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Remuneration Reports / Remuneration Report 2013 

Dear fellow shareholder,

It is my great pleasure to be writing to you with details of our remuneration policy and its changes made during the year.

The year 2013 was very difficult as the coal markets around the world were experiencing one of the deepest and longest market adjustments of the last 30 years. This was the ‚new reality‘, and NWR implemented a range of initiatives, including a 10 per cent cut in salaries effective from 1 May 2013 for all Directors. At the beginning of 2014 the reduction was reversed for salaried Directors and stayed in place for Non-Executive Directors.

In the light of the challenging environment, the Company continued reviewing its incentive plans in order to attract and retain key personnel.

In the previous years, any annual bonuses would be paid partly in cash and partly in the form of an award of deferred shares (the ‘Deferred Bonus Award’), which vest three years after the grant under the Company’s Deferred Bonus Plan (the ‘DBP’) adopted in 2011.

The Remuneration Committee felt it important to enhance the Board’s ability to retain and incentivise key employees and, therefore, amended the DBP. The main changes are as follows: flexibility for the Board to grant awards (the ‘Long Term Incentive (‘LTI’) Award’) which are not connected to the amount of the participant’s bonus and to set the vesting period for each award (i.e. the Deferred Bonus Award and the LTI Award); removal of the limit on the number of shares subject to any one Deferred Bonus Award; and inclusion of a general right to cash out awards on vesting. The Directors believe that these changes give the Board the flexibility to adapt to future changes in the business environment, law, tax and market practice.

The name of the amended DBP was changed to the NWR Long Term Incentive Plan (the ‘LTIP’). The LTIP was approved by the Annual General Meeting of shareholders held on 26 April 2013. LTI Awards and Deferred Bonus Awards can take the form of a grant of conditional rights to shares or share options. LTI Awards are on broadly the same terms as Deferred Bonus Awards but they can be granted over such number of shares as the Board or the Remuneration Committee may decide. LTI Awards are conditional on the grant of a Deferred Bonus Award but not otherwise linked to it. LTI Awards can be granted to Executive Directors and members of the senior management team of the Group upon fulfilment of performance criteria approved by the Remuneration Committee at the beginning of each year. In that respect, three levels of attainment are defined in advance: target, stretch and super-stretch, both qualitative and quantitative, the achievement of which will determine the actual amount of any LTI Award. The performance criteria for each level are strongly linked to the Group’s budget and strategy. This, in our view, significantly adds value to shareholders.

The Company failed to meet its performance criteria set for 2013 and, as a result, no bonuses were awarded. Similarly, given the share price no stock options were exercised in 2013 under our Stock Option Plan.

At the Company’s Annual General Meeting held on 24 April 2014 (the ‘2014 AGM’) we are seeking shareholders’ approval of our Directors’ remuneration policy, as set out in the next section of this Remuneration Report. The substance of our policy is as laid out last year with no changes made since the 2013 AGM.

In addition to the above, the Remuneration Committee reviewed the terms of engagement of Dale Ekmark, the new managing director of OKD, appointed on 1 January 2014. We felt that he has made an excellent start but given the current financial situation of the Company, we confirmed his salary being somewhat lower than his predecessor had been earning. We also reviewed the terms of the employment termination of Ján Fabián, the former CEO of OKD, which were in line with market practice and appropriate for his position. Other activities of the Remuneration Committee performed in 2013 are described on pages 75 to 76 of the Corporate Governance Report.

We aim to ensure that remuneration reflects value created for shareholders and other stakeholders, but we also find it important to set the remuneration standards such as to motivate and retain our management and staff. We believe that fair and transparent remuneration principles develop loyalty to the Company, which is even more important in times like these. We are happy to discuss any remuneration matters at any time and hope that we can enjoy your support on the remuneration-related votes at the 2014 AGM.

Bessel Kok
Chairman, Remuneration Committe

This Remuneration Report has been drawn up in line with the UK Corporate Governance Code, Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and the UK Financial Services Authority Listing Rules. The Remuneration Report, prepared by the Remuneration Committee, has been split into two sections. The first section provides a description of the proposed Directors’ remuneration policy for the next three years. This section will be subject to a binding shareholder vote at the 2014 AGM. The second section provides details of Directors’ remuneration for the year ended 31 December 2013. This section will be subject to an advisory shareholder vote at the 2014 AGM.

Directors’ Remuneration Policy

This part of the report sets out the Company’s policy on the remuneration of its Directors and will be proposed for approval by shareholders at the 2014 AGM. Our proposed policy is unchanged from that approved at the 2013 AGM. It will take effect from the day following the AGM and may operate for up to three years.

The Company has a compensation manual which records the remuneration policy for the Directors, outlines compensation principles in key positions within the Group and provides a framework enabling the Board and its Remuneration Committee to carry out their duties in that respect. The compensation manual came into effect on 6 May 2011 and has been amended in the course of 2013 to reflect the LTIP and also the reduction of the Directors’ fees, as described below.

The Remuneration Committee believes that the remuneration policy approved by shareholders in 2013 remains appropriate for 2014. The Remuneration Committee has not consulted with the employees or used any remuneration comparison measurements in formulating the Directors’ remuneration policy as it is a continuation of an existing policy.

Remuneration of Executive Directors

The objective of the remuneration policy is to attract, retain and motivate high value executives by providing well-balanced remuneration packages. The remuneration policy aims to ensure that a competitive remuneration package for the Executive Directors is maintained and benchmarked against other multinational companies based in Europe and operating in global markets. Levels of remuneration should be sufficient to attract, retain and motivate Directors of the quality required to run the Group successfully, but should not be more than is necessary. A significant proportion of Executive Directors’ remuneration will be structured so as to link rewards to corporate and individual performance. There will be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual Directors. No Director may be involved in deciding his or her own remuneration.

The Remuneration Committee sets the contractual terms, salary, bonuses and other benefits of the Executive Directors. It also approves and evaluates the performance criteria set under the Company’s share plans for every bonus year, which is a period during which the annual bonus is awarded, commencing on 1 January and ending on 31 December of the relevant calendar year. The remuneration package for Executive Directors includes a significant variable element in the form of a cash bonus incentive and a long-term incentive in the form of deferred shares and stock options. As explained below, the Remuneration Committee ensures that an appropriate balance between the fixed and performance-related elements of executive remuneration is maintained.

The Remuneration Committee analyses executive remuneration in terms of the pay policy of the Company as a whole, pay and conditions elsewhere in the Group and the overall costs to shareholders. Periodic reporting will ensure that the Remuneration Committee receives the required information and is kept up-to-date with any changes, so that these can be taken into account when considering the remuneration of Executive Directors.

Element of remuneration How it works  How it supports
NWR’s strategy
Maximum which
may be paid
Details of performance
measures
Base salary Salary is paid monthly. It typically includes fees for membership of the Board committees and directorships in other entities of the NWR Group. To ensure remuneration remains effective in supporting the Group’s business objectives, the Remuneration Committee annually reviews base salary levels, taking into account external benchmarks, market conditions, individual performance, Group performance and changes in responsibility. The maximum base salary is EUR 500,000, including any directors’ fees. Not applicable
Benefits in kind The Company offers Executive Directors a range of benefits, such as relocation allowances, car allowance, housing, private medical and accident insurance, life assurance, pension, education for children, personal training and access to external advice when necessary. The non-cash benefits are subject to individual agreements. Executive Directors are not entitled to any benefit upon termination of their employment agreement other than the contractual benefits that apply during the notice period. Offering market-competitive levels of benefits in kind aims to attract and retain executives of high calibre. The total annual value of benefits in kind may not exceed EUR 300,000 for each Executive Director. Subject to that limit, the Remuneration Committee annually reviews the value of benefits in kind. Not applicable
Annual bonus1,3 The Remuneration Committee sets, for the financial year, performance criteria and the percentage of any bonus that will be paid in the form of a Deferred Bonus Award. After the end of the financial year, the Remuneration Committee decides whether an Executive Director is eligible for a bonus in respect of the financial year, determines the extent to which performance criteria have been met and determines the total bonus amount. A portion of a bonus will be paid in cash and a portion will be paid in the form of a Deferred Bonus Award. The Remuneration Committee may attach vesting conditions to the Deferred Bonus Award. It will normally vest three years after grant or such other period as the Remuneration Committee may set. Performance criteria for bonus awards ensure close alignment of remuneration with delivery on key strategic goals. The total bonus amount (including the Deferred Bonus Award) may not be more than 300 per cent of the base salary of each Executive Director. The actual amount is determined on the basis of evaluation of performance criteria by the Remuneration Committee. The full bonus will be paid if the targets for EBITDA, production and OPEX, as budgeted for every year, are all met. Every year the Remuneration Committee sets the thresholds and targets for each criterion. Performance criteria apply cumulatively so no bonus is paid if any of the thresholds are not met. In the opinion of the Board, the targets set for the performance criteria will be commercially sensitive. As permitted by the regulations, they are not being disclosed in advance.
Long Term Incentive Plan
(‘LTIP’): LTI Award2,3
Effective as of 1 January 2013, the LTIP is designed to provide awards in fully paid A shares of NWR Plc which will normally vest three years after the grant date or such other period as the Remuneration Committee may set when the LTI Award is granted. When granting an LTI Award, the Remuneration Committee may attach vesting conditions to it. These may be linked to the performance of the Company, the Director or any other factors. An LTI Award can only be granted if the Director is entitled to a bonus in the year. The LTIP enhances the Board’s ability to retain and incentivise Executive Directors and gives the Board the flexibility to adapt to future changes in business environment, law, tax and best market practice. The aggregate market value (at the time of the grant) of the shares subject to any LTI Award may not exceed 300 per cent of base salary. The amount of the LTI Award is determined by the  Remuneration Committee in accordance with the performance measures.
The LTI Awards will typically be settled by the issue of new shares.
The Company uses a balanced scorecard format, as described below (the ‘Balanced Scorecard’). Three levels of attainment are defined in advance for the grant  of the LTI Awards - target, stretch and super-stretch, the achievement of which over the financial year preceding the year of grant, will determine the actual size of the LTI Awards. An LTI Award at ‘target’ would be 100 per cent of base salary, at ‘stretch’ would be 200 per cent and at ‘super-stretch’ would be at 300 per cent.
The qualifying conditions for the LTI Awards to be granted to the Executive Directors are financial criteria (25 per cent; covering EBITDA, net income, pre-dividend cash flow), operations (25 per cent; covering LTIFR, unit cost, coking coal sales), customers and supplier relationships (12.5 per cent), organisational effectiveness (12.5 per cent) and delivery on growth strategy (25 per cent).
Pension The Company currently offers a contribution (expressed as a percentage of base salary) to a defined contribution pension scheme. The Company does not set aside or accrue amounts to provide pension, retirement or similar benefits. Offering pension allowance helps us attract and retain executives of high calibre. The maximum amount payable is 5 per cent of base salary. N/A
It is the Company’s policy to honour any commitments made to a Director before this remuneration policy took effect or before he or she became a Director. This may include satisfying entitlements to remuneration payments or payments for loss of office.

Footnotes:
(1) The Company adopted the DBP on 8 April 2011. A modification of the DPB allowing for the grant of LTI Awards was approved by the shareholders of NWR Plc and took effect on 26 April 2013. Several other changes that did not require shareholder approval were made at the same time and the name of the DBP was changed to the Long Term Incentive Plan. If, in relation to any Deferred Bonus Award granted before 26 April 2013, there is any conflict between the LTIP and the DBP as they applied on that date, the latter will prevail.
(2) By focusing not only on financial outcomes but also on the operational, marketing and developmental inputs to these outcomes, the Balanced Scorecard provides a comprehensive connection with NWR’s strategy. The Remuneration Committee ensures that these are fully aligned. The Balanced Scorecard consists of quantitative (financial and operational) and qualitative (customers and suppliers, organisational effectiveness and growth strategy) performance criteria, which shall apply as relevant to each Executive Director and his area of responsibility.
(3) In addition to the rules and principles already described in the table above, the following LTIP rules also apply:

Timing of awards: The awards will normally be granted within 42 days of the announcement of theGroup’s results for any period but may be granted at other times (e.g. on recruitment).
Put option: For a period of three years after vesting, the Director has the right to sell shares acquired on vesting and receive at least the market value of a share at the time of vesting. This right lapses earlier if the Director leaves NWR or otherwise sells his shares.
No dividend and no transfer: The Directors are not entitled to vote, to receive dividends or to have any other shareholder rights in respect of shares subject to an award until they are issued or transferred to him. Similarly, they may not, except on death, transfer, assign or dispose of an award, otherwise the award will immediately lapse.
Adjustment: If there is a variation in the Company’s capital (including a capitalisation or rights issue, sub-division, consolidation or reduction of share capital), a demerger, a special dividend or distribution or any other corporate event which might affect the current or future value of any award, the Remuneration Committee may adjust the number or class of shares subject to the award.
Clawback provisions: If the Board considers that extraordinary circumstances have occurred during or after the period over which the predetermined performance criteria have been or should have been achieved, which lead to an unfair result with respect to the grant or vesting of an award, the Board retains the discretionary power to reduce the values or delay the vesting date as appropriate. If any variable remuneration, be it in the form of cash or A shares of NWR Plc, has been paid or awarded or has vested on the basis of incorrect financial or other data, the Board is entitled to recover such remuneration from the Director. This right of recovery exists irrespective of whether the Director was responsible for the incorrect financial or other data or was aware or should have been aware of the incorrectness.
Termination: If the Director leaves employment from the NWR Group due to death, illness or disability, retirement at normal retirement age or early retirement with the agreement of his employer, the Director’s employing company ceasing to be under control of any member of the NWR Group, change of control or authorised leave of absence (‘good leaver’), his award will not lapse and will continue in effect. Alternatively, the Board may decide that it will vest in full on the date he leaves employment. If the Director leaves in other circumstances, his award will lapse. The Board may, at its discretion, decide to treat a Director who leaves employment for any other reason as if he were a good leaver, and vice versa. The Board will not normally exercise this discretion if it would be inappropriate given overall performance of the NWR Group or the Director or for other reasons the Board may determine.
Takeovers: Unless exchanged for a new award, the awards will vest on the date of a takeover. The number of shares in respect of which it vests will be reduced by reference to the period up to the normal vesting date which has elapsed before the date of the takeover and it will lapse as to the balance. A takeover typically occurs where a general offer to acquire shares becomes wholly unconditional or a person obtains control of the Company. Instead of vesting, the awards may be exchanged for a new award to the extent it is accepted by the Director and with the consent of the acquiring company or the Board pays the Director an amount equal to the market value of the shares subject to his award.
Amendments: The Board may at any time change the LTIP in any way including the terms of any award already granted or any bonus condition or vesting condition. Shareholder approval is required for amendments to the advantage of participants which relate to, amongst other things, the people who can be granted the LTI Awards, the limits on the number of shares which may be issued under the LTIP, the individual limits on the LTIP, the adjustment of the LTIP Awards if there is a capitalisation issue, rights issue or open offer, sub-division or consolidation of shares or reduction of capital or any other variation of capital. But amendments to performance criteria and certain other minor amendments can be made without shareholder approval.

(4) In addition to the items in the policy table, there are two arrangements forming part of the on-going policy applicable to the Executive Directors.

Gareth Penny - The option plan of Mr Penny was agreed as a condition of employment, in order to attract and secure a unique and high-quality candidate for the top-level position. On 3 September 2012, NWR Plc granted Mr Penny 250,000 share options over A shares of NWR Plc in three equal tranches (representing an aggregate of 750,000 ordinary A shares). Each share option gives Mr Penny the right to acquire one A share of NWR Plc for an exercise price of EUR 0.01. Each tranche vests equally over three years representing one third of the options each year (first tranche on the first, second and third anniversary of the grant date, second tranche on the second, third and fourth anniversary of the grant date and lastly third tranche on the third, fourth and fifth anniversary of the grant date). The options vest subject to Mr Penny remaining employed by NW Plc. If he ceases to be an employee, all unvested options will immediately vest, unless he ceases by reason of death, illhealth, injury, dismissal by NWR Plc or in connection with any other circumstances determined by the Directors at their discretion. Upon change of control the options lapse and may be, at the discretion of the Directors, replaced by equivalent options in the company that obtains control. The Directors may change the option plan, but changes to the advantage of Mr Penny in the number of shares, beneficiary, exercise price and certain other rights are subject to an ordinary resolution of the general meeting. Adjustments can be made in the event of a rights issue, demergers or other variation of capital in any way the Directors consider appropriate to reflect such variation.

Marek Jelínek, Ján Fabián – Mr Jelínek and Mr Fabián received certain stock options under the Stock Option Plan of the Company (the ‘SOP’). For the details on their SOP awards, please see the ‘Scheme Interests’ table on page 102. Due to the implementation of the DBP, granting of options was discontinued as of 31 December 2010 and the SOP continues only in relation to options granted prior to that date. In connection with the UK redomiciliation, NWR Plc has granted equivalent (rollover) options over NWR Plc A shares to the Executive Directors who participated in the SOP. These rollover options continue on the same terms and conditions as applied to the options granted originally under the SOP (with appropriate adjustments). The vesting period is three years. For each year during the vesting period, one third of the granted options became eligible for vesting. 50 per cent of the options vested if the EBITDA threshold was achieved, and 100 per cent of the options vested if the EBITDA target was achieved. Vesting between threshold and target was on a straight-line basis. 2013 was the last year in which options granted under the SOP became eligible for vesting. Options can be exercised from the vesting date until the eighth anniversary of the date of award. Options, which have not been exercised will lapse on the eighth anniversary of their grant. Options may, however, be exercised early under certain circumstances, including certain terminations of employment and in the event of a takeover (change of control), scheme of arrangement or winding up. Options are not transferable and may only be exercised by the persons to whom they are granted.

(5) Other than as described above, there are no components of the Executive Directors’ remuneration that are not subject to performance criteria.
(6) All of the items now proposed for inclusion in the Directors’ remuneration policy formed part of the previous policy and none of them has been changed.
(7) The remuneration policy for the Executive Directors applies in unchanged form to our key executives, though the levels of awards tend to be lower than those offered to the Executive Directors and their individual performance criteria usually include elements relating to parts of the business for which the individual executive is responsible.
(8) For senior management personnel of the Group, pay comprises base salary, various allowances provided in cash or kind, eligibility for the Deferred Bonus Awards and participation in the SOP before its discontinuation in 2010. Workers and miners are remunerated in line with the collective agreements agreed between OKD’s management and the trade unions. Their pay comprises base tariff wages, holiday and Christmas bonuses and bonuses linked to performance. In addition, they can receive benefits in cash or in kind (such as pension allowance, life insurance, reimbursement of physiotherapies and various leisure activities, cafeteria plans, etc.). Underground workers also receive two weeks of paid holidays in addition to the statutory holiday of the Czech Republic.

Illustration of the application of remuneration policy

We estimate that the level of remuneration received by each of the two current Executive Directors for the first full year in which the policy applies will be, indicatively, at three different levels of performance:

  • Minimum, where only fixed pay (salary, benefits and pension in case of the Executive Chairman) is payable and no long-term performance-related pay accrues;
  • At expectation, fixed pay plus long-term performance-related pay vesting at the levels reasonably expected; and
  • Maximum, fixed pay plus full vesting of all long-term performance-related pay.

Illustration of the application of remuneration policy

The bonus in respect of a financial year is only paid in the following financial year, after the completion of all audit, assurance and approval processes. To illustrate the application of the remuneration policy, the ‘bonus’ amount reflects the bonus earned in respect of the year of employment. Salary, benefits in kind and pension are shown at the estimated cash cost to the Company. Bonus at ‘minimum’ means that none of the performance thresholds is achieved; ‘expectation’ means that every performance condition is achieved at target level and the bonus equals to 300 per cent of the annual base salary as explained in the policy table; ‘maximum’ means that every performance condition is achieved at super-stretch level, the bonus equals to 600 per cent of the annual base salary as explained in the policy table and is the amount at which the bonus payment is capped.

Approach to recruitment remuneration

In general, the starting point for negotiations with new recruits will be the policy described above. However, the Board (or the Remuneration Committee, as appropriate) may provide one-off benefits (or ad hoc share incentive plan awards) to new-joiners for recruitment purposes or to employees (including Executive Directors) upon promotion or for retention purposes. The maximum level of variable remuneration payable to a new recruit or the maximum size of a retention or promotion award is 600 per cent of annual base salary. This would not include any buy-out awards. In addition, performance criteria applicable to the LTI Awards would apply on retention awards.

Service contracts of Executive Directors

Service contracts of Executive Directors provide for payment of salary alone in lieu of notice and statutory severance payment. A right to any benefits accrued or claimed under any share-based incentive plan or pension plan will be determined in accordance with the governing documents of the relevant plan (described above). Any accrued but unpaid holiday pay will be paid on termination. Apart from that no other payments for loss of office will be made. 

The notice periods will be no more than 12 months but different notice periods may be agreed as described below. They are set on a discretionary basis and subject to the Director’s position. Generally, the more specialised the position or the greater its the degree of responsibility associated with it, the longer the period of notice awarded. Among the factors considered by the Remuneration Committee in assessing the period of reasonable notice are length of service and character of employment. 

The service contracts are available at the Company’s registered office. The current contracts provide the following notice periods:

Name Date of appointment Termination date Notice period
Gareth Penny 3 September 2012
Twelve months’ notice by NWR Plc; six
month’s notice by Director
Marek Jelínek 31 March 2011 Six months’ notice by NWR Plc; three
month’s notice by Director
Ján Fabián1
1 January 2013
31 December 2013
Three months’ notice by OKD; three
months’ notice by Director
(1) Mr Fabián resigned as Executive Director with effect from 31 December 2013. His service contract was concluded with OKD and was governed by Czech law. Prior to joining the Board, he was a member of the board of OKD.

Remuneration of Non-Executive Directors

The Remuneration Committee advises the Board in relation to its responsibilities with respect to the remuneration of Non-Executives Directors.

Each Non-Executive Director has entered into a letter of appointment with NWR, the relevant terms of which are set out below.

In accordance with NWR’s Articles of Association, the term of appointment of the Non-Executive Directors is four years, subject to satisfactory performance and re-election when appropriate at the annual general meeting of shareholders. A one-month notice period applies to the termination of each Non-Executive Director‘s letter of appointment. The appointment may also be terminated at any time by the General Meeting. None of the Non-Executive Directors is entitled to any benefit on termination of his or her letter of appointment.

Directors’ fees shall from time to time be determined by the Board, with the proviso that total fees shall not exceed EUR 2 million per annum in aggregate or such higher amount as may from time to time be determined by ordinary resolution of the general meeting of shareholders. The basic annual fee payable to the Non-Executive Directors is reviewed annually by the Remuneration Committee and at least every three years by the Annual General Meeting. As of 1 May 2013, the Non-Executive Directors receive an annual fixed fee of EUR 68,459. This amount reflects the time commitment and responsibilities of the role. In addition to the annual fixed fee, chairmen and members of the committees established by the Board receive the following annual fees:

  Annual Fee (EUR)
Committee Member Chairman
Audit and Risk Management Committee 28,525 57,048
Real Estate Committee2 11,409 22,820
Safety, Health and Sustainability Committee 28,525 57,048
Remuneration Committee 22,820  28,525
Finance and Investment Committee  11,409 22,820 
Nomination Committee 11,409 22,820
(1) As of 1 May 2013, the Board has reduced the basic annual fee by 10 per cent from EUR 76,065 to EUR 68,459 as part of the personnel cash-saving measures. Similarly, all fees for the committee chairmanship and membership have been reduced by 10 per cent. The reduced fees will continue to apply in 2014, which is considered appropriate given the current financial situation of the Company.
(2) Effective from 1 January 2014, the Board resolved to decrease the fees for the chairmanship and the membership in the Real Estate Committee.
(3) The fees are paid pro rata parte in cash upon the end of each quarter.

NWR does not operate an equity plan for Non-Executive Directors and they do not participate in the LTIP; nor may they receive any bonus. Non-Executive Directors are not entitled to any non-cash benefits. No personal loans, guarantees or other similar instruments may be provided to Non-Executive Directors.

Non-Executive Directors may be reimbursed for all reasonable and documented expenses incurred in performing their role.

The Company has not received any views in respect of Directors’ remuneration expressed by the shareholders.

Remuneration of Directors in financial year 2013

The Remuneration Committee is chaired by Bessel Kok (Senior Independent Director). Other members are Hans-Jörg Rudloff (Independent Non-Executive Director) and Zdeněk Bakala (Non-Independent Non-Executive Director) who represents the major shareholder. He remains a member of the Remuneration Committee contrary to provision D.2.1. of the UK Corporate Governance Code due to his unique insights into shareholders’ demands and the Board continues to regard his membership of the Remuneration Committee as essential to the further alignment of Directors’ remuneration with shareholders’ interests.

During the year, the Remuneration Committee did not appoint any remuneration consultants. The Executive Chairman, Mr Penny, provided advice on the approach to awarding annual bonuses under the LTIP and introduced the first set of the performance criteria relevant to the Executive Directors participating in the LTIP. The Chief Financial Officer, Mr Jelínek, attended one meeting of the Remuneration Committee to present the vesting analysis of the performance criteria set for 2012. No other material advice or services were provided to the Remuneration Committee.

Performance and pay

The chart below shows how an investment in the Company’s shares on May 2008 has changed in value over the five financial years. The chart assumes that dividends were reinvested each time they were paid. For simplicity, the chart assumes that the total dividend (i.e. interim and final) was reinvested at the end of the year. The total shareholder return (‘TSR‘) is calculated as the growth in capital from purchasing a share in the Company. TSR is expressed in GBP and the initial investment is one A share purchased at the IPO price of GBP 13.25. The aim of this chart is to provide a comparison of the Company‘s performance with the relevant benchmark (FTSE 350 Mining Index).

Total shareholder return

The pay of the Executive Chairman (who is treated as the CEO for the purposes of this disclosure) for each of those financial years is set out below for comparative purposes:


2009 2010 2011 2012 2013
Executive Chairman ‘single figure’ of total remuneration (EUR)1
Mike Salamon2 1,852,791 2,554,561 2,093,514 1,146,540 N/A
Gareth Penny3 N/A N/A N/A 159,376 466,494
Total 1,852,791 2,554,561 2,093,514 1,305,916 466,494
Annual bonus paid against maximum opportunity (%)
Mike Salamon 0% 0% 0% 0% N/A
Gareth Penny N/A N/A N/A N/A N/A
Long-term incentive vesting against maximum opportunity
Mike Salamon 100% 100% 100% 100% N/A
Gareth Penny N/A N/A N/A N/A 100%
(1) Where the figure includes share or option awards which are not subject to performance conditions tested over more than one year, the face value of such award is included in the year in which it vests or becomes exercisable, calculated by multiplying the number of shares vested by the closing price on the London Stock Exchange (the ‘LSE’) at the date of vesting less the exercise price and converted into EUR at an average exchange rate for the relevant year.
(2) The total remuneration of Mike Salamon includes his salary and the face value of stock options vested in 2009 (264,351 stock options), 2010 (265,150 stock options), 2011 (261,585 stock options) and 2012 (267,019 stock options). Mr Salamon retired on 30 September 2012.
(3) Gareth Penny joined as Executive Director on 3 September 2012. Mr Penny’s remuneration for 2012 includes salary and a sign-on bonus. His 2013 remuneration includes salary,
benefits in kind and the face value of 83,333 stock options vested on 3 September 2013. None of these were linked to any performance criteria.

Percentage change in the Executive Chairman’s remuneration

The table below shows the percentage change in the Executive Chairman’s total remuneration in 2012 and 2013 as it is impracticable to accurately disclose the remuneration of the Group’s employees at a level below that of total remuneration.

Year-on-year change: Executive Chairman1 Year-on-year change: Group employees2
Total remuneration (1)% (2)%
(1) For the purposes of the table above, the remuneration of the Executive Chairman in 2012 relates to Mike Salamon (to 30 September 2012; EUR 230,386) and Gareth Penny
(from 3 September 2012; EUR 125,873).
(2) Relates to all employees of the Group and is on per capita basis.

Single total figures for Executive Directors’ remuneration

The table below shows the pre-tax remuneration of Executive Directors for the fiscal year ended 31 December 2013 and 2012.

large table

Salary and fees (EUR) Taxable benefits (EUR) Bonus (EUR) Value of option 
awards vesting4 (EUR)
Pension (EUR) TOTAL (EUR)
Name 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

Gareth
Penny1

355,343

125,873

9,756

0

0

33,503

74,728

0

26,667

0

466,494

159,376

Marek
Jelínek2

212,573

290,000

80,843

102,198

0

0

-84,307

148,513

0

0

293,416

540,711

Ján 
Fabián3

477,537

N/A

41,029

N/A

0

N/A

-91,554

N/A

0

0

518,566

N/A

 (1) Mr Penny’s contractual annual salary is EUR 400,000. In the period from 1 May until 31 December 2013, his annual salary was reduced by 10 per cent to EUR 360,000 as part of the personnel cash-saving measures. The components of Mr Penny’s taxable benefits were health insurance (EUR 9,756) and liability insurance (EUR 14,942). Mr Penny’s total remuneration includes a face value of 83,333 stock options vested on 3 September 2013 in line with his option plan described in footnote 4 below the policy table. The options were not linked to any performance criteria. They are included in this table to set out all items of Mr Penny’s remuneration in 2013. In line with Mr Penny’s employment contract, the Company contributes, in monthly arrears, 5 per cent of his annual base salary to his personal pension arrangements. In 2013, Mr Penny received an annual fee of CHF 233,659 from Julius Baer Holding Ltd for his non-executive directorship and USD 75,000 for his position on the advisory board of TowerBrook Capital Partners. He also accepted a non-executive directorship in Norilsk Nickel, which he joined during the year.
(2) Mr Jelínek’s contractual annual salary is EUR 290,000. In the period from 1 May until 31 December 2013, his annual salary was reduced by 10 per cent to EUR 261,000 as part of the personnel cash-saving measures. Mr Jelínek’s taxable benefits comprised family health insurance (EUR 3,668), liability insurance (EUR 12,112) and children’s education (EUR 77,175). Mr Jelínek’s total remuneration includes a face value of 19,870 stock options vested on 17 March 2013, 73,963 stock options vested on 24 June 2012 and 29,437 stock options vested on 17 March 2012 in line with his option plan described in footnote 4 below the policy table.
(3) Mr Fabián was Executive Director from 1 January 2013 to 31 December 2013. His contractual annual salary was CZK 10,000,000 (EUR 384,911). As of 1 May 2013, his annual salary was reduced by 10 per cent to CZK 9,000,000 (EUR 346,420) as part of the personnel cash-saving measures. In addition, he also received CZK 56,000 (EUR 2,156) for his directorship on the board of OKD. Upon his resignation on 31 December 2013, in line with his service contract, Mr Fabián received a severance payment of CZK 9,000,000 (EUR 346,420) which is not included in the singe total figures table above. In 2014, also in line with his service contract, he will receive an annual payment of CZK 9,000,000 (EUR 346,420) paid in monthly arrears as a non-compete compensation. The non-compete compensation will be paid in 2014 only. His share awards were dealt with as described on page [XX] below. He did not receive any other termination payments or other payments or benefits after he ceased to be an employee. In 2013, Mr Fabián’s benefits in kind were housing (CZK 508,495/EUR 19,573), liability insurance (CZK 361,156/EUR 13,901) and tax gross-up income (CZK 196,275/EUR 7,555). Mr Fabián’s total remuneration includes a face value of 21,578 stock options vested on 17 March 2013 in line with his option plan described in footnote 4 below the policy table. The amounts stated in the table above and in this footnote 3 were converted from CZK into EUR at the 2013 average exchange rate of 25,98 CZK/EUR.
(4) The face value of share awards vested is calculated by multiplying the number of shares or options vested less the exercise price by the closing price on the LSE at the date of vesting and converted into EUR at an average exchange rate of 0.85 for 2013 and 0.81 for 2012. Where the face value is negative, the total figure shows the actual remuneration. The closing price on the LSE on 3 September 2013 was GBP 0.77; on 18 March 2013 it was GBP 2.45; on 25 June 2012 it was GBP 2.96; and on 16 March 2012 it was GBP 4.47. The LSE was closed on 17 March 2013, 24 June 2012 and 17 March 2012, which were the vesting dates for Mr Jelínek’s and Mr Fabián’s stock options and the closing price is provided for the closest LSE trading day, i.e. 18 March 2013, 25 June 2012 and 16 March 2012.

This table and the associated footnotes have been subject to audit by KPMG Audit Plc.

Information about benefits of Directors

The table below shows the information required by Schedule 5 of Statutory Instrument 2008/410 in relation to the Executive Directors.

Aggregate remuneration (EUR)1 Scheme interests gains (EUR)1
2013 2012 2013 2012
1,203,748 2,756,943 0 2,000,171

(1) The aggregate remuneration includes the annual base salary, bonus, taxable benefits and pension of the Executive Directors.
(2) The scheme interest gains include the gains made by the Directors on the exercise of stock options and assets or money received or receivable under the scheme interests other than the stock options. No stock options have been exercised under the SOP as at the date of this report. There are no other long term incentive plans other than the share plans described elsewhere in this report. The 2012 scheme interests gains include stock options exercised by the former Executive Chairman Mike Salamon under his stock option plan and the value of share awards of the former Executive Director Klaus-Dieter Beck.
(3) One Director (Mr Penny) participates in a defined contribution pension scheme as described elsewhere in this report. There are no other defined contribution schemes and no defined benefit schemes.
(4) Other benefits of the Executive Directors are described elsewhere in this report.

Scheme interests awarded in 2013 and theld by Directors

large table

Type of interest 
and basis of award
Date of grant2 Performance criteria As at 
1 January 2013
As at 31 December 2013 Granted during year Vested during year Lapsed during year Exercise period (SOP) or vesting date (DBP) Exercise price Closing 
price on LSE on the date of grant
Face 
value7
2012

Gareth Penny1

SOP

03.09.12

N/A

750,000

666,667

83,333

03.09.13–03.09.24

EUR 
0.01

GBP 
2.79

GBP 2,092,500

N/A

Marek Jelínek

SOP2

09.05.08

N/A

39,776

39,776

09.05.11–09.05.16

GBP 
13.25

GBP 
14.30

GBP 568,797

0%

SOP2

24.06.09

N/A

221,889

221,889

24.06.12–24.06.17

GBP 2.8285

GBP 
2.88

GBP 639,040

0%

SOP2,3

17.03.10

N/A

88,310

88,310

19,870

9,566

17.03.13–17.03.18

GBP 
7.128

GBP
7.45

GBP 657,910

16%

DBP4

03.03.11

N/A

30,000

30,000

03.03.14

N/A

GBP 
9.79

GBP 293,700

N/A

Ján Fabián5

SOP2

09.05.08

N/A

51,335

51,335

09.05.11–09.05.16

GBP 
13.25

GBP 
14.30

GBP 734,091

0%

SOP2

24.06.09

N/A

233,986

233,986

24.06.12–24.06.17

GBP 2.8285

GBP 
2.88

GBP 673,880

0%

SOP2,3

17.03.10

N/A

95,903

95,903

21,578

10,389

17.03.13–17.03.18

GBP 
7.128

GBP 
7.45

GBP 714,477

16%

DBP6

16.05.12

N/A

63,621

63,621

16.05.15

N/A

GBP 
3.41

GBP 216,948

N/A

DBP6

12.04.13

N/A

110,913

110,913

12.04.16

N/A

GBP 
0.72

GBP 79,858

N/A

(1) Mr Penny was granted options under his stock option plan. Details of this plan can be found in the footnotes to the table in the ‘Remuneration of Executive Directors’ on page [XX].
(2) All options under the SOP were granted for no consideration. The grants of options were not subject to performance conditions (as opposed to their vesting, where the budgeted EBITDA thresholds and targets were used). Due to discontinuation of the SOP at the end of 2010, no options were granted from 2011 onwards.
(3) One third of Mr Jelínek’s and Mr Fabián’s stock options granted in 2010 vested at 67.50 per cent since the actual performance was between the relevant EBITDA threshold and target performance condition set for 2012.
(4) All DBP awards shown in this table were granted under the DPB rules as they applied on the date of such award. In the absence of a transitional arrangement for equity incentives to Executive Directors who participated in the DBP on that date, for their performance in financial year 2010 the board of NWR NV resolved, on 3 March 2011, on an ad hoc grant of 30,000 deferred NWR NV A shares to Mr Jelínek. There are no performance conditions attaching to this award. The deferred shares, which have been rolled over to A shares of the Company, will vest three years after grant, provided that Mr Jelínek is employed by the Group on the vesting date.
(5) Mr Fabián resigned as Executive Director with effect from 31 December 2013. The Remuneration Committee has resolved that he is considered a ‘good leaver’ for the purpose of the SOP and the DBP. As a result, he may exercise stock options in line with the SOP rules and will receive the deferred shares in line with the DBP rules. When considering this, the Remuneration Committee took into the account that Mr Fabián led OKD through one of the most difficult years in OKD’s history and successfully set in motion the necessary transformation of OKD. Among OKD’s achievements under his leadership are successful cost containment, continued improvements in safety performance, centralisation of mine management, and the signing of a new collective agreement with OKD’s trade unions for the next five years.
(6) The DBP award granted to Mr Fabián on 16 May 2012 and 12 April 2013 were part of his bonus for 2011 and 2012, respectively.
(7) The face value is calculated by multiplying the number of shares by the closing share price on the LSE at the date of grant. The difference between the closing price and the exercise price of the stock options under the SOP was caused by the calculation of the exercise price, which was equal to the average opening value of an A share on the LSE on the five business days preceding the date of grant.

This table and the associated footnotes have been subject to audit by KPMG Audit Plc.

Single total figures for Non-Executive Directors’ remuneration

large table

Annual fee1 (EUR) Committee chairmanship annual fee1 (EUR) Committee membership annual fee1 (EUR) Total compensation (EUR)
Name 2013 2012 2013 2012 2013 2012 2013 2012

Zdeněk Bakala2

70,959

76,065

0

27,526

31,311

16,011

102,270

119,602

Peter Kadas2

70,959

76,065

20,875

25,355

0

0

91,834

101,420

Klaus-Dieter Beck3

26,571

N/A

0

0

0

0

26,571

N/A

Pavel Telička4

70,959

76,065

0

0

0

0

70,959

76,065

Kostyantin Zhevago5

70,959

76,065

0

0

0

0

70,959

76,065

Alyson Warhurst6

46,993

N/A

0

N/A

18,053

N/A

65,046

N/A

Bessel Kok

70,959

76,065

88,699

89,585

11,702

23,697

171,360

189,347

Hans-Jörg Rudloff

70,959

76,065

0

0

53,182

57,049

124,141

133,114

Steven Schuit

70,959

76,065

0

0

88,636

95,082

159,545

171,147

Barry Rourke

70,959

76,065

82,785

66,721

29,435

42,708

183,179

185,494

Paul Everard

70,959

76,065

59,132

63,387

29,361

31,694

159,452

171,146

(1) As of 1 May 2013, the basic annual fee and the fees for committee chairmanship and membership have been reduced by 10 per cent as part of the personnel cash-saving measures.
(2) Messrs. Bakala and Kadas waived their fees for the whole of 2013 and 2012. Mr Bakala’s fee for 2012 includes a pro-rata fee for the chairmanship in the Remuneration Committee until 13 November 2012 when he became a member.
(3) Mr Beck resigned as at 31 March 2013.
(4) Mr Telička was the co-founder and director in charge of the Brussels office of BXL Consulting Ltd, which provided certain consultancy services to NWR. The agreement was terminated on 31 May 2013. For further details regarding these contracts, see the ‘Related Party Transactions’ section of this 2013 Annual Report. In addition to his directorship fee, he received a monthly fee of EUR 20,000 in connection with his appointment as Head if the Committee for Transformation established by the Board on 1 September 2013.
(5) Mr Zhevago agreed to waive his annual fee for 2012 and 2013 for the benefit of a charity. He resigned on 24 February 2014.
(6) Dr Warhurst joined the Board on 26 April 2013.

This table and the associated footnotes have been subject to audit by KPMG Audit Plc.

Directors’ shareholding and share interests

The table below sets out information pertaining to the shares held by the Directors in NWR and their connected persons. There have been no changes in the interests of each Director in the Company’s shares between 31 December 2013 and the date of this report. The Company does not require the Directors to own shares in the Company.

Name At 1 January 2013 At 31 December 2013

Gareth Penny

750,000 unvested options which are not subject to performance conditions

750,000 options which are not subject to performance conditions, out of which 83,333 options are vested but unexercised

Marek Jelínek

7,075 shares, 349,975 options under the SOP, out of which 320,539 options are vested but unexercised, and 30,000 deferred shares under the DBP which are not subject to performance conditions

7,075 shares, 340,409 options under the SOP, which are vested but unexercised, and 30,000 deferred shares under the DBP, which are not subject to performance conditions

Ján Fabián

4,600 shares and 381,224 options under the SOP, out of which 349,257 options are vested but unexercised, and 63,621 deferred shares under the DBP, which are not subject to performance conditions

4,600 shares, 370,835 options under the SOP, which are vested but unexercised, and 63,621 deferred shares under the DBP, which are not subject to performance conditions

Zdeněk Bakala1

0

0

Peter Kadas1

0

0

Klaus-Dieter Beck2

12,490 shares

N/A

Pavel Telička

0

0

Kostyantin Zhevago

0

0

Alyson Warhurst

0

0

Bessel Kok

54,308 shares

54,308 shares

Hans-Jörg Rudloff

26,589 shares

26,589 shares

Steven Schuit

25,843 shares

25,843 shares

Barry Rourke

55,843 shares

55,843 shares

Paul Everard

67,843 shares

67,843 shares

(1) Please refer to the ‘Shareholder Information’ on page [XX ] in respect of the individual interests of entities affiliated with Messrs.Bakala and Kadas in the A shares and B shares of NWR.
(2) Mr Beck resigned as at 31 March 2013. He owned 12,490 Company’s shares as at that date.

This table has been subject to audit by KPMG Audit Plc.

Relative importance of spend on pay

The table below shows the actual expenditures of the NWR Group.

2013 (EUR) 2012 (EUR) Difference (EUR)
Remuneration of the NWR Group employees: 298,707,896 377,143,612 (78,435,716)
Distribution to shareholders 0 34,449,632 (34,449,632)
Other significant distributions of profit or cash-flow:
Capital expenditure 109,271,998 230,999,461 (121,727,463)

The year-on-year reduction in the remuneration costs of the NWR Group employees results from the 10 per cent cut in salaries across the Group, a 5 per cent decrease in the headcount and a change in employee benefit assumptions, resulting in lower personnel expenses and the completion of negotiations with the trade unions and the execution of a new Collective Bargaining Agreement with employees, which reduced the overall employee benefit liability of the Group. The significant difference between the remuneration of Executive Directors in 2013 and 2012 was due to the payments related to the retirement of Klaus-Dieter Beck, the Executive Director and the former CEO of OKD, during 2012.

Capital expenditure is featured in the table to assist in understanding the relative importance of spend on pay as the Directors have a choice whether to distribute profits and cash-flows by way of dividend or reinvest these in the assets base to maintain or improve the operational health of the Company.

Other Required Disclosures

Payments to former Directors

The Company has a contractual arrangement with Ján Fabián, as described in footnote 3 to the table ‘Single total figures for Executive Directors’ remuneration’ on page 106.

No other payments of money or any other assets were made during 2013 to any former Director of the Company.

Payments for loss of office

Except as described above, there have been no payments in relation to loss of office during 2013. 

These disclosures have been subject to audit by KPMG Audit Plc.

Voting at the 2013 AGM

At the AGM on 26 April 2013 three votes were considered in relation to Directors’ remuneration: the annual advisory vote on the Directors’ Remuneration Report and the separate votes to approve the changes to the rules of the DBP and the amendment of the terms of the options granted to Gareth Penny.

Resolution Votes for  (and percentage  of votes cast) Votes against 
(and percentage 
of votes cast)
Votes withheld Total votes
Remuneration Report 168,677,731
(92.49%)
13,686,540
(7.51%)
200
(0.00%)
182,364,471
(100%)
Changes to the DBP 168,697,849
(88.62%)
21,657,291
(11.38%)
9,331
(0.00%)
190,364,471
(100%)
Amendment of the terms of the options 
granted to Gareth Penny
170,258,009
(89.97%)
18,980,297
(10.03%)
200
(0.00%)
189,238,506
(100%)

Directors’ remuneration in 2014

The remuneration policy for Directors for 2014 is unchanged to any significant degree from that in force in recent years and the Company intends to follow it in 2015 as well. Some elements of pay for Executive Directors are subject to the achievement of performance conditions. At its January 2014 meeting, the Remuneration Committee considered the budgeted EBITDA target for 2014, which will have to be met for the bonuses to be payable to the Executive Directors under the LTIP. It further considered the Balanced Scorecard for 2014, where the performance criteria for each level are strongly linked to the Group’s budget and strategy. The principles of the Balanced Scorecard are fully explained in the ‘remuneration policy’ table on page 101. In the opinion of the Board, the targets set for the performance criteria will be commercially sensitive. As permitted by the regulations, they are not being disclosed in advance and there will be full retrospective disclosure in the 2014 Annual Report and Accounts, if any bonuses have been paid in relation to 2014. The Committee also discussed a possible remuneration of the input required to deliver the ongoing capital review of the NWR Group. This will be properly considered during the year and the incentive plan, if any, will be subject to the limits included in the remuneration policy. Other than that, no material salary increases are expected across the Group for 2014.

This Remuneration Report was approved by the Board on 18 March 2014.