Corporate
governance

The Management Board has ultimate responsibility for the overall management of the Company and oversees all corporate governance activities. It is accountable for the Company’s pursuit and achievement of corporate goals and objectives, its strategies and policies. The Management Board is responsible for complying with all relevant legislation and regulations, for managing the risks associated with the Company’s activities and for financing and external communication.

In managing X5’s general affairs and its day-to-day operations, the Management Board is supported by the Executive Board, which was established to provide for a leadership team at the level of the Company’s operating subsidiaries in Russia in order to best support X5’s strategy and businesses at the local operating level.

The current members of the statutory Management Board and the Executive Board (the broader management team that handles day‐to‐day strategic, operational and financial issues), including their biographies, are presented in this report. In order to strengthen the Dutch-based operational requirements of the statutory Management Board, Mr. Quinten Peer was appointed as Chief Operating Officer at the level of the Dutch parent company by the 2019 Annual General Meeting of Shareholders.

The Supervisory Board is responsible for supervising and advising the Management Board and overseeing the general course of affairs, strategy and operational performance of X5 and its businesses. It ensures that external experience and knowledge are embedded in the Company’s operations. In performing its duties, the Supervisory Board takes into account the relevant interests of the Company and all its stakeholders, and, to that end, considers all appropriate interests associated with the Company and its affiliated businesses, including corporate responsibility issues that are relevant to the Company. Major business decisions require the approval of the Supervisory Board. The Supervisory Board is responsible for monitoring and assessing its own performance.

The Supervisory Board determines the number of its members. The nine current members, including their biographies.

The Supervisory Board has prepared a profile of its size and composition, taking account of the nature of the Company’s business and its activities and the desired expertise and background of the members of the Supervisory Board. The Supervisory Board evaluates its profile and composition annually. In 2019, the Supervisory Board continued to strengthen its expertise in the area of technical and commercial innovation through the nomination of Alexander Torbakhov, who was appointed as an independent member of the Supervisory Board by the 2019 Annual General Meeting of Shareholders. For further details, please refer to the Supervisory Board report.

The Supervisory Board has prepared a retirement and reappointment schedule to, as far as possible, prevent simultaneous reappointments. The Supervisory Board’s profile and rotation plan can be viewed on the Company’s website.

The Supervisory Board currently has three standing committees: the Audit and Risk Committee, the Nomination and Remuneration Committee and the Innovation and Technology Committee. The members of each committee are appointed by the Supervisory Board and from among its members. Each committee has a charter describing its role and responsibilities and the manner in which it discharges its duties and reports to the full Supervisory Board. These charters are included in the Rules of Procedure of the Supervisory Board, which can be viewed on X5’s website. The Innovation and Technology Committee was established in January 2019 to strengthen the focus of the Supervisory Board on technical and commercial innovation. The Related-Party Committee was dissolved as of 1 January 2020; its responsibilities were integrated into the overall remit of the Audit and Risk Committee.

The Supervisory Board operates a Leadership Diversity Policy that aims for a diverse composition of both the Management Board and the Supervisory Board in particular areas of relevance for X5. This includes diversity of experience, nationality and background. Appointments to the Management Board and Supervisory Board are evaluated against the relevant profile; the existing balance of skills, knowledge and experience on the respective board; and the need for the relevant board to be prepared for disruption and change. Management Board and Supervisory Board members are prompted to be mindful of diversity, inclusiveness and meritocracy considerations when examining and proposing nominations to the Management Board and Supervisory Board. In the selection and appointment of new Management Board or Supervisory Board members, the Supervisory Board will consider a diverse range of candidates. This will also include diversity of gender and age so that, when the final appointment is made, the Supervisory Board can be confident that the most effective candidate has been selected.

Each year, the Supervisory Board conducts an evaluation of its functioning and the functioning of the Management Board. In this context, the Supervisory Board gives careful consideration to the diversity of its own composition, as well as that of the Management Board, so as to be effective in performing its role. The results of the 2019 evaluation of the Supervisory Board and the Management Board is described in the Supervisory Board Report on pages 234–242. In 2019, following the evaluation of the Supervisory Board in the preceding year, Alexander Torbakhov was appointed as a Supervisory Board member to strengthen the Board’s expertise in the area of technical and commercial innovation.

While the Management and Supervisory Boards are currently not balanced with regard to gender, X5 recognises the benefits of gender diversity, and of the importance that is attached to achieving this. We feel that gender is only one part of diversity and future members of the Management Board and Supervisory Board will continue to be selected on the basis of specific experience, background, skills, knowledge and insights. X5 recognises the importance of diversity, including gender, at all levels of the Group and has a very strong track record of developing a critical executive layer of female business leaders. Across all of the Group’s operations, specific diversity targets are taken into account in recruitment, talent development, appointments, retention of employees, mentoring and coaching programmes, succession planning, training and development.

The General Meeting of Shareholders appoints the members of the Management and Supervisory Board from a binding nomination made by the Supervisory Board. The recommended candidate is appointed by the General Meeting of Shareholders unless the nomination is deprived of its binding character by a qualified majority vote of at least two-thirds of the votes cast, representing more than one-half of the issued share capital of the Company.

Members of the Supervisory Board serve for a maximum term of four years from the date of their appointment or a shorter period if determined upon their appointment by the General Meeting of Shareholders or as per the Supervisory Board’s rotation schedule. A Supervisory Board member can be reappointed after their first term of four years for one additional term of four years, followed by two additional terms of two years. A Supervisory Board member may not serve more than 12 years. A Supervisory Board member who directly or indirectly holds at least 10% of the shares in the issued share capital of the Company may hold office for more than 12 years and is eligible for reappointment after that term (see “Compliance with Dutch Corporate Governance Code” in this report).

Members of the Management Board are also elected for a period of four years. Neither the Articles of Association nor the Code limits the total term of office for Management Board members.

Each member of the Supervisory Board and Management Board may, at any time, be dismissed or suspended by the General Meeting of Shareholders. A member of the Management Board may, at any time, be suspended by the Supervisory Board. Such suspension may be discontinued by the General Meeting of Shareholders at any time.

An amendment of the current Remuneration Policy for the Management Board and Supervisory Board is submitted for approval at the 2020 Annual General Meeting of Shareholders. The main purpose of the amendment is to align the Remuneration Policies with the Dutch Act implementing the revised EU Shareholders Rights Directive, as well as other corporate legal updates and current best practices.

In line with the proposed remuneration policy as well as the current remuneration policy, the remuneration of the individual members of the Management Board will be decided by the Supervisory Board upon the recommendation of its Nomination and Remuneration Committee. The remuneration of the members of the Supervisory Board is determined by the General Meeting of Shareholders. The proposed remuneration policies can be found on the Company’s website.

A member of the Management Board or Supervisory Board is required to immediately report and provide all relevant information to the Chairman of the Supervisory Board (and to the other members of the Management Board if it concerns a member of that board) on any conflict of interest, or potential conflict of interest, that they may have with the Company and that may be of material significance to them or the Company.

If a member of the Supervisory Board or a member of the Management Board has a conflict of interest with the Company, that member may not participate in the discussions or decision-making process on subjects or transactions relating to the conflict of interest. A decision taken by X5 to enter into a transaction involving a conflict of interest with a member of the Management Board or a member of the Supervisory Board that is of material significance to them or the Company requires the approval of the Supervisory Board. The Audit and Risk Committee advises the Supervisory Board on handling and deciding on (potential) conflicts of interest and prepares resolutions of the Supervisory Board in relation thereto.

X5 Retail Group N.V. is required to hold a General Meeting of Shareholders within six months after the end of the financial year in order to, among other things, adopt the financial statements, decide on any proposal concerning profit allocation and discharge the members of the Management Board and Supervisory Board from their responsibility for the performance of their respective duties for the previous financial year.

Extraordinary meetings are held as often as the Management Board or the Supervisory Board deems necessary. In addition, shareholders and holders of global depositary receipts (GDRs) jointly representing 10% of the outstanding share capital may ask the Management Board and the Supervisory Board to hold a General Meeting of Shareholders, stating their proposed agenda in detail when doing so.

The powers of the General Meeting of Shareholders are specified in the Articles of Association. Apart from the decisions taken at the Annual General Meeting of Shareholders, the main powers of the General Meeting of Shareholders are to appoint (subject to the Supervisory Board’s right to make binding nominations), suspend and dismiss members of the Management Board and Supervisory Board; to appoint the external auditor; to adopt amendments to the Articles of Association; to issue shares and grant subscriptions for shares; to authorise the Management Board or the Supervisory Board to issue shares and grant subscriptions for shares; to authorise the Management Board or the Supervisory Board to restrict or exclude pre-emptive rights of shareholders upon the issuance of shares; to authorise the Management Board to repurchase outstanding shares in the Company; to adopt the remuneration policy of the Management Board; to determine the remuneration of members of the Supervisory Board; and to merge, demerge or dissolve the Company.

The notice for a General Meeting of Shareholders needs to be published no later than 42 days prior to the day of the meeting. The mandatory record date, establishing which shareholders are entitled to attend and vote at the General Meeting of Shareholders, is set at least 28 days prior to the date of the meeting.

Shareholders and/or holders of GDRs are entitled to propose items for the agenda of the annual General Meeting of Shareholders provided that they hold at least 1% of the issued share capital, or the shares or GDRs that they hold represent a market value of at least EUR 50 million. Proposals for agenda items for the annual General Meeting of Shareholders must be submitted at least 60 days prior to the date of the meeting.

All shareholders and other persons who, pursuant to Dutch law or the Articles of Association, are entitled to attend and/or vote at a General Meeting of Shareholders are entitled to address the General Meeting of Shareholders. X5 uses the Bank of New York Mellon, the depositary for X5’s GDR facility (the “Depositary”), to enable GDR holders to exercise their voting rights represented by the shares underlying the GDRs. As described in the “Terms and Conditions of the Global Depositary Receipts”, holders of GDRs may instruct the Depositary with regard to the exercise of the voting rights connected to the shares underlying their GDRs. Alternatively, upon request of the holders of such depositary receipts, the Depositary will grant a proxy to such holders who wish to vote in person at a General Meeting of Shareholders. Persons who hold a written proxy may represent shareholders at a General Meeting of Shareholders. The written proxy must be duly executed and legalised in accordance with the applicable laws and may be submitted electronically.

Each share confers the right to cast one vote at the General Meeting of Shareholders. There are no restrictions, either under Dutch law or in the Articles of Association, on the right of non-residents of the Netherlands or foreign owners to hold shares or to vote, other than those also imposed on residents of the Netherlands. Resolutions of the General Meeting of Shareholders are passed by a simple majority of the votes cast in a meeting where more than 25% of the issued share capital is present or represented. If 25% or less of the issued share capital is present or represented, a second meeting should be convened no later than four weeks following the first meeting. At the second meeting, no quorum requirement will apply. However, the General Meeting of Shareholders can only resolve on (i) a merger or demerger, (ii) the authorisation to limit or exclude pre-emptive rights and (iii) cancellation of shares with a majority of at least two-thirds of the votes cast if less than 50% of the issued capital is represented in that meeting.

Any distribution of profits to shareholders will be made after the adoption by the General Meeting of Shareholders of the annual accounts of the Company from which it appears that such distribution is permitted. The Company may only declare profit distributions insofar as its net assets exceed the sum of its issued share capital plus any legal reserves required to be maintained pursuant to Dutch law. A loss may only be applied against such reserves to the extent permitted by Dutch law. On a proposal of the Supervisory Board, the General Meeting of Shareholders will determine which part of the profits will be added to the reserves and the allocation of the remaining profits.

On a proposal of the Supervisory Board, the General Meeting of Shareholders may resolve to pay an interim dividend insofar as X5’s net assets exceed the sum of its issued share capital and the reserves that are required to be maintained pursuant to Dutch law, as evidenced by an interim financial statement prepared and signed by all the members of the Management Board. In addition, upon a proposal of the Supervisory Board, the General Meeting of Shareholders may resolve to make distributions to the shareholders out of any reserves that need not be maintained pursuant to Dutch law.

In accordance with the Company’s dividend policy approved in 2017, the Company intends to pay an annual dividend that will be stable or will grow over time, with a target payout ratio of at least 25% of the IFRS full-year consolidated net profit, provided that the Company’s net debt/EBITDA ratio is below 2.0x. Dividends and other distributions that have not been claimed within five years after the date on which they became due and payable revert to the Company.

Detailed information on the dividend policy and dividend history is available on the Company’s website.

According to the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht), any person or legal entity who, directly or indirectly, acquires or disposes of an interest in X5’s capital and/or voting rights must immediately give written notice to the Netherlands Authority for Financial Markets (AFM) if the acquisition or disposal causes the percentage of outstanding capital interest and/or voting rights held by that person or legal entity to reach, exceed or fall below any of the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%.

The following table lists the shareholders on record on 29 February 2019 in the AFM’s public register that hold an interest of 3% or more in the share capital of the Company:

The members of the Management Board and Supervisory Board and X5’s other senior management are subject to the Company’s Inside Information and Dealing Code. This Code contains rules of conduct to prevent trading in X5’s GDRs of shares or other financial instruments when holding inside information or during blackout periods when trading is not permitted (for instance, prior to the publication of quarterly financial results). The Inside Information and Dealing Code can be viewed on the Company’s website.

Under the Inside Information and Dealing Code, members of the Management Board and Supervisory Board must notify the AFM of X5 securities and voting rights at their disposal. These positions can be viewed in the AFM’s public register.

The Company may acquire fully paid shares, or GDRs thereof, in its capital for a consideration only following authorisation by the General Meeting of Shareholders and subject to certain provisions of Dutch law and the Company’s Articles of Association, if:

In 2019, the Management Board was authorised to acquire up to 10% of the shares or GDRs thereof. This authorisation is valid through 10 November 2020. In addition, the Supervisory Board resolved that, in case a purchase of shares or depositary receipts thereof by X5 would lead to X5 holding more than 5% of the shares or GDRs thereof, the Management Board would require the Supervisory Board’s prior approval for such purchase.

Authorisation by the General Meeting of Shareholders is not required if X5’s own shares are acquired for the purpose of transferring those shares to X5 employees pursuant to any arrangements applicable to such employees.

Shares or GDRs thereof held by X5 or a subsidiary may not be voted on and are not taken into account for determining whether quorum requirements, if any, are satisfied.

In order to fulfil the Company’s obligations under the Restricted Stock Unit Plan, the Company from time to time acquires GDRs under a restricted buyback programme, pursuant to an authorisation of the General Meeting of Shareholders in accordance with Article 9 of the Company’s Articles of Association. In March 2019, the Company ­repurchased 46,875 GDRs under the authorisation of the General Meeting of Shareholders held on 10 May 2018.

Shares in X5 may be issued, and rights to subscribe for shares may be granted, pursuant to a resolution of the General Meeting of Shareholders or another X5 corporate body to which the General Meeting of Shareholders has delegated such authority for a time not exceeding five years. In 2019, the General Meeting of Shareholders approved a delegation of this authority to the Supervisory Board relating to the issuance and/or granting of rights to acquire up to 6,789,322 shares (10% of the issued share capital) through 10 November 2020.

Upon the issue of new shares, holders of X5’s shares have a pre-emptive right to subscribe for shares in proportion to the aggregate amount of their existing holdings of X5’s shares. According to the Company’s Articles of Association, this pre-emptive right does not apply to any issue of shares to employees of X5 or a Group company. Pre-emptive rights may be restricted or excluded pursuant to a resolution of the General Meeting of Shareholders or another corporate body of X5 to which the General Meeting of Shareholders has delegated such authority for a time not exceeding five years. The General Meeting of Shareholders has delegated the authority to restrict or exclude the pre-emptive rights of shareholders upon the issue of shares and/or the granting of rights to subscribe for shares to the Supervisory Board through 10 November 2020.

X5's Articles of Association contain rules on the Company’s organisation and corporate governance.

Amending the Company’s Articles of Association requires a resolution of the General Meeting of Shareholders. A proposal to amend the Articles of Association, including the text of the proposed amendment, must be made available to the holders of shares and GDRs for inspection at the offices of X5 as of the date of the notice convening the meeting of the General Meeting of Shareholders until the end of the meeting of the General Meeting of Shareholders at which the proposed amendment is voted on.

The current text of the Articles of Association is available on the Company's website.

According to provision 4.2.6 of the Code, the Company is required to provide a survey of its actual or potential anti-takeover measures and to indicate in what circumstances it is expected that they may be issued.

No special rights of control, as referred to in Article 10 of the EU Directive on takeover bids, are attached to any share or GDR in X5.

There are no important agreements to which the Company is a party and that will automatically come into force or be amended or terminated under the condition of a change of control over the Company as a result of a public offer. However, the contractual conditions of most of X5’s important financing agreements and notes issued (potentially) entitle the banks and noteholders, respectively, to claim early repayment of the amounts borrowed by the Company in the situation of a change of control over the Company (as specified in the respective agreement).

The General Meeting of Shareholders appoints the Company’s external auditor. The Audit and Risk Committee makes a recommendation to the Supervisory Board with respect to the external auditor to be proposed for appointment or reappointment by the General Meeting of Shareholders. In addition, the Audit and Risk Committee evaluates and, where appropriate, recommends the replacement of the external auditor. The Audit and Risk Committee also pre-approves the fees for audit and permitted non-audit services to be performed by the external auditor. The Audit and Risk Committee will not approve the engagement of an external auditor to render non-audit services prohibited by applicable laws and regulations or that would compromise the independence of the auditor. Specific rules relating to non-audit work performed by the external auditor are included in X5’s “Rules on External Auditor Independence and Selection”. This document is available on the Company’s website.

On 10 May 2019, the General Meeting of Shareholders appointed Ernst & Young Accountants LLP as external auditor for the 2019 financial year.

X5 applies the relevant principles and best practices of the Code in the manner as described in this Corporate Governance Report. Committed to a corporate governance structure that best serves the interests of all stakeholders, including shareholders, X5 continues to seek ways to improve and enhance its corporate governance standards in line with international best practices. X5 generally adheres to the Code but does not comply with the following recommendations:

In accordance with best practice provision 2.1.7, at most one Supervisory Board member may represent a shareholder who directly or indirectly holds more than 10% of the shares in the Company.

Both Mikhail Fridman and Andrei Elinson are related to companies that are owned or controlled by companies that ultimately hold 10% or more of the shares in the Company. Stephan DuCharme was a member of the Management Board immediately prior to his appointment to the Supervisory Board in November 2015. These members of the Supervisory Board are, therefore, not considered to be independent within the meaning of the Code.

X5 believes that the non-independent members of the Supervisory Board have in-depth knowledge of the geographic market, of business in general and of retail specifically, as well as a relevant track record in the markets in which X5 operates. This is of particular advantage to X5 and its shareholders. Meanwhile, the Supervisory Board took a further step in improving the ratio of independent to non-independent board members in 2019 by appointing an additional independent member to the Supervisory Board.

In 2015, Stephan DuCharme stepped down as CEO and was appointed as Chairman of the Supervisory Board. Having carefully considered the interests of the Company and its shareholders, the Supervisory Board took the view that these interests are best served by retaining Stephan’s experience and leadership for X5 in a renewed capacity as Chairman of the Supervisory Board. This offers shareholders the greatest continuity and ensures that the Chairman entrusted with X5’s progress has a proven track record, as well as the confidence of critical stakeholder groups and investors.

Mikhail Fridman is the founder and chairman of the Alfa Group Consortium; he was appointed as a member of the Supervisory Board in 2006. In 2017, he was reappointed for a fourth term, thus exceeding the maximum of 12 years prescribed by the Code.

X5 believes that long-term value creation stands to benefit from committed ­shareholders, and that the interests of Supervisory Board members largely coincide with those of the Company. Supervisory Board members generally perform their duties for a prolonged period of time, which fits in well with long-term value creation for the Company.

The Code states: “If the Supervisory Board consists of more than four members, it should designate [...] a Remuneration Committee and a Selection and Appointment Committee.” As it is felt that issues related to selection, appointment and remuneration are interlinked, the Supervisory Board decided that all these activities should be dealt with by one committee: the Nomination and Remuneration Committee.

The Code prescribes that Supervisory Board members may not be awarded remuneration in the form of shares and/or rights to shares. Members of the Supervisory Board of the Company are entitled to restricted stock units (RSUs). The number of annual RSU awards equals 100% of a Supervisory Board member's fixed base fee in the year of the award, divided by the average market value of an X5 GDR on the relevant award date. RSU awards to members of the Supervisory Board are not subject to performance criteria.

X5 acknowledges that the award of shares to members of the Supervisory Board constitutes a deviation from the Code. However, in order to attract and reward experienced individuals with a track record that is of specific relevance to the Company, X5 believes it is necessary to allow members of the Supervisory Board to participate in the Company’s equity-based remuneration plan. This structure aligns the interests of Supervisory Board members with those of shareholders and strengthens their commitment to, and confidence in, the future of the Company. Equity-based awards given to members of the Supervisory Board are not subject to performance criteria and are determined by the General Meeting of Shareholders.

During 2019, the Management Board, supported by the Executive Board, continued to pay special attention to strengthening the design and effectiveness of the risk management and internal control system, ensuring that:

Under the authority delegated by the Management Board, management teams at all levels are responsible for identifying, managing and monitoring relevant risks. The central risk assessment team, supported by the internal control team, facilitates a Company-wide view of risk-relevant issues, helps to develop risk management activities in both business and functional divisions and ensures that the Management Board is continuously and promptly informed of important risk management developments.

During the annual strategy review and budgeting process, management reassessed X5’s risks and developed action plans to mitigate risks and allocate appropriate resources for risk mitigation. The results of performing risk mitigation actions are regularly monitored and are reported to the Audit and Risk Committee quarterly. Risk-appetite boundaries are set through X5’s Strategy, Code of Business Conduct and Ethics, authority matrixes, budgets and other policies. X5’s risk appetite differs by risk areas:

To ensure the effectiveness and completeness of the Company’s internal control system, X5 employs a three-tier model to establish and maintain control:

Values and business principles are crucial elements of the internal environment for risk management. We are committed to values and business principles that contribute to a culture of integrity and long-term value creation, and we have established and internally communicated rules and policies that outline these values and principles.

Data on these objectives can be found in the "Compliance and ethics" and "Risk profile" sections.

Internal Audit provides independent and objective assurance of the impact of the above-mentioned control processes. Systematic and disciplined evaluations of risk management, internal control and governance activities are performed with the help of X5’s Control Heat Map, which lists all the key business processes with an overall evaluation of the effectiveness of internal control in each business process. Following a risk-based audit planning approach, Internal Audit performs evaluations of operational, financial and information systems and tests of controls on key business processes that reveal internal control issues. Internal Audit provides recommendations for the responsible executives in terms of improving controls. Action plans that address control issues raised by Internal Audit are prepared by business process owners and approved by the General Directors of retail formats or the Directors of corporate functions. The timely implementation of management action plans is monitored and followed up on a monthly basis, and the status of addressing these control issues is regularly reported and discussed with the CEO and the Audit and Risk Committee.

The principal risks that may impede the achievement of X5’s objectives with respect to strategy, operations, compliance and reporting matters are described below. It should be noted that there are additional risks that management believes are immaterial or otherwise common to most companies, or that we are currently not aware of.

This Annual Report presents the revised and confirmed risk profile by the Executive Board including risk appetite.

For the designated risk groups, X5 analysed the actual risk impact in 2019 and made predictions about the expected future impact, taking external conditions and trends into account

The Management Board reviewed and analysed the strategic, operational, compliance and reporting risks to which the Company was exposed, as well as the effectiveness of our internal risk management and control systems over the course of 2019. The outcome of this review and analysis has been shared with the Audit and Risk Committee and the Supervisory Board and has been discussed with X5’s external auditors.

The Management Board reviewed the effectiveness of X5’s internal risk management and control systems, based on:

For more information on X5’s risk management activities, internal control, risk management systems and key risks, see the above section “How we manage risk”. The purpose of X5’s internal risk management and control systems is to adequately and effectively manage the significant risks to which the Company is exposed. Such systems can never provide absolute assurance as to the realisation of operational and strategic business objectives, nor can they prevent all misstatements, inaccuracies, errors, fraud and non-compliance with legislation, rules and regulations. These systems do not provide certainty that the Company will achieve its objectives. Based on the annual evaluation and discussion of X5’s internal control and risk management systems and identified risk factors, the Management Board confirms that, according to the current state of affairs and to the best of its knowledge:

In view of all of the above, the Management Board confirms that, to the best of its knowledge, the financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and its consolidated subsidiaries, and the management report includes a fair review of the position on the balance sheet date and of the development and performance of the business during the financial year together with a description of the principal risks and uncertainties that the Company faces.

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

In 2019, the Supervisory Board strengthened its expertise in the area of technical and commercial innovation with the nomination of Alexander Torbakhov. Alexander, who was appointed by the Annual General Meeting of Shareholders on 10 May 2019, has extensive experience in digital transformation processes, most recently as Deputy Chairman of the Executive Board of Sberbank.

Also at the Annual General Meeting of Shareholders, following their nomination in line with the rotation schedule of the Supervisory Board, Peter Demchenkov and Geoff King were reappointed for an additional four-year term, Mikhail Kuchment was reappointed for an additional three-year term and Stephan DuCharme was reappointed for an additional two-year term.

On 18 March 2020, the Supervisory Board nominated Marat Atnashev as a new member of the Supervisory Board. He will succeed Andrei Elinson, who will not be available for reappointment at the 2020 Annual General Meeting of Shareholders, having served since 2016.

Recognising the value and increasing importance of leveraging different points of view from among its members, the Supervisory Board aims for a diverse composition in particular areas of relevance for X5. Supervisory Board candidates are evaluated against the Board’s profile; existing balance of skills, knowledge and experience; and the need for the Board to be prepared for disruption and change. Supervisory Board members are prompted to be mindful of diversity, inclusiveness and meritocracy considerations when examining and nominating Board candidates. This also includes diversity of gender and age so that, when a final appointment is made, the Supervisory Board can be confident that the most effective candidate has been selected. While the Supervisory Board is currently not balanced with regard to gender, it recognises the benefits of gender diversity, and importance is attached to achieving this. The Board is conscious of the public debate and regulatory developments in this respect and takes this into account in its succession planning, in line with the Group’s Leadership Diversity Policy approved in 2018.

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

The Innovation and Technology Committee was established in January 2019 to strengthen the focus of the Supervisory Board on technical and commercial innovation and to address the disruption that is increasingly characteristic of the retail industry. The members of the committee are Alexander Torbakhov (Chairman), Nadia Shouraboura and Mikhail Kuchment.

Upon his appointment by the General Meeting of Shareholders, Alexander Torbakhov also took a seat on the Audit and Risk Committee. In view of new engagements outside the Group, Karl-Heinz Holland stepped down from the Audit and Risk Committee as of 1 June, to be succeeded by Peter Demchenkov.

The Supervisory Board also evaluated the composition of the Nomination and Remuneration Committee. Allowing Stephan DuCharme to focus on his duties as Chairman and specifically the Company’s overall strategic development, sustainability agenda and digital transformation, the Board approved in December his resignation from the Nomination and Remuneration Committee in March 2020, with Geoff King taking his place.

Also in December the Board resolved to dissolve the Related-Party Committee as of 1 January 2020, integrating its responsibilities into the overall remit of the Audit and Risk Committee.

Induction and ongoing 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 and distribution centres to gain deeper knowledge of local operations, opportunities and challenges.

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

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

In 2019, the Supervisory Board held four regular meetings and one additional meeting in January. In addition, resolutions in writing were taken when necessary during the year. For each of the four regular meetings in 2019, the Supervisory Board meeting was preceded by meetings of the Audit and Risk Committee and the Nomination and Remuneration Committee. Meetings of the Innovation and Technology Committee were convened more frequently throughout the year, and meetings of the Related-Party Committee were held if and when necessary.

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

In 2019, 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 2018 Annual Report and financial statements were recommended for adoption by the Annual General Meeting of Shareholders. In between the 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 remains 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 2019, the attendance rate was 100% for both the Supervisory Board and the committee meetings.

In 2019, the Supervisory Board reviewed various matters related to all significant aspects of the Company, its activities and operational results, strategy going forward and the management team and its development.

The 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. Against the background of an increasingly competitive environment and challenging macroeconomic conditions as well as technological disruption, the Supervisory Board focused on measures to strengthen X5’s core businesses, with specific attention for operational efficiencies and improving customer experience through the use of technology and innovation.

As part of the strategy to better meet customer needs and maximise investment returns across each business unit, the Board extensively reviewed the position of the Karusel hypermarket segment within X5’s multi-format strategy. In September, the Board approved transforming this format and focusing on strengthening the Company’s leadership position in its core proximity and supermarket segments.

Throughout the year the Board engaged in an active dialogue on key trends recognised in the retail marketplace and which of these trends would provide opportunities for the Company to accelerate growth. As part of these discussions, and the Board’s oversight in the area of technical and commercial innovation, Board members reviewed various initiatives and new business concepts. Board members visited new Pyaterochka and Perekrestok concept stores, and joined the senior management team for a seminar in Silicon Valley on technology and disruption in retail. Through the work of its Innovation and Technology Committee, the Board also reviewed opportunities to digitalise key functions and processes inside the Company, including store and category management, logistics and HR, to increase efficiency and decrease operational risks.

Meanwhile, as e-commerce and digital transformation becomes an integral part of the business, with Perekrestok.ru and 5Post emerging alongside the existing retail channels, the Board remained strongly focused on striking the right balance between traditional and online retail, profitability targets of new businesses, cost discipline and systematic digitalisation across the Group.

In December, conscious of the fact that the rapidly expanding footprint of the Company goes hand in hand with enhanced social and environmental responsibilities, the Board reviewed and approved the Company’s renewed sustainable development strategy, embedding clearly defined sustainable development goals in its overall business strategy.

As part of the ongoing performance review of the Company’s various functions and business divisions, the main topics reviewed and discussed by the Supervisory Board included:

In addition, the Supervisory Board discussed and/or approved the following (regular) topics throughout the year:

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.

In the autumn of 2019, the Board performed its annual self-assessment, partly through questions building on the Board assessment performed in previous years. Items assessed and subsequently discussed included the profile and composition of the Supervisory Board, oversight of business performance, effectiveness in overseeing strategy, the level of attention to ESG matters, the 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.

The main conclusions of the evaluation were collectively discussed by the Supervisory Board at its meeting in December. The evaluation concluded that the Board felt its work and performance during the year had been positive. There had been an effective process to develop and streamline the Group's strategic priorities, and Board discussions remained open and constructive. Key points of attention resulting from the evaluation included continued focus on the Board’s composition in light of the rapid changes happening in the industry, emphasis on ESG matters as an integral part of the overall strategy, and strengthening the role and effectiveness of the Innovation and Technology Committee. The results of the evaluation, along with the Board’s profile and skill matrix, will be taken into account in future Board nominations.

The Supervisory Board attaches great value to these evaluations. They ensure continuous focus on the quality of the activities, composition and functioning of the Supervisory Board and its Committees and relationship with the Executive Board.

The role of the Audit and Risk Committee is described in its charter, which is available on the Company’s website. On 31 December 2019, the Audit and Risk Committee consisted of Geoff King (Chairman), Peter Demchenkov, Andrei Elinson and Alexander Torbakhov. In 2019, the Committee held four meetings in person. Additional meetings were held by conference call when necessary, for instance to review the publication of the half-yearly results. As a rule, all meetings were attended by the CFO, the external auditor and the internal audit director, while the Chairman and CEO were invited to attend 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 Committee’s focus in 2019 was on, among other things, on overseeing the integrity and quality of X5’s financial reporting and the effectiveness of the internal risk and control systems. The Committee reviewed the Company’s annual and interim financial statements, including non-financial information, quarterly results and related press releases, as well as the outcomes of the year-end audit. The Committee discussed relevant and new accounting standards, with continued focus on the impact of lease accounting under IFRS 16. Throughout the year, the Committee reviewed the level of financial provisions, key movements in the balance sheet, and any contingent liability movements. As part of this review, the Committee paid specific attention to controls and initiatives in the area of working capital management.

Furthermore, the Committee reviewed and approved the audit plans of the internal and external auditors, with a focus on scoping, materiality and key risks. The Committee monitored the progress of the internal and external audit activities, including a quarterly review of internal audit findings and remedial actions, procedures performed by the external auditor and the audit performed at year end by the external auditor. The Committee oversaw follow-up by management on the recommendations made in the internal and external management letters.

The Audit and Risk Committee, together with management, conducted its annual assessment of the functioning and independence of the external auditor. The main conclusions of this assessment were shared with the Supervisory Board for the purpose of submitting the reappointment of the external auditor to the General Meeting of Shareholders.

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. The Committee was informed regularly on compliance and reviewed and received regular updates on the Company’s whistle-blower 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 extensively discussed the effectiveness of the internal control framework. Each quarter, the agenda includes a discussion on 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, mitigate any significant risks or weaknesses, and to build a relevant internal audit plan for 2020.

In 2019, the Committee also continued to review the operational control framework, paying particular attention to stock and fixed assets. Management processes concerning stock-holding and loss levels were examined across all formats.

Throughout the year, the Committee closely monitored the effectiveness of the capital investment process, the appraisal methodology, and the safeguarding of core assets. The Committee also reviewed management actions addressing underperforming stores and impaired assets. Assessing the level of returns from investments, the Committee specifically focused on adapting existing and proven capital investment disciplines and control models to support a greater level of investment in new business areas and technology-based projects which have a different profile of investment risk.

The Committee also discussed other issues, including:

With respect to the external auditor’s management letter about the 2019 financial year, the Audit and Risk Committee confirms that the management letter contained no significant items that need to be mentioned in this report.

The role of the Nomination and Remuneration Committee is described in its charter, which is available on the Company’s website. On 31 December 2019, the Nomination and Remuneration Committee consisted of Peter Demchenkov (Chairman), Stephan DuCharme and Andrei Elinson. The Nomination and Remuneration Committee held six meetings in 2019, including one telephone meeting in January to discuss 2019 performance measures for the Executive Board, and one meeting with the Innovation and Technology Committee in August to review organisational aspects of the Company’s e-commerce strategy. The Chairman of the Audit and Risk Committee and the CEO were invited to attend every meeting, and other members of the Supervisory Board and senior management were invited when necessary or appropriate.

In 2019, 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. The Committee particularly discussed new skills and leadership requirements in light of the rapidly changing environment in which the Company operates, introducing new business models driven by big data, e-commerce and innovation alongside traditional retail. The Committee thoroughly reviewed the talent map and organisation structure in support of the ongoing developments driven by digitalisation and new trends, including the creation of an executive Digital Committee to streamline the Group's activities in this area, the launch of the X5 Digital Academy and development of business units responsible for new trends such as ready-to-eat.

As part of its review of the governance and organisation structure, the Committee remained focused on headcount and cost discipline at the central level, aiming to strike the right balance between the Group's decentralised operating model and the role and size of the Group's Corporate Centre centre as a platform for performing unique functions in support of the Group's businesses. Also, the Committee reviewed and made recommendations in respect of the Group's central leadership and direct reports structure.

The Committee also continued to monitor attrition rates and measures to enhance employee engagement, recognising that employees committed to the best and highest in-store service levels are key factors in the Company’s customer-centric business approach.

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:

In autumn, the Committee reviewed the remuneration policies for the Management Board and the Supervisory Board that were drawn up in accordance with the revised EU Shareholders Rights Directive, as well as the new disclosure requirements for the annual remuneration report, which can be found on pages 243–253. Further details of actual remuneration in 2019 can be found in notes 28 and 29 to the consolidated financial statements.

The role of the Innovation and Technology Committee is described in its charter, which is available on the Company’s website. On 31 December 2019, the Innovation and Technology Committee consisted of Alexander Torbakhov as Chairman of the committee, Nadia Shouraboura and Mikhail Kuchment. The Innovation and Technology Committee held nine meetings in 2019. 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 Innovation and Technology Committee was established in January 2019 to strengthen the focus of the Supervisory Board on technical and commercial innovation and to address the disruption that is increasingly characteristic of the retail industry. In 2019, the Committee reviewed the overall digitalisation strategy of the Company, specific innovation projects and new online business channels. Jointly with the Nomination and Remuneration Committee, the Innovation and Technology Committee discussed organisational and human resource aspects of the digital transformation, including the launch of a dedicated Digital Academy to secure ongoing training for X5 employees.

In terms of online retail channels, the Committee closely monitored the development of Perekrestok.ru, and discussed and reviewed other e-commerce initiatives such as 5Post and Express Delivery. Throughout the year, the Committee also reviewed opportunities to digitalise key functions and processes inside the Company, and discussed and advised management on various innovative in-store and customer data–driven projects. Finally, the Committee held in-depth discussions with management regarding the IT architecture, as well as the organisation and development of the IT function, in support of the Company’s strategy for growth and digital transformation.

In December 2019, the Board resolved to dissolve the Related-Party Committee as of 1 January 2020 and to integrate its responsibilities into the overall remit of the Audit and Risk Committee.

During 2019, the Related-Party Committee consisted of Geoff King (Chairman) and Nadia Shouraboura. In accordance with the Company’s Related-Party Transaction Policy, the Related-Party Committee reviewed transactions with a materiality threshold for either the Company or members of the Supervisory Board, Management Board and Executive Board, transactions that qualify as significant related-party transactions as defined in the policy, and transactions of a recurring nature that are pre-approved by the Supervisory Board.

In 2019, the Related-Party Committee did not convene in person, but transactions were reviewed and/or approved in writing when necessary during the year in accordance with the Related-Party Transactions Policy, provisions 2.7.3 and/or 2.7.5 of the Corporate Governance Code, as well as the rules set forth in Article 10 (Conflicts of Interest) of the rules of procedure of the Supervisory Board, which are available on the Company’s website. Apart from pre-approved transactions agreed on terms that are customary to the market and tested periodically to ensure ongoing competitiveness, there were no transactions with Management Board or Supervisory Board members that were of material significance to the Company and/or to the relevant Management Board or Supervisory Board members.

The Supervisory Board confirms that during 2019 all Supervisory Board members were independent within the meaning of provision 2.1.10 of the Dutch Corporate Governance Code, with the exception of Mikhail Fridman and Andrei Elinson as representatives of the Company’s major shareholder, CTF Holdings S.A., and Stephan DuCharme, who acted as CEO and Chairman of the Management Board until November 2015.

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 will be submitted to the 2020 Annual General Meeting of Shareholders taking into account certain additional disclosure requirements under the Dutch Act implementing the revised EU Shareholders Rights Directive that became effective as of 1 January 2019.

This Annual Report and the 2019 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.

The Supervisory Board recommends that shareholders adopt these financial statements and, as proposed by the Management Board, allocate RUB 30,000 million for dividend payments. The underlying principle of the dividend policy is that at least 25% of the consolidated net profit for the full year has to be placed at the disposal of holders of global depositary receipts for distribution as dividends. The proposed dividend amounts to RUB 110.47 per GDR with a nominal value of EUR 0.25.

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 2019.

The Supervisory Board wishes to express its sincere appreciation for the results achieved and would like to thank the Executive Board and all X5 employees for their continued dedication and efforts in 2019.

In line with the SRD II, both the Management Board and the Supervisory Board must each have a remuneration policy in place. The remuneration policies must be adopted by the General Meeting of Shareholders at least every four years, and any changes to the policies also require shareholder approval.

The level of support by our shareholders and stakeholders is important to us and was taken into account when formulating each remuneration policy. In preparing these policies, the Supervisory Board considered the external environment in which the Company operates, the relevant statutory provisions and provisions of the Dutch Corporate Governance Code, competitive market practice as well as the guidance issued by organisations representing institutional shareholders and input from the Company’s major shareholders.

The Supervisory Board resolved that the remuneration policy for the Management Board serves as a basis for the remuneration policy for the Executive Board. The remuneration policy for the Management Board was most recently amended in 2018 when the General Meeting of Shareholders approved the 2018–2020 long-term incentive plan. The remuneration policy will be resubmitted to the 2020 Annual General Meeting of Shareholders taking into account certain additional disclosure requirements under the SRD II.

The objective of the remuneration policy is twofold:

As such, the remuneration policy supports the long-term development of the Company, while aiming to fulfil all stakeholders’ requirements. While developing the remuneration policy, the Nomination and Remuneration Committee conducted scenario analyses to determine the risks to which variable remuneration could expose the Company.

The remuneration provided to Management Board members consists of the following fixed and variable components (“Total Direct Compensation”): a base salary, an annual cash incentive (STI) and a long-term cash incentive (LTI). Both the STI and the 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.

As outlined below and under “2019 Supervisory Board remuneration”, the remuneration policy for the Supervisory Board was amended and approved in 2019. Supervisory Board fees are set at an appropriate level to attract individuals with the necessary experience, knowledge and ability to make a significant contribution to the Company’s strategy, long-term developments and sustainability. As such, the remuneration policy supports the long-term development of the Company, while aiming to fulfil all stakeholders’ requirements.

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 off against the Company's performance over the five most recent financial years.

As outlined in more detail in the section Strategic progress of the Management Report, X5 continued, in 2019, to implement its strategy of balanced growth, gradually shifting its focus from selling space expansion to growth through constantly evolving customer value propositions, operational efficiencies, digital transformation and new businesses. As such, for the fifth year in succession, and against the background of an increasingly competitive environment and challenging macroeconomic conditions, the Company expanded its footprint in Russian food retail, with the Company’s top line rising by 13.2% year-on-year to RUB 1.7 trillion.

As part of the strategy to better meet customer needs and maximise investment returns across each business unit, the Company launched the transformation of its hypermarket format in September. The Company further strengthened its leadership position in the core proximity and supermarket segments by testing and launching new store concepts, while maintaining focus on quality, efficiency and assortment across the entire store base. Meanwhile, digital transformation became an integral part of the business, with Perekrestok.ru and 5Post emerging alongside the existing retail channels.

The growth and rapidly expanding footprint of the Company goes hand in hand with social and environmental responsibilities. In 2019, the Company strengthened its sustainable development ambitions, embedding clearly defined sustainable development goals in its overall business strategy.

Within the context of these developments, the Nomination and Remuneration Committee continued to reflect on the remuneration policy for the Management and Executive Board to ensure that it is still aligned to support the strategy and long-term growth of the Company. Applying like-for-like sales, return on investment, net promotor score and staff turnover as key annual strategic imperatives to the short-term incentive plan, and sustained leadership in revenue and enterprise value multiples to the long-term incentive plan, we feel that our remuneration policy for the Management Board adequately contributes to the Company’s success in the short term, while also securing the long-term objectives of the Company.

The remuneration of Management Board and 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. 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.

The remuneration of Supervisory Board members is benchmarked against a reference group of Dutch and other European companies that are comparable in size and complexity, as well as Russian and world leading retailers. In order to attract the most talented individuals with the necessary international experience, knowledge and ability, Supervisory Board fees are set between the 50th and the 75th 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 of all other employees.

At the 2019 Annual General Meeting of Shareholders, both Igor Shekhterman and Frank Lhoëst were reappointed for, respectively, two- and four-year terms, while Quinten Peer was appointed as a new director for a four-year term. Upon his reappointment, Mr Lhoëst’s base salary increased in line with compensation levels in peer group companies. Further information on remuneration in 2019 is explained below under "2019 Management Board remuneration".

The table below reflects the total remuneration of each member of the Supervisory Board in the five most recent financial years (in millions of Russian roubles).

Since the last revision of the Supervisory Board’s remuneration in 2010, the Company evolved into a leading Russian retailer, with a Board profile that reflects X5's ambition to be fit for the future. In view thereof, the Supervisory Board proposed an adjustment of the Supervisory Board fees to the General Meeting of Shareholders in 2019, based on an external benchmark analysis commissioned by the Nomination and Remuneration Committee. Further details are reflected below under "2019 Supervisory Board remuneration".

The Management Board remuneration for 2019 is in accordance with the remuneration policy for members of the Management Board.

The following table provides an overview of the Management Board’s remuneration that became unconditional in 2019 or at year end (in millions of Russian roubles).

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

As described earlier in this report, the composition of the Management Board changed in 2019. At the 2019 Annual General Meeting of Shareholders, both Igor Shekhterman and Frank Lhoëst were reappointed for a new term of, respectively, two and four years. Upon reappointment, Mr Lhoëst’s base salary was set at EUR 315,000 in line with ­compensation levels in peer group companies. At the same shareholders meeting, Quinten Peer was appointed on a 50% FTE basis, with an annual base salary of EUR 137,500. In 2020, Mr Peer’s annual base salary amounts to EUR 275,000 on an FTE basis.

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

Short-term incentives are based on results achieved in 2019 and payable in 2020. For 2019, the Supervisory Board determined that 50% of the total on-target bonus opportunity for the CEO and other members of the Executive Board depends on achieving financial performance measures, and 50% on non-financial performance measures, with revenue and profitability thresholds as a condition for payout. Financial performance criteria are like-for-like sales and return on investment (ROI), each equally weighted, reflecting the Company’s strategic direction to balanced growth through CVP improvements, operational efficiencies and digital transformation. As part of the Company’s strategic objective to achieve leadership in both customer and employee recognition, non-financial performance measures are net promotor score (NPS) and staff turnover metrics, each equally weighted. Both financial and non-financial performance measures contribute to the Company’s success in the short term, while also securing the long-term objectives of the Company. X5 does not disclose the actual targets per performance measure, as this is considered to be commercially sensitive information.

For the Company Secretary, the STI is based on individual, function-related performance measures with revenue and profitability thresholds as a condition for STI payout. The total on-target bonus opportunity for the COO of X5 Retail Group N.V. depends on return on investment as a financial performance measure with 30% weight, and individual non-financial performance measures with 70% weight, also with revenue and profitability thresholds as a condition for payout. The target payout as a percentage of base salary is set at a level of 100% for the CEO and 60% for the Company Secretary and the COO of X5 Retail Group N.V.

The achievement of performance targets was assessed and determined by the Supervisory Board for each Management Board member individually. For the 2019 reporting year, the revenue and profitability thresholds as a condition for payout were met.

For Igor Shekhterman (CEO) the achievement levels of financial performance targets set for 2019 were as follows: 58.2% for like-for-like sales and 91.8% for ROI. The achievement levels of non-financial targets NPS and staff turnover were, respectively, 87.3% and 133.4%. Due to achievement of performance targets like-for-like sales and NPS below target thresholds, this leads to a payout level of 56% of target payout (or base salary) for Igor Shekhterman. Taking into account the Company's overall performance in 2019, with strong like-for-like sales growth in comparison to the market, the Supervisory Board applied its discretion to increase the payout with 20% of target payout. This results in a total cash payout of 76% of the target payout (or base salary) for Mr Shekhterman.

For Frank Lhoëst (Company Secretary) the individual performance targets were achieved at target level, which results in a cash payout of 100% of the target payout, or 60% of base salary.

For Quinten Peer (COO X5 Retail Group N.V.) the achievement level of financial performance target ROI was 91.8%. The average achievement level of individual non-financial performance targets was above target. This results in a cash payout of 101% of target payout for Mr Peer, or 60.6% of base salary.

For the CEO, the long-term incentive amount in 2019 was composed of a final deferred payout under the 2015–2018 LTI programme (RUB 37 million) as well as an accrual-based amount under the current 2018–2020 LTI programme (RUB 75 million), in line with IFRS reporting requirements (see note 28 "Staff costs" on pages 310–314).

The 2015–2018 LTI Programme came to an end when targets were achieved in 2017. Under the programme’s deferred payout mechanism, 50% of the total award under the second stage of the programme was paid in 2018, with a final 50% deferred payout in 2019. Payouts were based on achieving and maintaining revenue leadership targets throughout 2018, with an EBITDA threshold to protect profitability.

The current LTI is a cash incentive programme over a three-year period from 1 January 2018 until 31 December 2020, also with an extension component of deferred, conditional payouts in order to maintain the focus on long-term goals and to provide for an effective retention mechanism. Targets under the LTI are structured to align the long-term interests of shareholders and management, with enhanced focus on sustainability and strategic objectives that contribute to long-term value creation for the Company. This is translated into performance criteria geared to leadership in terms of revenue and enterprise value multiple relative to competition. Additionally, the LTI includes thresholds relating to (i) the EBITDA margin to ensure that profitability is not sacrificed and (ii) the net debt/EBITDA ratio to retain focus on prudent financial and balance sheet management. Under the programme, 50% of the total award is paid in 2021 subject to maintaining achieved targets until the end of 2020, while the other 50% is deferred to 2022 with a profitability threshold as a condition for deferred payout.

Members of the Management Board based in the Netherlands do not participate in the LTI Programme.

Members of the Management Board are no longer entitled to restricted stock units or other share-based compensation. The share-based compensation in the table below reflects the restricted stock units awarded to Mr Shekhterman in his previous role as a member of the Supervisory Board.

In 2019, the remuneration policy for members of the Supervisory Board was applied, taking into account the adjusted base fees approved by the 2019 Annual General Meeting of Shareholders.

The following table provides an overview of the Supervisory Board’s remuneration that became uncondi­tional in 2019 or at year end (in millions of Russian roubles).

Supervisory Board fees are set at an appropriate level to attract individuals with the neces­sary international experience, knowledge and ability to make a significant contribution to the Company’s strategy, long-term developments and sustainability. In 2019, the General Meeting of Shareholders approved an adjustment of the Supervisory Board fees based on an external benchmark analysis commissioned by the Nomination and Remuneration Committee. This resulted in the following fee schedule, effective 1 June 2019:

In December 2019, the Board resolved to dissolve the Related-Party Committee as of 1 January 2020 and to integrate its responsibilities into the overall remit of the Audit and Risk Committee.

The share-based compensation reflects the accrued amounts related to the Restricted Stock Unit Plan (see table below).

All remunerated Supervisory Board members are entitled to equity in the form of restricted stock units (RSUs). This structure aligns the interests of Supervisory Board members with those of shareholders and strengthens their commitment to, and confidence in, the future of the Company. Equity-based awards given to members of the Supervisory Board are not subject to performance criteria and are determined by the General Meeting of Shareholders.

The number of RSUs awarded in each given year is based on 100% of the respective Board member’s fixed annual remuneration divided by the average market value  of a GDR on the relevant award date. RSU awards are subject to a three-year vesting period and a further two-year lock-in period. RSU awards to members of the Supervisory Board are not subject to performance criteria and are determined by the General Meeting of Shareholders.

In 2019, following the appointment of Karl-Heinz Holland and Nadia Shouraboura as Supervisory Board members in 2018, the General Meeting of Shareholders approved 2018 RSU awards to Mr Holland and Mrs Shouraboura equal to 100% of their pro rata annual remuneration in 2018 divided by USD 30, the average market value of one GDR as of 21 May 2018. These RSUs were awarded under tranche 9 and will vest in 2021, followed by a lock-in period ending in 2023.

Furthermore, the General Meeting of Shareholders approved the 2019 RSU awards under tranche 10, meaning that the Supervisory Board members Stephan DuCharme, Peter Demchenkov, Geoff King, Mikhail Kuchment, Karl-Heinz Holland, Nadia Shouraboura and Alexander Torbakhov were awarded a number of RSUs with an award date of 19 May 2019 equal to 100% of the gross annual remuneration of the relevant Supervisory Director in 2019 divided by USD 30.87, the average market value of one GDR as of 20 May 2019. The RSUs awarded under tranche 10 will vest in 2022, followed by a lock-in period ending in 2024.

No remuneration has been granted and allocated by subsidiaries or other companies whose financials are consolidated by the Company to members of the Supervisory Board.

The Company has not granted any (personal) loans to, nor has it granted any guarantees or the like in favour of, any of the members of the Management Board or the Supervisory Board.

No variable remuneration has been clawed back.

No severance payments were granted to members of the Management Board or the Supervisory Board.

We will present this remuneration report to the General Meeting of Shareholders in 2020 for an advisory vote. The Supervisory Board will also submit the remuneration policies for the Management Board and the Supervisory Board updated in accordance with SRD II. In 2019, both remuneration policies were applied, and it is the intention that they will be continued in the next financial year.

In 2019, X5 made significant progress in achieving the long-term strategic goals set by the Supervisory Board under the long-term incentive plan. With the programme coming to an end on 31 December 2020, the Nomination and Remuneration Committee will, over the course of 2020, reflect on a programme extension taking into account the Company’s long-term strategic objectives. Meanwhile, due to the rapidly changing environment in which the Company operates, the Supervisory Board recognises the challenge of constantly evolving targets and performance criteria to secure sustainable growth and long-term value creation for the Company.