X5 Group (Пятерочка). Годовой отчет за 2021 год - часть 21

Induction and ongoing education

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 an ongoing 
basis, and together 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. 

Same as in 2020, these visits were limited in 2021 due 
to travel restrictions stemming from the ongoing 
COVID-19 pandemic. 

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

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

Activities in 2021

Throughout the year, the Supervisory Board focused 
on a number of key topics. An ongoing point of 
attention was the COVID-19 pandemic and its impact 
on the health and safety of employees and customers 
as well as its impact on the Company’s businesses and 
their supply chains. The Supervisory Board received 
regular updates from the CEO and other members of 
the management team and, in the context of the 
annual strategy update, assessed the impact of the 
pandemic on the Company’s long-term strategy.   

Against the background of the pandemic and 
deteriorating macroeconomic conditions, the 
Supervisory Board continued to monitor the 
implementation of X5’s corporate strategy, with a focus 
on long-term value creation through operational 
excellence and X5’s capacity to continuously adjust 
to market trends and changing customer needs. 
In addition, the Supervisory Board reviewed various 
matters related to all significant aspects of the 
Company, its activities and operational results, its 
strategy going forward and the management team 
and its development.   

A key topic during 2021 was the Company’s digital 
strategy, including e-commerce and profitability. With 
the continued surge of online sales as a result of the 
pandemic, and resilient customer habits favouring 
food-at-home consumption, the Supervisory Board 
had several discussions with management on the 
impact of these market dynamics on the evolution of 
the Company’s business model. An important dilemma 
discussed was how to develop the Group’s 
omnichannel capabilities to ensure the right balance 
between traditional brick-and-mortar operations and 
e-commerce capabilities, while maintaining a healthy 
margin. As part of these discussions, the Board 
extensively reviewed strategic options for the Group’s 
digital businesses, including organic growth, strategic 
partnerships and/or selective spin-offs.   

  

Meanwhile, the Board continued to review measures 
and initiatives to strengthen X5’s core businesses. 
The Board closely reviewed opportunities to automate 
and digitalise key functions and processes inside the 
Company to increase efficiencies and decrease 
operational risks. Throughout the year, the Board 
extensively reviewed the operational performance 
of its key banners, Pyaterochka and Perekrestok, and 
in particular measured the Company’s success 
in translating new store concepts and in-store 
innovations into expanded customer reach and 
increased traffic and sales. Also, the Board extensively 
reviewed the performance and development plan 
of the new hard discounter format Chizhik, and the 
implementation of the Company’s private label 
strategy across all formats.   

The Supervisory Board continued to discuss key 
trends and opportunities for the Company to improve 
customer experience and accelerate growth. As part of 
these discussions, Board members reviewed various 
initiatives to strengthen X5’s position in the Russian 
food market, including the new Food.ru media platform 
launched in July, and the acquisition of the Mnogo 
Lososya ‘dark kitchen’ chain in support of the 
Company’s offering in the fast-growing ready-to-eat 
segment. Also, as part of further initiatives to 
accommodate customers , the Board discussed the 
introduction of financial services under the ‘X5 Bank’ 
brand, allowing the Company to leverage its large 
customer base to cross-sell financial services in a joint 
venture with Alfa Bank, in first instance by combining 
the functionality of the Pyaterochka and Perekrestok 
loyalty cards with banking services.

Meetings of the Supervisory Board 

In 2021, the Supervisory Board held four regular 
meetings and one additional meeting in November to 
approve the interim dividend. 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, the Nomination and Remuneration 
Committee and the Sustainable Development and 
Innovation Committee. Due to ongoing travel 
restrictions imposed as a result of the pandemic, most 
Board members attended the meetings by 
videoconference, which actually enabled effective 
communication and interaction.       

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. In December, the strategy 
session took a full day partially dedicated to digital 
development only. The CEO and CFO attended all 
meetings, and other members of senior management 
were regularly invited to present.   

In 2021, 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 March at which the 2020 
Annual Report and financial statements were 
recommended for adoption by the Annual General 
Meeting of Shareholders. In between Supervisory 
Board meetings, several informal meetings and 
telephone calls took place among Supervisory Board 
members and members of the Management Board 
and other Company management to consult with each 
other on various topics and to ensure that the 
Supervisory Board remained well informed about the 
running of the Company’s operations.   

The Supervisory Board confirms that all Supervisory 
Board members have adequate time available to give 
sufficient attention to the concerns of the Company. 
In 2021, the attendance rate was 100% for both the 
Supervisory Board and the committee meetings. 

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Activities in 2021

On various occasions during the year, the Supervisory 
Board discussed corporate governance requirements 
to support a culture of agile entrepreneurship in the 
increasingly competitive omnichannel retail 
environment. In this context, through the work of its 
Nomination and Remuneration Committee, the Board 
reviewed adjustments to the Group’s operational 
model, as well as tailored incentive schemes for key 
employees across traditional and new businesses alike, 
ranging from store managers to key executives in the 
Company’s new businesses.   

The Board’s sustainability oversight took centre stage 
in 2021. As the Company further developed and 
refined its sustainability strategy in 2021, the Board 
enhanced its oversight of environmental, social and 
governance matters, which was also reflected in the 
Board’s decision to include ESG responsibilities in the 
work of its renamed Sustainable Development and 
Innovation Committee. Through the work of this 
committee, the Board closely monitored 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 these 
are integrated into the Company’s overall business 
strategy.  

Furthermore, during its meetings in 2021 the 
Supervisory Board reviewed reports from its various 
committees and discussed the following (regular) 
topics:

The financial reporting process and in particular the 
approval of the 2020 Annual Report and 
Sustainability Report, and review of the 2021 
half-yearly and quarterly financial reports 

The agenda and explanatory notes for the Annual 
General Meeting of Shareholders held in May 2021, 
including the dividend proposal for the year 2020

The 2021 interim dividend based on the Q3 financial 
results

Reports by the internal and external auditors

The assessment of the cooperation with the external 
auditor, based on a report from the Audit and Risk 
Committee

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

The profile and effectiveness of the Supervisory 
Board in the context of the annual board evaluation, 
as described in more detail below

The composition and profile of the Supervisory 
Board and its committees

The annual review of the financing strategy

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

The annual budget for 2022

Board evaluation

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 effectiveness 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.  

Under the leadership of the new Chair, the 2021 
evaluation was performed by an external party by 
means of a questionnaire, individual interviews and 
observation of the Board and committee meetings 
held in December. Ward Howell was engaged as the 
external evaluator.  

Items assessed and subsequently discussed included: 
the profile and composition of the Supervisory Board, 
level of skills and expertise, oversight of business 
performance, priorities and work processes of the 
Board, effectiveness in overseeing strategy, 
effectiveness of the committees in alleviating the 
Board’s overall oversight, and the Supervisory Board’s 
relationship with the Executive Board. In addition to the 
self-assessment by the Supervisory Board members, 
input was also solicited and received from members of 
the Executive Board and members of the Management 
Board. 

Overall, the Board positively assessed its own 
functioning and its relationship with management, 
despite the limited opportunities to meet in person 
due to the travel restrictions brought on by the 
pandemic. Board discussions were open and 
constructive, and good progress was made in striking 
the right balance between the Board’s operational 
oversight and strategic responsibilities. The Board 
continued to function as a team where different 
opinions and perspectives are valued and respected. 

The Supervisory Board attaches great value to these 
evaluations. They ensure continuous focus on the 
quality of its activities, the composition and functioning 
of the Supervisory Board and its committees and the 
Supervisory Board’s relationship with the Executive 
Board. Given the recent geopolitical developments, 
having immediate impact on composition and profile of 
the Supervisory Board, the Supervisory Board shall 
make a thorough reassessment of its composition and 
profile during 2022.  

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Meetings of the committees

Audit and Risk Committee

The role of the Audit and Risk Committee is described 
in its charter, which is available on the Company’s 
website. On 31 December 2021, the Audit and Risk 
Committee consisted of Geoff King (Chairman), Peter 
Demchenkov, Richard Brasher and Marat Atnashev. 
In 2021, the Committee held five regular meetings. 
To allow for a more in-depth review of the broad range 
of topics covered by the Audit and Risk Committee, 
meetings were held over the course of two half-day 
sessions each. In connection with ongoing travel 
restrictions brought on by the COVID-19 pandemic, 
certain committee members had to attend all 
meetings by videoconference. The meeting in August 
to review the half-yearly results was held entirely by 
videoconference. As a rule, all meetings were attended 
by the CFO, the external auditor and the internal audit 
director, while 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. The Committee 
also periodically reviewed the level of financial 
provisions, key movements in the balance sheet and 
any contingent liability movements.   

Throughout the year, the Committee closely monitored 
risk management and the risk management process, 
including the timely follow-up to high-priority actions 
and risk mitigation measures based on quarterly 
progress updates. As part thereof, the Committee 
received several updates on the impact of the 
pandemic on the risk profile of the Company and its 
financial position. As one of the emerging risks in this 
respect, the Committee discussed the increasingly 
tight labour market and inherent impact on operational 
capacity and personnel costs. The Committee was 
informed regularly on compliance and reviewed and 
received regular updates on the Company’s 
whistleblower programmes. Furthermore, the 
Committee reviewed activities and initiatives relating to 
detection and prevention of misconduct and 
irregularities, and risk mitigating measures to protect 
the Company in these areas. 

The Committee also 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 level of returns from recent 
investments, as well as management actions 
addressing underperforming stores and assets whose 
carrying value were 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 Internal Audit 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 2022.  

The Audit and Risk Committee and its Chair held 
several private meetings together with the CFO, the 
Internal Audit Director and the external independent 
auditor. During the private sessions with the new CFO, 
his onboarding and start at the Company were 
regularly discussed.    

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

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

The external auditor’s report with respect to 
accounting and audit issues and internal control 
recommendations in respect of their audit of the 
2020 consolidated financial statements

Quarterly interim financial reports and trading 
updates

Audit plans of the internal and external auditors, and 
the approval thereof

The annual assessment of the functioning and 
independence of the external auditor

X5’s financing strategy

Tax matters, including specific attention to the 
denunciation of the double tax treaty between 
Russia and the Netherlands, effective as of 1 January 
2022, and the implications for the Company

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 detection and 
prevention of misconduct and irregularities, and risk 
mitigating measures to protect the Company in 
these areas

Changes in the Company’s regulatory and 
compliance framework as of 1 January 2021, following 
Brexit

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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 which are 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 Management Board. In 
2021, the following related party transactions were of 
material significance to the Company and/or members 
of the Management Board or Supervisory Board: 

procurement of goods (for resale) from Borjomi 
Group

agreements with Home Interior for the lease of retail 
and warehouse space

agreements with VimpelCom for the lease of retail 
space

telecommunication services provided by VimpelCom

agreement for development, purchase and 
maintenance of online cash registers with 
VimpelCom

procurement of goods (for resale) from RusBioTrade

procurement of goods (for resale) from Alidi-Nord

service agreement with CTF Holdings S.A.

commercial relationship agreement with DIA;

joint venture with Alfa Bank for the establishment of 
X5 Bank

foreign exchange agreements, bond issues, revolving 
credit facilities and other bank products with
Alfa Bank

advertising and marketing agreements with
Alfa Bank

payroll service agreement with Alfa Bank

insurance services from Alfa Insurance 
(AlfaStrakhovanie)

lease agreements with Alfa Capital Holdings Limited

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, which Rules are 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 Board members while performing 
their duties for X5.    

Nomination and Remuneration Committee

The role of the Nomination and Remuneration 
Committee is described in its charter, which is available 
on the Company’s website. On 31 December 2021, the 
Nomination and Remuneration Committee consisted 
of Peter Demchenkov (Chairman), Geoff King, 
Alexander Tynkovan and Marat Atnashev. In 2021, the 
Nomination and Remuneration Committee held six 
regular meetings, all of which were attended virtually 
due to COVID-19 travel restrictions. The CEO and the 
Director of 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 Committee regularly reviews the composition and 
profile of the Supervisory Board and its сommittees to 
ensure they continue to provide informed and 
constructive support and challenge to the 
management team. The committees is responsible for 
identifying and reviewing suitable candidates through 
a formal and transparent process, ensuring that plans 
are in place for orderly succession to the Board. Early 
in the year, the Committee focused on the succession 
of Karl-Heinz Holland, who informed the Board of his 
intention to step down at the Annual General Meeting 
of Shareholders in May 2021. Egon Zehnder assisted 
the Committee in its search for a successor. Following 
a rigorous selection process, the Committee 
recommended the nomination of Richard Brasher as a 
new member of the Supervisory Board. Furthermore, 
as successor of Alexander Torbakhov, who stepped 
down earlier, on 3 July 2020, the Committee 
recommended the nomination of Alexander Tynkovan 
in view of his in-depth knowledge and experience in 
the fields of digitalisation and e-commerce, and his 
knowledge of X5, having previously served on the 
Supervisory Board. Finally, the Committee 
recommended the reappointment of Stephan 
DuCharme and Mikhail Fridman for a new term, in line 
with the rotation schedule of the Supervisory Board. 

In 2021, the Nomination and Remuneration Committee 
continued to monitor succession planning, 
management development and human resource 
needs in relation to the Company’s sustainable growth 
objectives. Building on previous year discussions, the 
Committee reviewed the Group’s organisational 
structure in support of the Company’s strategic 
objectives to strengthen its the key formats while 
growing e-commerce and improving omnichannel 
productivity.   

In November, the Committee dedicated a full meeting 
to staffing implications resulting from the Company’s 
transformation into omnichannel retailing with
new employee requirements based on digital and
e-commerce competencies. In particular, the 
Committee reviewed implications for staff recruitment 
and retention, training and development, and 
remuneration benchmarking based on distinct peer 
groups for the various key positions at senior 
management level.          

Furthermore, as part of its regular review of variable 
remuneration principles, the Committee reviewed
and discussed tailored incentive schemes for key 
employees across the Group, ranging from store 
managers to key executives in the Company’s
new businesses. Meanwhile, taking into account
pandemic-related and macroeconomic uncertainties, 
and their impact on the retail environment, the 
Committee assessed and evaluated options to 
restructure the Company’s incentive plans for 2022 
and beyond.   

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:

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Nomination and Remuneration 
Committee

The role of the Sustainable Development and 
Innovation Committee is described in its charter, which 
is available on the Company’s website. On 31 
December 2021, the Sustainable Development and 
Innovation Committee consisted of Nadia Shouraboura 
(Chair), Michael Kuchment and Alexander Tynkovan. 
The Sustainable Development and Innovation 
Committee held four meetings in 2021, all of which 
were attended virtually due to COVID-19 travel 
restrictions. The CEO was invited to attend every 
meeting, and other members of the Supervisory Board 
and senior management were invited when necessary 
or appropriate.   

The Sustainable Development and Innovation 
Committee assists the Supervisory Board in its 
responsibility to closely monitor X5’s progress against 
the medium- and long-term goals set out in X5’s 
sustainability strategy as well as X5’s e-commerce 
activities and initiatives in the area of technical and 
commercial innovation.  

In 2021, the Committee reviewed and discussed 
various tech- and/or data-driven processes and 
initiatives to enhance operational efficiencies, as well 
as innovative in-store solutions to improve the 
customer experience. Also, the Committee closely 
monitored the performance of new activities in the 
Group’s omnichannel offering, including the media 
platform Food.ru launched in May.   

In September, the Innovation and Technology 
Committee was renamed the Sustainable 
Development and Innovation Committee to strengthen 
the Supervisory Board’s focus on the Company’s 
ambitious ESG agenda. During the second half of the 
year, following the release of X5’s first Sustainability 
Report in May, the Committee closely monitored the 
implementation of X5’s sustainability strategy and 
performance on sustainability targets, also reviewing 
ways to apply innovations to accelerate the 
achievement of these targets.  

Independence 

Financial statements 

Sustainable Development and 
Innovation Committee¹

The Supervisory Board endorses the principle that the 
composition of the Supervisory Board shall be such 
that its members are able to 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. 
The majority of the members of the Supervisory Board, 
which currently consists of four members, 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.     

As of 31 December 2021, Supervisory Board members 
Mikhail Fridman and Marat Atnashev are both affiliated 
with CTF Holdings S.A., which has a capital interest 
of 47.86% in X5. Stephan DuCharme, Chairman of the 
Board, serves as Managing Partner of L1 Retail, part 
of the LetterOne investment group, which is partially 
controlled by the ultimate shareholders of CTF 
Holdings S.A. Therefore, Mikhail Fridman, Marat 
Atnashev and Stephan DuCharme are not 
independent in the sense of the Dutch Corporate 
Governance Code.     

²

This Annual Report and the 2021 consolidated 
financial statements, audited by Ernst & Young 
Accountants LLP, were presented to the Supervisory 
Board in the presence of the Management Board and 
the external auditor. Ernst & Young’s report can be 
found on page 266.  

The Supervisory Board recommends that the 
shareholders adopt these financial statements. Due to 
the current geopolitical developments having severe 
impact on the Russian consumer market and, as a 
result, the Company’s strategic outlook and financial 
position, the Supervisory Board recommends to 
exceptionally deviate from the dividend policy and 
Company guidance by not declaring the final dividend 
for the year 2021, in addition to the amount of RUB 
73.65 per GDR that was paid as interim dividend in 
December 2021. The Supervisory Board therefore 
recommends, in the best interest of the Company and 
as proposed by the Management Board, to add an 
amount of RUB 22,738 million, representing the 
remaining amount of the profit in the financial year 
2021, to the retained earnings of the Company.  

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 2021.  

The COVID-19 pandemic has had, and is still having, a 
significant impact on X5’s businesses, employees and 
customers. The continued dedication and efforts of 
the entire X5 team has ensured the safety of our 
stores and distribution centres, sustained the strength 
of our supply chains and helped nourish families and 
local communities in 66 regions of Russia. The 
Supervisory Board wishes to thank everyone at X5 for 
going the extra mile last year to build a stronger 
business and serve customers better every day.  

Annual assessment of the Executive Board and its 
individual members, and changes in the composition 
of the Executive Board

The proposed reappointment of the CEO for an 
additional two-year term

Management changes, including the appointment of 
Vsevolod Starukhin as CFO and member of the 
Executive Board, succeeding Svetlana 
Demyashkevich in May 2021

Proposals on fixed and variable remuneration of the 
members of the Executive Board, including 
adjustments following the annual remuneration 
benchmarking analysis

The remuneration policy of the Executive Board 
adjusted in line with the updated 2021-2023 LTI 
programme, as proposed to and approved by the 
Annual General Meeting of Shareholders
in May 2021

The profile and effectiveness 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

Details of actual remuneration in 2021 can be found 
in notes 28 and 29 to the consolidated financial 
statements.      

Remuneration

The General Meeting of Shareholders determines the 
remuneration of the members of the Supervisory 
Board in accordance with the remuneration policy for 
members of the Supervisory Board. The remuneration 
policy for the Supervisory Board was approved by the 
2020 Annual General Meeting of Shareholders. The 
detailed amounts are reflected in the Remuneration 
Report on page 174, as well as notes 28 and 29 to the 
consolidated financial statements.  

The Supervisory Board  
19 May 2022

1 Given the composition of the Supervisory Board following recent events, 

the duties and responsibilities of the Sustainable Development and 
Innovation Committee will be included in the remit of the full Supervisory 
Board as of 16 March 2022.

2 Mikhail Fridman and Stephan DuCharme resigned from the Supervisory 

Board on 1 March 2022.

Remuneration 

Report

Statement from the Chairman 
of the Nomination and 
Remuneration Committee

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On behalf of the Nomination and Remuneration 
Committee, I am pleased to present the Remuneration 
Report 2021, providing a summary of the remuneration 
policies for the Management Board and the 
Supervisory Board, and an account of the 
implementation of these policies in 2021. 

At the 2021 Annual General Meeting of Shareholders, 
a positive advisory vote was cast for the Remuneration 
Report 2020. Meanwhile, we took into account 
feedback received from shareholders and improved 
our disclosures in this Remuneration Report, creating 
more transparency in the link between performance 
and payout. Going forward, we will continue to have an 
open dialogue with our shareholders and other 
stakeholders on remuneration principles and 
remuneration of the Management Board and 
Supervisory Board.  

The year 2021 was another challenging one for X5, as 
COVID-19 continued to impact our customers, 
employees and their families. Their health and safety 
will remain a key focus of our oversight as long as the 
pandemic is ongoing. In these extraordinary 
circumstances, X5 continued to serve its vital role in 
society, as frontline employees did their utmost to 
meet customer needs and care for people in their 
communities.  

Meanwhile, despite the pandemic and challenging 
macroeconomic conditions in Russia’s food market, 
with strong competition and inflation putting pressure 
on consumers, the Company continued to grow in 
2021, and maintained profitability margins in line with 
our strategic targets. Total revenue rose by 11.5% 
year-on-year, while EBITDA margin for FY 2021 was 
7.3% under pre-IFRS 16. In addition, to meet consumer 
needs in line with e-grocery and ready-to-eat trends, 
X5 continued to invest in omnichannel solutions for 
customers, resulting in 140% net growth in online sales 
year-on-year.  

Throughout the year, the Committee continued to 
reflect on the remuneration policy for the Executive 
Board to ensure that it continues to support the 
Company’s strategy and long-term growth. The 
Committee performed its annual remuneration 
benchmark review and evaluated performance 
measures under the short- and long-term incentive 
programmes.   

Apart from the Group’s key financial measures applied 
for the 2021 short-term incentive programme, specific 
business priorities were reflected in additional 
short-term performance measures to drive business 
efficiencies and online performance. Furthermore, 
recognising the strategic importance of our new hard 
discounter format, Chizik, specific rollout targets were 
added as an additional performance measure for the 
CEO. We feel that these performance measures 
adequately contribute to the Company’s success in 
the short term, while addressing strategic imperatives 
that contribute to long-term value creation for the 
Company.  

In May, the Annual General Meeting of Shareholders 
approved the new 2021–2023 long-term incentive (LTI) 
programme as part of the remuneration policy for the 
Management Board. The LTI programme is designed 
to support the Company’s goal of strengthening its 
leadership by enterprise value multiples and market 

share, while focusing on revenue, as well as margins to 
increase profitability, and prudently managing capital 
spending and expenses. In addition, as the Company 
has integrated sustainable development goals into its 
overall business strategy, the LTI programme includes 
ESG targets supporting the Company’s sustainability 
strategy.   

As part of our broader responsibility, we also discussed 
the remuneration principles for other key staff or 
divisions within the Group. As such, underlining our 
customer-centric business model, we reviewed new 
incentive programmes designed to reward a more 
entrepreneurial approach on the part of store 
managers. Also, as we continue to invest in our digital 
and omnichannel ambitions, we recognised the need 
for tailored incentive schemes for our new businesses, 
and various management initiatives in this respect 
have been reviewed.       

Finally, with respect to remuneration of the Supervisory 
Board, certain technical adjustments and mandatory 
legal updates to the rules of the Restricted Stock Unit 
Plan were reviewed in 2021. Although these 
amendments do not change the remuneration policy 
for the Supervisory Board, an executive summary of 
the plan will be submitted to the upcoming 2022 
Annual General Meeting of Shareholders.    

Looking forward, the Supervisory Board will closely 
engage with management on a thorough 
re-assessment of both the short- and long term 
remuneration principles and targets, taking into 
account the impact of current developments on the 
Company’s strategic priorities. In doing so, we will 
continue to collect feedback from shareholders and 
other stakeholders in order to achieve maximum 
alignment on our remuneration policies.

Peter Demchenkov  
Chair of the Nomination and Remuneration Committee      

Remuneration of the 
Management Board

The Supervisory Board resolved that the remuneration 
policy for the Management Board serves as a 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. 

Objectives

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

While developing the remuneration policy, the 
Nomination and Remuneration Committee conducted 
scenario analyses to determine 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-qualified talent 
to lead the Company towards its strategic objectives

To provide for a balanced remuneration package 
that is focused on achieving sustainable financial 
results, that is aligned with the long-term strategy 
of the Company and that will foster alignment of the 
interests of management with those of shareholders 
and other stakeholders, including customers, 
employees and wider society

CORPORATE GOVERNANCE

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REMUNERATION REPORT

168

Remuneration in context

The table below reflects the total remuneration of each member of the Management Board 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. 

Benchmarking

Internal pay ratio

The remuneration of Executive Board members is 
benchmarked against the labour market peer group 
every year. As a company with operations mainly in 
Russia, the reference group created for the 
benchmarking is composed of Russian companies 
equivalent in terms of 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 telecommunications 
(21%), industrial (19%), financial (10%), FMCG (9%), 
transportation and logistics (9%) and other (6%).   

Although external market data provide useful context, 
it is ultimately the responsibility of the Supervisory 
Board to determine remuneration packages at an 
appropriate level that reflect 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 the 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 AGM, the CEO’s total direct 
compensation was set, in case of on-target 
performance, at the 90th percentile.  

As is commonly understood, pay ratios are specific to 
the 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 
seven federal districts in Russia adds to the variety of 
pay within the Company and substantially 
differentiates the average employee compensation 
with 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.

2017

2018

2019

2020

2021

Revenue, RUB bln

1,295

1,533

1,734

1,978

2,205

Company performance

Selling space, ths sqm

5,480

6,464

7,239

7,840

8,410

Number of stores

12,121

14,431

16,297

17,707

19,121

Net profit (pre-IFRS 16), RUB bln

31

29

26

39

49

Share price, $ eop

37.8

24.8

34.5

36.1

26.5

Management Board remuneration (RUB, mln)

I. Shekhterman

344

347

259

275

358

F. Lho

ë

st

28

33

35

44

44

Q. Peer

38

40

Average employee remuneration, RUB

659,344

701,192

754,990

782,079

799,555

Internal pay ratio (CEO vs employee remuneration)  ¹

174

209

211

198

273

Management Board remuneration (RUB, mln)

I. Shekhterman

F. Lho

ë

st

Q. Peer

—

—

—

1 The pay ratio is calculated by dividing the CEO’s total remuneration (base salary and short-term incentive) 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 232 divided by the number of employees on an FTE 
basis. In 2021, the internal pay ratio increased due to the increase in the CEO’s base salary upon his reappointment at the 2021 AGM. 

CORPORATE GOVERNANCE

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REMUNERATION REPORT

169

Summary of remuneration elements and implementation in 2021

Base Salary

Short-Term 
Incentive

Base salaries are in line with compensation 
levels in 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 level: 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

Frank Lho

ë

st

Quinten Peer

RUB 120,000,000

EUR 315,000

EUR 275,000

Enterprise value / EBITDA multiple: 50%

Market share: 45%

Sustainability targets: 5%

Long-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/EBITDA ratio to ensure business 
efficiency and retain focus on prudent 
financial and balance sheet management 

50% of the total award is paid in 2024 
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

Frank Lho

ë

st: N/A

Quinten Peer: N/A

Targets

2021 SUMMARY

POLICY SUMMARY

Elements of remuneration

The remuneration provided to Executive Board 
members consists of the following fixed and variable 
components (the “Total Direct Compensation”): a base 
salary, an annual cash incentive (STI) and a long-term 
cash incentive (LTI). Both the STI and LTI are built 
around performance measures, both financial and 
non-financial, to support the Company’s strategic 
objective of achieving 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 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 case of on-target performance.  

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

30%

30%

40%

Base salary

STI

LTI

Igor Shekhterman

Group targets: 100%

Actual payout: 86.2% of base salary

Frank Lho

ë

st

Group targets: 50%

Divisional targets: 25%

Individual targets: 25%

Actual payout: 61.2% of base salary

Quinten Peer:

Group targets: 50%

Divisional targets: 25%

Individual targets: 25%

Actual payout: 63.2% of base salary

Total Direct Compensation