Remuneration Policy of Orange Polska S.A.

Corporate governance

Remuneration Policy of Orange Polska S.A.

The strategy of Orange Polska S.A. is based on building and maintaining high customer satisfaction, while providing a full range of the best quality telecommunication, multimedia and specialised ICT services fitting both household and business needs, as well as offering extensive connectivity and high customer relationship standards. The Remuneration Policy contributes to implementing the Company’s comprehensive strategy. By enabling the recruitment, retention and motivation of the best managers and professionals in the specialised areas existing in Orange Polska S.A. it provides people prepared to achieve the strategic goals of the Company.

While recognising that employees are a key asset of the Company, the Policy supports the creation of favourable conditions in the digital work environment by stimulating the commitment to the Company’s objectives, employee development and use of flexible work methods.

Remunerations within Orange Polska S.A. are compared to those offered by peer companies in the market. The remuneration level depends on the Company’s financial results, and on the employee’s individual contribution and performance

Remunerations are determined in a manner ensuring balance and consistency across the Orange Group. Our Remuneration Policy complies with the labour law and corporate governance regulations.

The remuneration system consists of the following components:

Basic salary;
Performance bonus;
Discretionary bonuses;
Benefits.

Employees leaving the Company under the voluntary departure programme are offered severance pay. The terms of severance pay for employees are determined in a separate agreement with trade unions in compliance with the law, whereas the terms of severance pay for the managers excluded from the Intragroup Collective Labour Agreement are settled in individual agreements and codified in their employment contracts.

Terms of remuneration for Orange Polska S.A.’s employees covered by the Intragroup Collective Labour Agreement are determined in co-operation with trade unions.

1. Basic salary

Basic salary terms take into account the job remuneration standards related to the scope of tasks assigned to a particular job position as well as the market value of the work performed. Orange Polska S.A. monitors the remuneration market by comparing, at least annually, the Company’s salaries and remuneration practices to those adopted by the Polish market leaders, particularly ICT companies.

Orange Polska S.A. ensures the consistency of remuneration between job positions by taking into account the managerial and expert skills involved as well as job comparability between various parts of the organisation.

Orange Polska S.A. develops remuneration terms based on non-discrimination, particularly on the grounds of gender, age, disability, race, religion, nationality, political opinion, trade union membership, ethnic origin and sexual orientation.

Individual basic salaries are determined in the following process:

Annual remuneration reviews, taking into account the evolving work standards of various professional groups and each employee’s contribution to the achievement of goals;
Promotions;
Recruitment arrangements for candidates assuming their duties in a new professional area;
Management of the risk of attrition of the most qualified employees leaving for the competition

Management Board Members and Executive Directors

The Remuneration Committee of the Supervisory Board recommends the terms of employment, including the amount of basic salary, while taking into account the following aspects:

scope of responsibilities and complexity of the particular job position;
equality (employees with similar responsibilities, competence, experience and previous performance receive comparable remuneration);
market competitiveness;
individual contribution.

Based on the Remuneration Committee’s recommendations, the Supervisory Board determines the basic salary of the Management Board Members, while the Management Board determines the basic salary of the Executive Directors.

2. Performance bonus

he purpose of the bonus system is to motivate employees to achieve high performance by attaining the predefined and agreed goals which support the implementation of the Company’s strategy and growth of customer satisfaction. The system of goals stimulates co-operation among employees and business units by setting some solidarity goals in addition to individual ones.

Orange Polska S.A.’s bonus system is aligned with the specifics of the tasks performed by particular functions, which results in different levels of bonuses:

Senior managers have a high share of bonuses in their total remuneration;
Employees with sales goals have higher bonus or commission levels in the total remuneration than those without such goals.

For key managers, bonus is more related to the Company’s performance, and depends more on the achievement of solidarity goals shared by all, whereas for experts/line managers, bonus is related to their individual performance and depends less on the solidarity components shared by the particular function or the entire Company.

The goals and bonuses are set for periods closely linked to the budgeting cycle.

All senior managers and line managers in the support functions receive bonuses on a semi-annual basis. Employees in the support functions, sales line managers and sales employees receive bonuses/commissions on a quarterly or monthly basis.
The detailed bonus terms are defined in the relevant Bonus Regulations.

Management Board Members and Executive Directors

Bonuses of the Management Board Members and Executive Directors depend on the attainment of goals based on the Company’s long-term strategy and on financial performance. Solidarity goals delegated to managers are related to EBIthA and revenue ratios for the whole Company or particular segments of its activity as well as customer satisfaction from Orange services. Individual goals are related to functional performance and management quality.

The performance and bonuses of individual Management Board Members and Executive Directors are monitored directly by the Remuneration Committee of the Supervisory Board.

A new element that was introduced in 2017 is a long-term incentive program dedicated to key managers, including the Management Board Members and Executive Directors. The success in the programme is measured as an increase in the Company’s value and customer satisfaction. Participation in the programme is voluntary and requires managers to contribute their own resources. The programme will be settled in the first half of 2021.

3. Discretionary bonuses

The Company’s long-term strategy is based on innovation and commitment to outstanding performance.

Discretionary bonuses encourage employees to get involved in the development of innovative solutions, implementation of strategic projects and cross-functional co-operation. Owing to this scheme, employees can be rewarded for achievements which exceed the expectations defined in their periodic goals.

Discretionary bonuses are awarded twice a year by the CEO or other Board Members or Executive Directors for outstanding achievements.

4. Benefits

In order to improve the quality of life and promote employee integration, Orange Polska S.A. provides a broad package of market-competitive benefits to its employees, building a valuable offer which supports employee recruitment and retention.

A unique benefit for employees is their eligibility for the Employee Pension Fund, which is financed by Orange Polska S.A. The programme is an employee pension scheme (Orange Polska S.A. Employee Pension Fund).

The key areas influenced by Orange Polska S.A. through benefit schemes are as follows:

health and physical activity;
financial stability;
improved quality of life;
employee development

Orange Polska S.A. wants all its employees to be the ambassadors of the Orange brand; therefore. it provides them with access to its own products and services.

The Remuneration Policy shall not constitute the basis for any claims by the Company’s employees or members of the Company’s governing bodies. The detailed terms of remuneration are regulated by individual employment contracts and the Company’s by-laws.

Management Board and Supervisory Board Compensation

Persons that were Members of the Management Board of the Company as at 31 December 2018

	12 months ended 31 December 2018
(PLN ‘000)	Fixed compensation expense in 2018	Variable compensation expense in 2018¹	Variable compensation expense in 2018	Additionally: Variable compensation expense in 2017, paid in 2018
Jean-François Fallacher	2,849	923	3,772	631
Mariusz Gaca	1,683	739	2,422	395
Jolanta Dudek	692	415	1,377	210
Jacek Kowalski	1,183	529	1,712	274
Bożena Leśniewska	1,348	612	1,348	287
Maciej Nowohoński	1,260	511	1,771	248
Witold Drożdż	156	86	242	-
Piotr Jaworski	159	85	244	-
Total	9,600	3,900	13,500	2,045

¹ Includes bonuses accrued in 2018 to be paid in 2019, excludes bonuses accrued in 2017 and paid in 2018.

Persons that were Members of the Management Board of the Company as at 31 December 2017

	12 months ended 31 December 2018
(PLN ‘000)	Fixed compensation expense in 2017	Variable compensation expense in 2017¹	Variable compensation expense in 2017	Additionally: Variable compensation expense in 2016, paid in 2017
Jean-François Fallacher	2,831	973	3,804	391
Mariusz Gaca	1,697	747	2,544	339
Jolanta Dudek	908	431	1,339	194
Jacek Kowalski	1,196	580	1,776	271
Bożena Leśniewska	1,223	597	1,820	239
Maciej Nowohoński	1,231	552	1,783	271
Total	9,086	3,980	13,066	1,705

¹ Includes bonuses accrued in 2017 and paid in 2018, excludes bonuses accrued in 2016 and paid in 2017.

Person who was a Member of the Management Board of the Company in 2017 and in previous years

	12 months ended 31 December 2018
(PLN ‘000)	Fixed compensation expense in 2017	Variable compensation expense in 2017¹	Variable compensation expense in 2017	Additionally: Variable compensation expense in 2016, paid in 2017
Piotr Muszyński ²	5,821	818	6,639	359
Total	5,821	818	6,639	359

¹ Includes bonuses accrued and paid in 2017, excludes bonuses accrued in 2016 and paid in 2017
² Compensation until the termination date (including post-employment benefits).

The Supervisory Board compensation was as follows

(PLN ‘000)	12 months ended 31 December 2018	12 months ended 31 December 2017
Maciej Witucki	431	431
Gervais Pellissier ¹	-	-
Marc Ricau ¹	-	-
Dr Henryka Bochniarz	220	214
Thierry Bonhomme ³	18	-
Federico Colom Artola ¹	-	-
Jean-Marie Culpin ^{1 2}	-	-
Eric Debroeck ¹	-	-
Ramon Fernandez ¹	-	-
John Russell Houlden	394	394
Prof. Michał Kleiber	215	215
Patrice Lambert-de Diesbach ¹	-	-
Dr. Maria Pasło-Wiśniewska	212	212
Dr. Wiesław Rozłucki ¹	212	212
Valérie Thérond ^{1 2}	-	77
Jean-Marc Vignolles ¹	-	154
Total	1,811	1,788

¹ Persons appointed to the Supervisory Board of the Company employed by Orange S.A. do not receive remuneration for the function performed.
² Persons that were not Members of the Supervisory Board of the Company as at 31 December 2018 but were Members of the Supervisory Board of Orange Polska S.A. in 2017.
³ Person appointed to the Supervisory Board of the Company and employed by Orange S.A., whose employment in Orange S.A. was terminated during the year. For the period of employment in Orange S.A., remuneration for the function in the Supervisory Board of Orange Polska S.A. was not due, while it was due after the termination of employment in Orange S.A.

The Management Board Members and Executive Directors are entitled to a variable remuneration component equal to 50% of their annual basic salary in case of 100% goal achievement. In some cases, if performance is higher than 100%, the variable remuneration component may exceed 50% of the annual basic salary. The variable remuneration component is based on the achievement of Orange Polska’s Revenues, adjusted EBITDA and specific telco indicators. As regards termination of employment, the termination notice period for Management Board Members is 6 months and they receive basic salary during that period.

In addition, they are entitled to one-off severance pay equal to 6 monthly basic salaries. All Management Board Members shall restrain from any competitive activity for 12 months after the termination of employment, and they are entitled to compensation for this ban equal to 6 monthly basic salaries.

In addition, the President of the Management Board is entitled to the Stretch Bonus based on the adjusted EBITDA as a financial trigger.

Furthermore, those Management Board Members and Executive Directors who are expatriates are eligible for benefits connected with staying in Poland as foreigners, which are included in the Orange Group International Mobility Policy package and payable on a one-off basis or throughout the year. These include housing allowance, plane tickets, French social insurance premiums, etc.

Orange Polska S.A. Incentive Programme in the form of phantom shares settled in cash

On September 4, 2017, the Supervisory Board of Orange Polska S.A. adopted the Orange.one Incentive Programme for the key executives of Orange Polska S.A., including the Management Board Members, based on derivatives (phantom shares), where the underlying instrument is the price of shares of Orange Polska S.A. on the regulated market maintained by the Warsaw Stock Exchange.

According to the Programme Regulations, Members of the Management Board are eligible to voluntary purchase of a total of 370,000 phantom shares of PLN 1 each from the initial pool, and they will acquire additional blocks of phantom shares after meeting the conditions for the average price of the shares of Orange Polska S.A. and the NPS ranking. A total maximum number of phantom shares in additional pools will be 126,000 and 54,000, respectively. Phantom shares will be bought back at the average price of the shares of Orange Polska S.A. in the first quarter of 2021, provided that it is not less than the average price of the shares of Orange Polska S.A. in the third quarter of 2017, which amounted to PLN 5,46.

If the conditions for additional blocks of phantom shares are not met, the phantom shares will not be bought back and the participant will lose the invested funds. The table below presents the number and payment cost based on the phantom shares granted by Orange Polska S.A. to the Management Board Members (included in the Orange Polska’s costs).

	Options for additional phantom shares
	Phantom shares - initial pool (number)	Condition of the share price (number)	Condition of NPS (number)	The cost of sharebased payments for 12 months till December 31, 2017 (PLN ‘000)	AThe cost of sharebased payments for 12 months till December 31, 2018 (PLN ‘000) ¹
Jean-François Fallacher	70,000	21,000	9,000	14	84
Mariusz Gaca	50,000	21,000	9,000	11	63
Jolanta Dudek	50,000	21,000	9,000	14	84
Jacek Kowalski	50,000	21,000	9,000	14	84
Bożena Leśniewska	50,000	21,000	9,000	14	84
Maciej Nowohoński	50,000	21,000	9,000	14	84
Witold Drożdż	50,000	21,000	9,000	-	30
Piotr Jaworski	50,000	21,000	9,000	-	30
Total	420,000	168,000	72,000	69	459

¹ For cost calculation assumptions please see Note 15.2 to the Orange Polska Group IFRS Consolidated Financial Statements for 2018.

Persons that were Members of the Management Board of the Company in 2017 and in previous years

	Options for additional phantom shares
	Phantom shares - initial pool (number)	Condition of the share price (number)	Condition of NPS (number)	The cost of sharebased payments for 12 months till December 31, 2017 (PLN ‘000)
Piotr Muszyński	50,000	-	-	66
total	50,000	-	-	66

Long Term Incentive Plan (LTIP) of the Orange Group

The table below presents the number of shares granted by Orange S.A. to the Management Board Members under LTIP. The Long Term Incentive Plan is a 3-year plan from 2017 to 2019.

	Shares (number)	The cost of share-based payments for 12 months till December 31, 2017 (PLN ‘000)	The cost of share-based payments for 12 months till December 31, 2018 (PLN ‘000)
Jean-François Fallacher	2,000	7	37
Mariusz Gaca	2,000	7	37
Jolanta Dudek	2,000	7	37
Jacek Kowalski	2,000	7	37
Bożena Leśniewska	2,000	7	37
Maciej Nowohoński	2,000	7	37
Witold Drożdż	2,000	-	6
Piotr Jaworski	2,000	-	6
total	16,000	42	234

Currently, LTIP includes key managers who occupy key positions in the Orange Group and is conjuncted with the Essentials 2020 strategic plan.

Selected Executives and Leaders are awarded a defined number of free shares of Orange S.A. under the following conditions: continuous service in the Orange Group throughout the plan until 31 December 2019 and performance conditions.

The aim of the Programme is to recognise the engagement of the Group’s key Executives and Leaders, to share the value created by the Essentials 2020 strategic plan, to achieve a balance between short-term and long-term remuneration and to rely on well-known, monitored performance indicators.

In July 2018 the next edition of the Long-term Incentive Plan of the Orange Group for 2018-2020 was made available. Number of shares granted by Orange S.A. as part of the program, to the Management Board Members are specified in the table below.

	Shares (number)	The cost of share-based payments for 12 months till December 31, 2017 (PLN ‘000)
Jean-François Fallacher	2,000	17
Mariusz Gaca	2,000	17
Jolanta Dudek	2,000	17
Jacek Kowalski	2,000	17
Bożena Leśniewska	2,000	17
Maciej Nowohoński	2,000	17
Witold Drożdż	2,000	7
Piotr Jaworski	2,000	7
total	16,000	116

Non-financial Remuneration Components for Management Board Members and Key Managers

The Management Board Members and Executive Directors are entitled to the following non-financial remuneration components: health care package, life insurance in Orange Polska, company car, legal indemnity in the event of personal liability, and access to Orange services in line with the relevant Company’s policies. In addition, the Management Board Members and Executive Directors, having worked at Orange Polska for more than 6 months, are eligible for the Employee Pension Programme (PPE).

The key managers other than Executive Directors are entitled to health care package, company car and an access to Orange services in line with the relevant Company’s policies. In addition, all key managers, having worked at Orange Polska for more than 6 months, are eligible for the Employee Pension Programme (PPE). After enrolment to the Employee Pension Programme (PPE), the PPE contribution for all participants is paid by Orange Polska S.A.

In addition, French key managers are eligible for benefits connected with staying in Poland as foreigners, which are included in the Orange Group International Mobility Policy package and payable on a one-off basis or throughout the year. These include housing allowance, plane tickets, French social insurance premiums, etc.

Assessment of Remuneration Policy in 2018

Like in previous years, our bonus systems support directly execution of: EBITDA, NPS, transformation projects, sales targets for convergent offers and fibre services. In 2018, bonuses for all people are stronger connected with EBITDA. Bonuses for first managerial line (the Board and Executive Directors) depend on EBITDA in 50%. A stronger EBITDA impact on bonuses is implemented for the rest of directors as well. All employees in nonsales teams received diverge level of bonus even in case of 100% individual performance, depending on the Company’s EBITDA. The adopted bonus model focuses engagement of all people on EBITDA improvement. In bonus models dedicated to salesforce, there has been evolution of indicators from revenues and volume of services to profitability of services.

The Company offers a competitive level of remuneration in relation to the market; as a result, the level of staff turnover at the initiative of employees remains relatively low. At the same time, we note a growing pressure on remuneration growth related to an increase in demand for labour on the market, especially in new technology professions and direct contact with the customer. Systematic salary reviews are based on setting remunerations in the Company against the market and allow us to respond flexibly according to market changes. Therefore, our annual salary review is supplemented by additional microreviews and a salary rise process in the first and fourth quarters for selected professional groups that see dynamic wage growth in the market, which might lead to higher employee turnover in these groups.