneration Committee. Furthermore,
through the Audit and Risk Committee, the Supervisory
Board closely engaged with management on the
consequences of the suspension of services by the
Company’s external auditor in the Netherlands.

At its meetings in 2022, the Supervisory Board reviewed
reports from its various committees and discussed the
following (regular) topics:

2022 was marked by significant changes to the
macroeconomic environment due to geopolitical
tensions, supply chain disruptions and a number of
restrictions imposed on businesses in Russia. The
Supervisory Board closely monitored the situation based
on regular updates from the CEO, and intensified
contacts with the management team to oversee the
impact on X5’s businesses and strategic priorities.

In response to the volatile and unpredictable
environment, the Supervisory Board monitored
contingency planning to ensure business continuity, with
particular attention placed on supply chains and product
availability, continuity of IT systems and liquidity
management. As part of its regular risk management
review prepared by the Audit and Risk Committee, the
Supervisory Board particularly monitored emerging risks,
risk mitigating measures and compliance with new
sanctions. Meanwhile, the Supervisory Board's rapidly
changing composition was a challenge in itself,
threatening the continuity of the Supervisory Board’s
work and oversight responsibilities.

As a key strategic priority under these circumstances, the
Supervisory Board extensively reviewed the operational
performance of its key banners – Pyaterochka and
Perekrestok – and measures and initiatives to strengthen
their position in key regions of operation through organic
growth or strategic partnerships. In July, the Supervisory
Board approved one such strategic partnership with
Krasny Yar Group and Slata Group, both among the
leading retailers in Eastern Siberia. Furthermore, in
support of X5’s strategy to gain market share by
continuously adjusting to market trends and changing
customer needs, the Supervisory Board continued to
monitor new store concepts and refurbishments, and how
these translate into improved customer ratings and
increased traffic and sales.

In addition, amid a downward trend in customers’
disposable income and severe price competition, the
Supervisory Board reviewed performance and strategic
objectives of Chizhik (the hard discounter format), along
with the implementation of the Company’s private label
strategy across all formats.

The Supervisory Board's strategy session in September
focused on the Group’s long-term leadership strategy,
including target portfolio of assets and businesses,
human resource requirements to support the growth
plan and market share leadership, as one of the Group’s
key strategic objectives. Conscious of the uncertainties in
the rapidly changing macroeconomic environment,
particular attention was paid to the shifting balance
between growth and profitability. In December, the
leadership strategy for Perekrestok was reviewed, with a
particular stress placed on tailored customer value
propositions, staff training and entrepreneurship at the
store level.

An ongoing focus during 2022 was the Company’s digital
strategy, including e-commerce and its operational
efficiencies. With the continued surge in online sales and
the persistent food-at-home trend following the
COVID-19 pandemic of recent years, the Supervisory
Board had several discussions with management
concerning opportunities to improve the customer
experience and accelerate growth. As part of these
discussions, the Supervisory Board extensively reviewed
the Group’s mobile applications and dark store
operations.

the financial reporting process, including a review of the
2022 half-yearly and quarterly financial reports;

the agenda and explanatory notes for the Annual
General Meeting of Shareholders held in June and the
Extraordinary General Meeting of Shareholders held in
November;

reports by the internal and external auditors;

the composition of the Executive Board and the
evaluation of its individual members, including talent
management and succession planning;

the annual evaluation of the Supervisory Board, including
its profile and performance (described in more detail
below);

the composition and profile of the Supervisory Board
and its committees, particularly following the resignation
of seven Supervisory Board members during the first half
year, as described in the Composition and Profile of the
Supervisory Board section in this report;

periodic review of the financing strategy;

updates on X5’s risk management and risk appetite, as
well as risk mitigation measures and internal controls;
and

the annual budget for 2023.

Supervisory Board

evaluation

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Meetings of the committees

Meanwhile, the Committee closely engaged with
management to identify a new external auditor in
the Netherlands to act as group auditor for the
year 2022.

As part of its ongoing risk and risk management
oversight in 2022, the Committee closely
monitored new risks emerging from the
unexpected external circumstances that impacted
the Company as of late February, including the
timely follow-up on high-priority actions and risk
mitigation measures based on quarterly progress
updates. As part of this effort, the Committee
received several updates regarding the impact of

new sanctions on the risk proﬁle of the Company
and its ﬁnancial position. As risks in this respect

increased, the Committee particularly discussed

ﬁnancing and liquidity risks, the risk of non-

availability of goods, IT and cybersecurity risks, and
the risk of staff shortages and its inherent impact
on operational capacity.

The Committee also periodically reviewed ﬁnancial

provisions, key movements in the balance sheet
and any contingent liability movements.
Furthermore, as part of its ongoing review cycle,
the Committee closely monitored the effectiveness
of the capital investment process, the appraisal
methodology and the safeguarding of core assets.
Twice during the year, the Committee reviewed an
assessment of the returns from recent investments,
as well as management actions addressing
underperforming stores and assets whose carrying
value was impaired.

Each quarter, the agenda included a discussion of
current control topics, including internal audit

ﬁndings and the external auditor’s reﬂections on

the control framework. These discussions guided
management and the internal audit function to
focus on the right priorities throughout the year, to

mitigate any signiﬁcant risks or weaknesses and to

build a relevant internal audit plan for 2023.

The Committee also discussed other issues and
recurring topics, including:

The role of the Audit and Risk Committee is
described in its charter, which is available on the

Company’s website. On 31 December 2022, the

Audit and Risk Committee consisted of Olga
Vysotskaya (Chair) and Peter Demchenkov. In 2022,
the Committee held four regular meetings. As a
matter of course, all meetings were attended by
the CFO, the external auditor and the internal audit
director; the CEO was invited to, and attended, all
meetings. Other members of the Supervisory Board
and senior management were invited when
necessary or appropriate. The Committee met
once with the external auditor without the
presence of management.

The Audit and Risk Committee assists the
Supervisory Board in its responsibility to oversee

X5’s ﬁnancing, ﬁnancial statements, ﬁnancial

reporting process, and system of internal business
controls and risk management.

Throughout the year, the Committee reviewed the

Company’s annual and interim ﬁnancial statements,

quarterly results and related press releases, as well
as the outcomes of the year-end audit. A particular
area of concern in 2022 was the suspension of

services by the Company’s group auditor in the

Netherlands, Ernst & Young Accountants LLP,

following the conﬂict in Ukraine and sanctions

imposed by the United Kingdom and the European
Union. In order to maximise both transparency and

assurance over the Company’s ﬁnancial reporting

under these circumstances, the Company engaged
TSATR – Audit Services LLC (formerly Ernst &
Young LLC, Russia, operating as B1 since July 2022)

to issue its auditor’s report on X5’s 2021
consolidated ﬁnancial statements published in July.

Audit and Risk Committee

quarterly interim ﬁnancial reports and trading

updates;

accounting and audit matters linked to the

external auditor’s report, as well as internal

control recommendations in their audit of the

2021 consolidated ﬁnancial statements;

audit plans from the internal and external
auditors, and the approval thereof;

the annual assessment of the functioning and
independence of the external (component)
auditor;

X5’s ﬁnancing strategy;

tax matters;

IT infrastructure, cybersecurity and data
protection;

ethics and compliance, including updates to the

Company’s whistleblower programmes, as well as

activities and initiatives relating to detecting and
preventing misconduct and irregularities, and risk
mitigating measures to protect the Company in
these areas.

X5 undertakes an annual review of the Supervisory Board,
its committees and its individual members. The objective
is to provide a framework for discussion on
the performance of the Supervisory Board and its
members and committees, and to come up with an

updated Board Development Plan with speciﬁc actions

to facilitate improvement.

In light of the unprecedented sequence of Supervisory
Board member resignations during the year, the
evaluation in 2022 was conducted via a questionnaire

focusing on the proﬁle and composition of the

Supervisory Board, expertise and contribution of
individual Supervisory Board members, quality of the
induction programme for new Supervisory Board
members, and priorities and work processes of the

Supervisory Board. In addition to the self-assessment by

the Supervisory Board members, input was also solicited
and received from members of the Executive Board. The
evaluation resulted in a set of key priorities for the
Supervisory Board going forward, including strengthening

the Supervisory Board's expertise in the ﬁeld of product
retail and e‑commerce, enhanced risk management

oversight at plenary Supervisory Board level, and
increased focus on executive retention, incentives and
succession planning taking into account the rapidly
changing macro-economic environment.

The Supervisory Board attaches great value to these
evaluations as they ensure a continued focus on the
quality of its, and its committees, activities, composition
and functioning, as well as its relationship with the
Executive Board.

Audit and Risk Committee

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Related party transactions

The Company operates a Related Party Transaction
Policy, which prescribes the internal reporting and
approval mechanism for related party transactions. Under
this policy, review and approval of related party
transactions is delegated to the Audit and Risk
Committee, whereby related party transactions
exceeding a certain threshold remain subject to the
approval of the Supervisory Board. The policy requires
that the Audit and Risk Committee or the Supervisory
Board approve a related party transaction only if it is
agreed on competitive terms customary in the market
and in the best interest of X5 Group.

During the year, the Audit and Risk Committee reviewed
and/or approved related party transactions which, by
their nature or materiality, could potentially have
constituted a conflict of interest for members of the
Supervisory Board and the Management Board.

In 2022, the following related party transactions were of
material significance to the Company and/or members of
the Management Board or Supervisory Board:

Alfa Bank: foreign exchange agreements, bond issues,
revolving credit facilities, and other bank products;
advertising and marketing agreements; and a payroll
service agreement;

AlfaStrakhovanie: insurance services;

Alfa Bank, VimpelCom and AlfaStrakhovanie: the
hologram project;

Alfa Capital Holdings Limited: lease agreements;

IDS Borjomi Group: the procurement of goods for
resale;

Home Interior: agreements for the lease of retail and
warehouse space;

VimpelCom: telecommunication services; the
development, purchase and maintenance of online
cash registers; and retail space lease agreements;

RusBioTrade: the procurement of goods for resale; and

Alidi-Nord: the procurement of goods for resale.

These transactions were discussed and/or approved by
the Audit and Risk Committee and the Supervisory Board
with due observance of provisions 2.7.3 to 2.7.5 of the
Corporate Governance Code, the Related Party
Transactions Policy and the Rules of Procedure of the
Supervisory Board, available on the Company’s website.
While members of the Supervisory Board who have a
conflict of interest in relation to a certain matter do not
participate in the Supervisory Board’s deliberations and
decision-making on such matters, the Supervisory Board
assessed that, to the extent that any of the listed
transactions constituted a conflict of interest for certain
members of the Supervisory Board, such conflict did not
undermine the independent judgement of these
Supervisory Board members while performing their
duties for X5.

The Audit and Risk Committee and its Chair held several
private meetings with the CFO, the Internal Audit Director
and the external independent auditor.

With respect to the external auditor’s management letter
regarding the 2021 financial year, the Audit and Risk
Committee confirms that the management letter
contained no significant items that need to be
mentioned in this report.

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Finally, confronted with the need to attract new
Supervisory Board members, the Committee initiated a
restructuring of the Supervisory Board’s equity-based
remuneration following the admission to trading
suspension of X5 GDRs by the London Stock Exchange
in March. Details of actual remuneration in 2022 can be
found in notes 8 and 44 to the financial statements.

The role of the Nomination and Remuneration
Committee is described in its charter, which is available
on the Company’s website. On 31 December 2022, the
Nomination and Remuneration Committee consisted of
Peter Demchenkov (Chair) and Fedor Ovchinnikov. In
2022, the Nomination and Remuneration Committee
held four regular meetings. The CEO and the Director for
HR and Organisational Development were invited to
attend every meeting, and other members of the
Supervisory Board and senior management were invited
when necessary or appropriate.

The Nomination and Remuneration Committee focused
on managing the impact of the rapidly unfolding events
from late February. First and foremost, this included the
identification, nomination and induction of six new
Supervisory Board members through a formal and
transparent process, following the unprecedented
sequence of Supervisory Board member resignations
during the first six months.

In a further response to new developments and their
impact on the Company’s strategic priorities, the
Nomination and Remuneration Committee closely
engaged with management on a thorough review of
both the short- and long-term incentive plans. The
Remuneration Report on pages 137–147 describes how
this review resulted in necessary deviations from the
Management Board remuneration policy.

In 2022, the Committee continued to monitor the
performance of the Group’s operating model towards
the Company’s strategic objectives to strengthen its
key formats while growing e-commerce and improving
omnichannel productivity. As part of this effort, the
Committee took a deep dive in the organisational
structure of the Company’s key banner – Pyaterochka –
with a particular focus on the format’s shift towards a
partnership model for store managers. Furthermore, the
Committee reviewed and recommended organisational
changes to strengthen the ready-to-eat business unit.

Throughout the year, the Nomination and Remuneration
Committee monitored succession planning,
management development and human resource needs
in relation to the Company’s sustainable growth
objectives. Amid the volatile macroeconomic
environment, the Committee particularly focused on
measures to maintain stability within X5’s leadership
team and closely monitored human resource
challenges to ensure that the risk of staff shortages was
adequately addressed throughout all levels of the
Group.

As part of its regular review of variable remuneration
principles, the Committee continued to review tailored
incentive schemes for key employees across the Group,
ranging from store managers to key executives at the
Company’s new businesses. Meanwhile, taking into
account heightened macroeconomic uncertainties and
their impact on the retail environment, the Committee
assessed and evaluated options to restructure the
Company’s incentive plans for 2023 and beyond.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee further
reviewed and prepared the following items for
recommendation or report to the full Supervisory Board
as part of its ongoing responsibilities:

Annual evaluation of the Executive Board and its
individual members, and changes in the composition of
the Executive Board, including the appointment of
Vladislav Kurbatov as General Director of Pyaterochka
in January, the nomination of Ekaterina Lobacheva as
President and member of the Management Board in
May, the appointment of Andrey Kalmykov as General
Director of Perekrestok in August, and the appointment
of Andrey Pisarev as Chief Customer Officer in
December

Nomination of Igor Shekhterman for reappointment as
CEO for an additional two-year term starting in 2023

Proposals on fixed and variable remuneration for the
members of the Executive Board following the annual
remuneration benchmarking performed in March 2022

Remuneration policy for the Executive Board, adjusted
in line with the updated LTI 2021–2023 programme, as
proposed to, and approved by, the Extraordinary
General Meeting of Shareholders in November 2022

Profile and performance of the Supervisory Board in
the context of the annual Board evaluation

Review of X5’s Leadership Diversity Policy and diversity
levels across the Group

Independence

Remuneration

The Supervisory Board furthermore requests that the
Annual General Meeting of Shareholders grant discharge
to the members of the Management Board for their
management and to the members of the Supervisory
Board for their supervision in 2022.

The Supervisory Board is really proud of the results
achieved during another challenging year and would like
to thank all X5 employees for their continued dedication
and hard work in 2022.

The Supervisory Board endorses the principle that
the composition of the Supervisory Board shall be
such that its members are able to think and act
critically and independently of one another and of
the Management and Executive Boards and any
particular interests. It is Company policy that a
majority of the members of the Supervisory Board
must be independent at all times. At the time of
writing, a majority of four members of the
Supervisory Board, which currently consists of six
members in total, qualify as independent.

According to best practice provisions 2.1.7 and
2.1.8 of the Dutch Corporate Governance Code,
there can only be one Supervisory Board member

who can be considered to be afﬁliated with or

representing a shareholder who directly or
indirectly holds more than 10% of the shares in the
Company.

Supervisory Board members Vadim Zingman and

Leonid Afendikov are both afﬁliated with CTF

Holdings S.A., which has a 47.86% interest in X5.
Therefore, Vadim Zingman and Leonid Afendikov
are not independent under the Dutch Corporate
Governance Code.

The General Meeting of Shareholders sets the
remuneration of the members of the Supervisory
Board in accordance with the remuneration policy
for members of the Supervisory Board. The current
remuneration policy for the Supervisory Board, as
amended, was approved by the 2022 Extraordinary
General Meeting of Shareholders.

Remuneration details are reﬂected in the

Remuneration Report on pages 145–147, as well

as notes 29 and 44 to the consolidated ﬁnancial

statements.

Financial statements

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136

Supervisory Board

This unaudited Annual Report, including the 2022

consolidated ﬁnancial statements, was presented to the

Supervisory Board in the presence of the Management
Board. On 17 March 2023 the Group released its 2022

audited consolidated ﬁnancial statements together with the

audit report issued by TSATR – Audit Services LLC (“B1”).

The Supervisory Board recommends that shareholders

adopt these ﬁnancial statements, together with the 2022
Annual Report and Annual Accounts. For the explanation

on the absence of the independent auditor’s report please
refer to “Other information” on page 240.

In March 2022, the Supervisory Board decided to deviate
from its dividend policy in light of the prevailing market
situation and uncertainty. Consequently, it was considered
to be in the best interest of the Company not to distribute a
dividend for the full year 2021. While the Company remains
committed to its long-term goal of returning Company

proﬁts to shareholders, any decision regarding future

dividend payments will be made taking into account

relevant regulatory constraints at the time thereof. For 2022,

the Supervisory Board also recommends, in the best
interest of the Company and as proposed by the

Management Board, to add an amount of RUB 45,188
million, representing the amount of the proﬁt in the ﬁnancial

year 2022, to the retained earnings of the Company.

31 May 2023

Statement from the Chair of the Nomination and Remuneration Committee

Remuneration Report

adjustment to the remuneration policy for the Supervisory
Board was also submitted to, and approved by, the
Extraordinary General Meeting of Shareholders in
November. While I regret the resignation of our
Supervisory Board members during the first half of the
year and the external circumstances that led to this, I am
pleased to say that we could close the year with six highly
qualified new Supervisory Board members.

Throughout the year, the Committee remained focused on
stability within X5’s leadership team, particularly in the
face of fierce competition and an increased shortage of
qualified executives. The Committee’s annual
remuneration benchmark review performed in March 2022
was the basis for salary adjustments necessary to
safeguard the continuity of the senior management team.
Early in the year, the leadership team was strengthened
with the appointment of Ekaterina Lobacheva to the role
of President. I am also pleased that we could announce
the Supervisory Board's recommendation to extend Igor
Shekhterman’s term as CEO for another two years starting
in 2023. We are confident that continuity of X5’s
leadership in the current volatile environment will be to
the benefit of the Company and all its stakeholders.

Despite all operational challenges, strong competition
and inflationary pressures on consumers, the Company
continued to grow in 2022, and I am proud to say that
through the strength of our operations and by remaining
customer-focused at all times, we maintained profitability
margins in line with our strategic targets. Total revenue
rose by 18.2% year-on-year, while EBITDA pre-IFRS 16
margin for FY 2022 was 7.2%. Digital businesses continued
to gain momentum, resulting in 46.6% net sales growth
year-on-year.

In 2023, against the backdrop of ongoing macroeconomic
uncertainties, the Committee shall continue to revisit
executive remuneration to ensure that it effectively
supports the Company’s strategy of long-term
sustainable value creation. In doing so, I look forward to
keeping an open dialogue with our shareholders and
other stakeholders to ensure maximum alignment on our
remuneration policies.

On behalf of the Nomination and Remuneration
Committee, I am pleased to present the Remuneration
Report for 2022 with a summary of the remuneration
policies for the Management Board and the Supervisory
Board and an account of how these policies were
implemented in 2022.

On the back of the challenges caused by COVID-19 over
the past two years, 2022 was another turbulent year for
X5 amid a difficult macroeconomic environment, with a
new wave of sanctions stemming from the geopolitical
events of late February imposing restrictions on
businesses in Russia. In response to these developments
and their impact on the Company’s strategic priorities, the
Nomination and Remuneration Committee closely
engaged with management on a thorough review of both
the short- and long-term incentive plans. This report
describes how this review resulted in inevitable deviations
from our remuneration policies for both the Management
Board and the Supervisory Board.

As an immediate priority during the first half of the year, it
was imperative for the Company to focus on the Group’s
businesses as a going concern with enhanced control
over operational and capital expenses. For the second
half of the year, the Supervisory Board could approve the
short-term performance criteria initially set for the full year
in line with the remuneration policy for the Management
Board as described in this report. Meanwhile, actual target
levels were adjusted to reflect the new macroeconomic
realities impacting X5’s businesses.

It was not only the short-term incentive plan that required
adjustments. The sharp fall in X5 GDRs and the
subsequent trading suspension by the London Stock
Exchange on 1 March 2022 forced us to review the long-
term performance measures supporting the Company’s
strategy of sustainable growth. One of these measures –
the enterprise value multiple – is no longer considered a
meaningful leadership indicator for X5 and was replaced
by free cash flow as indicator of the Company’s financial
health and efficient financial management.

The necessary adjustment to the long-term incentive
plan was submitted to shareholders in the Extraordinary
General Meeting held on 30 November. Conscious of the
principle that performance criteria and targets should not
be adjusted during their performance period, the
Supervisory Board remains confident that the current
long-term incentive (LTI) programme remains adequately
designed to support the Company’s goal of
strengthening its leadership, addressing the strategic
imperatives that contribute to the Company’s sustainable
long-term value creation.

The external environment in 2022 also called for changes
to the remuneration policy for the Supervisory Board.
Confronted with an unprecedented number of
Supervisory Board vacancies and the need to attract new
Supervisory Board members, it was particularly important
to have an adequate remuneration policy in place. When
the trading of X5 GDRs on the London Stock Exchange
was suspended in March, the Nomination and
Remuneration Committee initiated a restructuring of the
Supervisory Board's equity-based remuneration into a
phantom stock plan with comparable terms and size of
awards but based on the GDR trading value on the
Moscow Exchange. The necessary

CORPORATE GOVERNANCE

REMUNERATION REPORT

137

Peter Demchenkov

CHAIR OF THE NOMINATION
AND REMUNERATION COMMITTEE

Remuneration of the Мanagement Board

The Supervisory Board resolved that the
remuneration policy for the Management Board
shall serve as the basis for the remuneration policy
for the Executive Board. In view of the relative size
and composition of both boards, this
Remuneration Report refers to the Executive
Board, unless specific provisions apply to
members of the Management Board only, which
will be clearly indicated.

The remuneration policy of the Management Board is
aligned with the Company’s strategy and supports the
long-term development of the Company, while aiming to
be effective, transparent and simple. The objective of the
remuneration policy is twofold:

Objectives

When developing the remuneration policy, the
Nomination and Remuneration Committee conducted
scenario analyses to identify the risks to which variable
remuneration may expose the Company.

to create a remuneration structure that supports a
healthy corporate culture and allows the Company to
attract, reward and retain the best talent to lead the
Company towards its strategic objectives; and

to provide for a balanced remuneration package that is
focused on achieving sustainable financial results in
line with the Company’s long-term strategy and will
foster an alignment between the interests of
management and those of shareholders and other
stakeholders, including customers, employees and
wider society.

The remuneration of Executive Board members is
benchmarked against a labour market peer group every
year. As a company with operations mainly in Russia, the
reference group selected for benchmarking is composed
of Russian companies comparable in terms of the size of
business and complexity of operations, as well as
international, non-Russian retail companies. In total, the
reference group is composed of 58 companies in various
sectors including retail (26%), digital and tele-
communications (21%), industrial (19%), financial (10%),
FMCG (9%), transportation and logistics (9%), and other
sectors (6%).

Although external market data provide useful context, it
is ultimately the responsibility of the Supervisory Board to
set remuneration packages at an appropriate level that
reflects the skills, level of responsibility and performance
of each individual. As we aim to recruit and retain the
most qualified talent available, the target Total Direct
Compensation level for Management and Executive
Board members is set between the 50th and 75th
percentile.

For the current CEO, the Supervisory Board resolved to
make an exception in recognition of the size and
complexity of X5. Following his re-appointment for a two-
year term at the 2021 Annual General Meeting, the CEO’s
Total Direct Compensation was set, for on-target
performance, at the 90th percentile.

Benchmarking

1 The pay ratio is calculated by dividing the total remuneration of the CEO (base salary and short-term incentives) by the average remuneration

of all X5 employees. Given the irregular nature of awards under the LTI programme, LTI awards are not included in the pay ratio for fair and
consistent presentation purposes. The average remuneration per employee is calculated as the total labour costs derived from note 28
on page 206 divided by the number of employees on an FTE basis. In 2021, the internal pay ratio increased due to the increase of the CEO’s
base salary upon his re-appointment at the 2021 Annual General Meeting.

The table below reflects the total remuneration of Management Board members and the average
remuneration of all other X5 employees (on a full-time equivalent basis), set against the Company’s
performance over the five most recent financial years.

Remuneration in context

2018

2019

2020

2021

2022

Group performance

Revenue,

RUB bln

1,533

1,734

1,978

2,205

2,605

Selling space,

ths sqm

6,464

7,239

7,840

8,410

9,107

Number of stores

14,431

16,297

17,707

19,121

21,323

Net profit (pre-IFRS 16),

RUB bln

Share price (LSE),

USD, eop

24.8

34.5

36.1

26.5

–

Share price (MOEX),

RUB, eop

–

1,500.5

Management Board remuneration,

RUB mln

380

304

357

442

824

Average employee remuneration,

RUB

701,192

754,990

782,079

799,555

895,644

Internal pay ratio

(CEO vs employee remuneration)¹

209

211

198

273

290

CORPORATE GOVERNANCE

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138

Summary of remuneration elements and implementation in 2022

As is commonly understood, pay ratios are specific to a
company’s industry, geographical footprint and
organisational model. As a major food retail company, the
relatively small number of executive staff vs operational
staff in stores and warehouses across eight federal
districts in Russia adds to the variety of pay within the
Company and substantially differentiates the average
employee’s compensation with the compensation levels
of Management Board members. For companies in other
industries, this will be different. Furthermore, pay ratios
can be volatile over time, as they can be heavily
dependent on the Company’s annual performance since
that performance impacts the remuneration of the
Management Board (and Executive Board) much more
than that of all other employees.

Internal pay ratio

Policy summary

Application in 2022 summary

Base salary

Base salaries are in line with compensation levels at
peer group companies based on the salary
benchmarking survey conducted annually

Annual cash bonus

Target payout for CEO: 100%

Target payout for Management Board members based
in the Netherlands: 60%

Maximum amount: 140% of target payout per
quantitative target and 120% of target payout per
qualitative target

The total STI payout may be adjusted up- or downwards
by up to 20% of the target payout at the discretion of
the Supervisory Board

Igor Shekhterman:

Group targets: 100%
Actual payout: 90.6% of base salary

Frank Lhoёst:

Group targets: 100%
Actual payout: 65.2% of base salary

Short-term incentive

Cash incentive programme over a three-year period
from 1 January 2021 until 31 December 2023

Payout thresholds: EBITDA margin and net debt to
EBITDA ratio to ensure business efficiency and retain
focus on prudent financial and balance sheet
management

In 2024, 50% of the total award will be paid subject to
maintaining achieved targets through the end of 2023,
while the other 50% is deferred to 2025 with a
profitability threshold as a condition for deferred
payout

Igor Shekhterman:

Stage 1 targets (2021)

Enterprise value/EBITDA multiple: 50%
Market share: 45%
Sustainability targets: 5%

Stage 2 targets (2022–2023)

Free cash flow, % of revenue: 35%
Market share: 60%
Sustainability targets: 5%

Frank Lhoёst:

N/A

Ekaterina Lobacheva:

Stage 1 targets (2021)

Enterprise value/EBITDA multiple: 50%
Market share: 45%
Sustainability targets: 5%

Stage 2 targets (2022–2023)

Free cash flow, % of revenue: 35%
Market share: 60%
Sustainability targets: 5%

Quinten Peer:

N/A

Long-term incentive

Quinten Peer:

Group targets: 100%
Actual payout: 60% of base salary

Ekaterina Lobacheva:

Group targets: 100%
Actual payout: 97.3% of base salary

CORPORATE GOVERNANCE

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139

The remuneration provided to Executive Board
members consists of the following fixed and variable
components (Total Direct Compensation): a base
salary, an annual or short-term cash incentive (STI)
and a long-term cash incentive (LTI). Both STIs and
LTIs are built around performance measures, both
financial and non-financial, to support the Company’s
strategic objective to achieve long-term value
creation through sustainable leadership in customer,
employee and shareholder recognition.

The Executive Board’s Total Direct Compensation is
equally balanced between the fixed and annual
variable remuneration components and is more
heavily weighted on the LTI to strengthen the focus
on long-term goals. The ratio between fixed and
variable pay components for members of the
Executive Board is as follows in the event of on-
target performance.

In addition to the Total Direct Compensation,
members of the Executive Board are entitled to other
benefits as described in “Other remuneration
components” and “Contractual arrangements” below.

Elements of remuneration

TOTAL DIRECT COMPENSATION

Base salary

LTI

STI

2022

30%

40%

30%

CORPORATE GOVERNANCE

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140

2022 Management Board remuneration

Name

Year

Base

salary

Short-term

incentive

Long-term

incentive

Extension

bonus

⁴

Social

security cost

⁵

Total

2022

208

162

129

229

824

2021

155

119

122

–

442

The following table provides an overview of the Management Board’s remuneration in 2022
(in millions of Russian roubles).

The base salary of the CEO and other members of the
Management Board is determined by the Supervisory
Board and derived from compensation levels at peer
group companies based on the salary benchmarking
survey conducted annually.

For Igor Shekhterman and Ekaterina Lobacheva, the total
remuneration includes remuneration paid in the
Netherlands and Russia: as Russia-based members of
the Management Board, Igor Shekhterman and Ekaterina
Lobacheva also have a contract of employment with an
operational subsidiary in Russia. Under this contract, 75%
of their total base salary as well as their variable
remuneration components are paid in Russia. No other
remuneration has been granted or allocated to members
of the Management Board by subsidiaries or other
companies whose financials are consolidated by the
Company.

Ad (1) Base salary

The short-term incentive is an annual cash bonus
ensuring Management Board members focus on
achieving performance targets over the financial year.
It drives desired behaviour and reflects the key priorities
for the year. At the beginning of each financial year, the
Supervisory Board selects the performance measures
and their relative weight and the targets to be achieved
for each performance measure, based on X5’s business
priorities for that year. For each measure, performance
ranges are set, i.e. the value below which no payout will
be made (the threshold), the on-target value and the
maximum payout level.

Performance measures are aligned with the Company’s
objective to deliver sustainable value to shareholders and
other stakeholders and include:

Ad (2) Short-term incentive (STI)

All performance measures contribute to the Company’s
success in the short term, while also securing the
Company’s long-term objectives. X5 does not disclose the
actual targets as this is considered commercially sensitive
information.

financial measures related to the Company’s
operational performance, consisting of key financial
metrics which typically reflect X5’s goal to expand
market share while focusing on margins to increase
profitability and prudently managing capital spending
and expenses; and

measures that reflect specific strategic and key
business priorities of the Company.

Ad (2) Short-term incentive (STI)

Performance
measure

Weight

Realised

performance

Resulting

payout as %

of target

Actual bonus

(% of payout

weight)

Business continuity

25%

100%

25%

OPEX/CAPEX
optimisation

25%

100%

25%

Total H1

50%

100%

50%

Market share

10%

X5 LFL sales

10%

100%

10%

X5 EBITDA margin

10%

103.8%

110.7%

11.07%

X5 CAPEX

10%

119.8%

120%

12%

NPS

10%

74.9%

7.49%

Total H2

50%

79.7%

81.1%

40.6%

Total FY

100%

—

90.6%

Discretionary +/−20%

Igor
Shekhterman

Chief Executive
Officer

Business continuity

25%

100%

25%

OPEX/CAPEX
optimisation

25%

100%

25%

Total H1

50%

100%

50%

Market share

10%

X5 LFL sales

10%

100%

10%

X5 EBITDA margin

10%

103.8%

110.7%

11.07%

X5 CAPEX

10%

119.8%

120%

12%

NPS

10%

74.9%

7.49%

Total H2

50%

79.7%

81.1%

40.6%

Total FY

100%

—

90.6%

Discretionary +/−20%

+20%

Frank Lhoёst

Company
Secretary

Performance
measure

Weight

Realised

performance

Resulting

payout as %

of target

Actual bonus

(% of payout

weight)

Business continuity

25%

100%

25%

OPEX/CAPEX
optimisation

25%

100%

25%

Total H1

50%

100%

50%

Market share

10%

X5 LFL sales

10%

100%

10%

X5 EBITDA margin

10%

103.8%

110.7%

11.07%

X5 CAPEX

10%

119.8%

120%

12%

NPS

10%

74.9%

7.49%

Total H2

50%

79.7%

81.1%

40.6%

Total FY

100%

—

90.6%

Discretionary +/−20%

+10%

Quinten Peer

Chief Operating
Officer (X5 Retail
Group N.V.)

Business continuity

25%

100%

25%

OPEX/CAPEX
optimisation

25%

100%

25%

Total H1

50%

100%

50%

Market share

10%

X5 LFL sales

10%

100%

10%

X5 EBITDA margin

10%

103.8%

110.7%

11.07%

X5 CAPEX

10%

119.8%

120%

12%

NPS

10%

74.9%

7.49%

Total H2

50%

79.7%

81.1%

40.6%

Total FY

100%

—

90.6%

Discretionary +/−20%

+20%

Ekaterina
Lobacheva

President

For each performance measure, a threshold, target and maximum
performance level is set with the following STI payout, as a
percentage of target payout:
• Threshold performance: varies per performance measure,
starting from 50% of target payout
• Target performance: 100% of target payout
• Maximum performance: 120% of target payout
For each measure, payout between performance levels is
on a straight line basis; payout is zero for below threshold
performance, whereas payout for performance above maximum
is capped at 120% of payout at target.

CORPORATE GOVERNANCE

REMUNERATION REPORT

141

In March 2022, following the sudden changes to the
macroeconomic environment that started in late
February, the Supervisory Board reviewed the STI
programme for 2022 and determined that the
situation called for an immediate adjustment of
performance criteria for the first half year of 2022
based on key goals in maintaining business as a
going concern and enhanced control over OPEX and
CAPEX.

For the second part of 2022, the Supervisory Board
approved performance criteria and targets initially
determined for the full year, as reflected in the table
below.

The total STI payout may be adjusted up- or
downwards by up to 20% of the target payout at the
discretion of the Supervisory Board. The target
payout as a percentage of base salary is 100% for the
CEO and other members of the Executive Board and
60% for Management Board members based in the
Netherlands, contingent on targets being met.

For the reporting year 2022, the achievement of
performance targets was assessed and determined
by the Supervisory Board for each Management
Board member individually.

The following table reflects the performance against STI targets and payouts for 2022.

The current 2021–2023 LTI programme was approved by
the 2021 Annual General Meeting of Shareholders.
Performance measures under the programme have a
one- or three-year vesting period, with payouts in 2024
and 2025 as described above. Following the unexpected
developments since February 2022 and their severe
impact on the Company’s market capitalisation, the
Company reviewed its strategic priorities and
corresponding long-term performance measures and
targets. As a result, the Supervisory Board had to use its
discretionary authority to deviate from the remuneration
policy by adjusting LTI measures and their weights as of
2022, as described below.

Targets under the LTI reflect the overall strategy of the
Company to achieve leadership in customer recognition
by continuously transforming value propositions in the
food market while setting the industry standard in digital
transformation and omnichannel growth. Throughout the
three-year cycle of the programme, the long-term
performance measure to support this strategy is
sustained leadership in terms of market share, with

2021–2023 LTI programme

Igor Shekhterman, Ekaterina Lobacheva and other
members of the Executive Board participate in the
Company’s long-term incentive programme. Under the
LTI programme, performance is assessed and cash
awards are paid after a revolving three-year performance
period, with a 50% deferred payout subject to
maintaining achieved targets in the fourth year, and a
profitability threshold as a condition for deferred payout.
This creates a focus on long-term goals throughout the
programme and provides an effective mechanism for
motivating and retaining members of management who
are critical to the Company’s continued success.

For Igor Shekhterman the expense recognised in 2022
under 2018–2020 LTI programme represent the final
deferred payout.

The following table reflects the LTI performance for
the 2018–2020 LTI programme.

2018–2020 LTI programme

Ad (3) Long-term incentive (LTI)

profitability and net debt/EBITDA thresholds to remain
focused on margins, business efficiency and prudent
financial and balance sheet management. With the
enterprise value multiple no longer being a meaningful
leadership indicator for X5 as of 2022, it was replaced by
free cash flow in stage 2 of the programme and will serve
as an indicator of the Company’s financial health and
efficient financial management. In both stages of the
programme, the LTI includes sustainability targets to
support the Company’s ESG strategy.

The size of each individual cash award is based on the
participant’s annual base salary and LTI scale reflecting
his/her role and position, contribution towards the LTI
targets at both the individual and team level and a cap of
133% per year of the participant’s base salary during the
three-year programme.

For Igor Shekhterman and Ekaterina Lobacheva the
expense recognised in 2022 under the 2021–2023 LTI
programme is the accrual based on the probability of
achieving the targets, payable in 2024–2025.

CORPORATE GOVERNANCE

REMUNERATION REPORT

142

LTI 2018–2020

Performance measure

Weight

Target payout

Achievement

Revenue

50%

100%

EV/EBITDA multiple

50%

100%

Igor Shekhterman

Ad (3) Long-term incentive (LTI)

LTI STAGE 1 (JANUARY–DECEMBER 2021)

Performance measure

Weight

Definition

Thresholds

Link to strategy

Payout

EV/EBITDA multiple

50%

EV/EBITDA multiple leadership, calculated and accrued on an annual
basis

Market share

45%

X5 market share relative to competition in the Russian food retail
segment throughout the programme, with an annual revenue growth
threshold. If the threshold is not achieved in the first year, 1/3 of the
target payout is not accrued. The minimum payout level is 60%, and
the maximum is 140%, dependent on performance

Sustainability

2023 targets:
1) Reduce CO emissions by 10%
2) Boost the share of recycled solid waste to 95%
3) Achieve an over 50% share of private label goods sold in sustainable
packaging

₂

Net debt to
EBITDA
EBITDA margin

In 2024 (50%) and
2025 (50%, subject
to EBITDA threshold)

Long-term shareholder value creation
through sustained leadership in the Russian
food market, with a 15% share in grocery and
a 20% share in e-grocery by 2023-end

Achieving the ESG targets in X5’s 30x30
Sustainability Plan

LTI STAGE 2 (JANUARY 2022–DECEMBER 2023)

Performance measure

Weight

Definition

Thresholds

Link to strategy

Payout

Free cash flow (FCF),
% of revenue

35%

Value to reflect financial management performance
The minimum payout level is 80%, and the maximum is 120%,
dependent on performance

Market share

60%

X5 market share growth relative to competition in the Russian food
retail segment throughout the programme. The minimum payout level
is 80%, and the maximum is 120%, dependent on performance

Sustainability

2023 targets:
1) Reduce CO emissions by 10%
2) Boost the share of recycled solid waste to 95%
3) Achieve an over 50% share of private label goods sold in sustainable
packaging

₂

Net debt to
EBITDA
EBITDA margin

In 2024 (50%) and
2025 (50%, subject
to EBITDA threshold)

Creating long-term shareholder value by
striking the right balance between sustained
leadership in the Russian food market, new
business models and prudent financial
management

Achieving the ESG targets in X5’s 30x30
Sustainability Plan

CORPORATE GOVERNANCE

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143

On 22 September 2022 the Company announced the
Supervisory Board’s recommendation to extend Igor’s
contract for another two-year term ending on the day of
the Annual General Meeting in 2025. On 30 November
2022 the General Meeting of Shareholders approved to
substitute 75% of Igor Shekhterman’s discretionary USD
5,000,000 termination bonus (see below under ‘Legacy
arrangements’) for a contract extension bonus, in
recognition of his commitment to extend his CEO
mandate, as such protecting the continuity of the
Company and its leadership in an increasingly
challenging environment.

Ad (4) Extension bonus

For the year ended 31 December 2022, the social security
costs include statutory pension contributions in the
amount of RUB 62 (2021: RUB 29).

Ad (5) Social security cost

Other policy information and contract terms

Members of the Executive Board may be offered a number of other arrangements,
such as an expense allowance, medical insurance, accident insurance, and life
insurance, in accordance with Company policy. This policy does not allow personal
loans or guarantees to members of the Executive Board, nor does the Company
provide pension arrangements for members of the Executive Board.

Other remuneration components

Members of the Management Board are engaged on the basis of a Management
Services Agreement with a maximum four-year term, to be extended upon
reappointment by the General Meeting of Shareholders. The CEO and the President,
as Russia-based members of the Management Board, also have a contract of
employment with an operational subsidiary in Russia. The fixed and variable salary
components stipulated in each contract reflect the relevant responsibilities of the
CEO and the President in the Netherlands and in Russia.

Severance payment is generally limited to six months’ base salary; however, the
Supervisory Board may increase this to a maximum of one year’s base salary if
required under individual circumstances. For the CEO, severance pay is structured
as a non-competition reward payable in quarterly instalments following contract
termination, subject to compliance with non-competition conditions. For the
President, severance pay is structured as a non-competition reward payable after six
months after contract termination, subject to compliance with non-competition
conditions. Accordingly, the non-competition period for the CEO is 12 months and
six months for other Executive Board members. In case of breach of the non-
competition obligations, the contract provides for a penalty in the amount of two
annual base salaries for the CEO and one annual base salary for other Executive
Board members. No severance pay will be awarded if the agreement is terminated at
the initiative of the Executive Board member, or in the event of seriously culpable or
negligent behaviour on his/her part.

Agreements with members of the Management Board may be terminated by either
party with a notice period of two months or, in the case of the CEO, three months.

Contractual arrangements

As disclosed when Mr Shekhterman took office in 2015, he is entitled to a minimum
annual compensation package of USD 4,000,000. Should the minimum annual
compensation exceed the total annual remuneration through its fixed and variable
components, Mr Shekhterman will be entitled to the difference upon completion of
his full term as CEO. Furthermore, Mr Shekhterman is eligible to a termination
compensation of up to USD 5,000,000 at the discretion of the Supervisory Board.

Legacy arrangements

Members of the Management Board as well as certain senior management members
are insured under X5’s Directors and Officers Insurance Policy.

Although the insurance policy provides broad coverage, X5’s directors and officers
may incur uninsured liabilities. Under the Company’s Articles of Association,
members of the Management Board are indemnified by the Company against any
claims arising out of, or in connection with, the general performance of their duties,
provided that such claim is not attributable to gross negligence, wilful misconduct or
intentional misrepresentation by the director or officer in question.

Insurance and indemnity arrangements

The Supervisory Board may recover from Management Board members all or part of
a paid bonus derived from the STI or LTI if such bonus is based on incorrect
information regarding the targets or conditions of the bonus. Furthermore, the
Supervisory Board has the discretionary authority to adjust an unpaid bonus to an
appropriate amount if the payment of the bonus is considered unreasonable or
unfair.

Clawback

CORPORATE GOVERNANCE

REMUNERATION REPORT

144

Remuneration of the

Supervisory Board

Supervisory Board fees are set at an appropriate level to attract individuals with

the necessary experience, knowledge and ability to make a signiﬁcant

contribution to the Company’s strategy, long-term development and
sustainability. As such, the remuneration policy supports the long-term
development of the Company, while aiming to meet all stakeholders’
requirements.

The level and structure of remuneration for members of the Supervisory Board is
periodically benchmarked against a reference group of Dutch and other
European companies that are comparable in size and complexity, as well as
leading Russian and international retailers. In order to attract the most talented
individuals with the necessary experience, knowledge and ability, the cash
allowances for members of the Supervisory Board are set between the 50th and
the 75th percentile. For the current Supervisory Board, the peer group consisted
of 33 mostly non-Russian international companies in various retail sectors, i.e.
food retail and wholesale (61%), drug retail (9%), specialty and other types of
retail (30%).

The Company acknowledges that the awarding of shares to members of the
Supervisory Board constitutes a deviation from the Dutch Corporate
Governance Code. However, in addition to the cash allowance, X5 believes it is
necessary to compensate members of the Supervisory Board in the form of
equity to align the interests of Supervisory Board members with the long-term
interests of shareholders and strengthen their commitment to the future of the
Company. The equity-based awards paid to members of the Supervisory Board

are calculated with respect to the ﬁxed board fee of each member and are

therefore not performance-based. While the total remuneration – including the
equity component – may exceed the benchmark for the chairman and
committee chairs, X5 believes that the level and structure of the remuneration of
Supervisory Board members safeguard their independence of thought and

judgement and adequately reﬂect the time commitment and responsibilities of

the role.

Objectives and benchmarking

In 2022, the General Meeting of Shareholders approved the updated remuneration policy for the Supervisory Board for the year.

The following table provides an overview of the Supervisory Board’s remuneration that became unconditional in 2022 or at year-end (in millions of Russian roubles).

2022 Supervisory Board remuneration

4 Stephan DuCharme and Mikhail Fridman stepped down on 1 March 2022. Richard Brasher, Geoff King, Michael Kuchment, Alexander Tynkovan, and Marat Atnashev stepped down on, respectively,

4 March, 11 March, 25 March, 25 May, and 22 July 2022.

Nadia Shouraboura’s term in ofﬁce expired at the 2022 Annual General Meeting of Shareholders.

6 As described in this report under "Legacy arrangements", the General Meeting of Shareholders approved to substitute part (75%) of Igor Shekhterman’s termination bonus for a contract extension bonus.

The meeting of shareholders approved to pay the remaining part (25%) to Stephan DuCharme for his invaluable contribution to the Company since 2008, both as member and later Chair of the Supervisory Board,
and CEO from 2012 to 2015.

1 Vadim Zingman, Leonid Afendikov, Mikhail Fridman, and Marat Atnashev, in their role as

representatives of CTF Holdings S.A., have waived any entitlement to Supervisory Board
remuneration, whether in cash or restricted stock units.

2 Olga Vysotskaya, Fedor Ovchinnikov and Vadim Zingman were appointed on 30 June 2022.
3 Dmitry Alekseev, Vassilis Stavrou and Leonid Afendikov were appointed on 30 November 2022.

Position

2022

2021

2022

2021

2022

2021

2022

2021

P. Demchenkov

Chair, Nomination and
Remuneration Committee

–

O. Vysotskaya

Chair, Audit and Risk Committee

–

F. Ovchinnikov

–

V. Stavrou

–

V. Zingman

¹, ²

–

D. Alekseev

–

L. Afendikov

¹, ³

–

S. DuCharme

⁴, ⁶

–

112

M. Fridman

¹, ⁴

–

R. Brasher

⁴

(2)

–

G. King

⁴

(32)

–

(26)

M. Kuchment

⁴

(14)

–

(11)

K.-H. Holland

–

N. Shouraboura

⁵

–

A. Tynkovan

⁴

(2)

–

M. Atnashev

¹, ⁴

–

Total

109

–

166

198

Base

remuneration

Share-based

compensation

Extraordinary
remuneration

Total

remuneration

CORPORATE GOVERNANCE

REMUNERATION REPORT

145

X5 Retail Group. Годовой отчет за 2022 год (на английском) - часть 9