Members of the Seimas called the leaders of the Ignitis Group “on the carpet” for extra bonuses: lack of transparency and see risks | Deal

If the members of the Ignitis Group Board of Directors and the managers of the main subsidiaries reach the indicators of the 2020-2023 strategic plan, in 2024 they could distribute almost 9.5 thousand. shares worth 212.1 thousand. euros.

This possibility is provided by the stock option agreements of the Ignitis Group executives concluded at the end of last year.

“At first, I want to address the leaders of the Ignitis Group. I understand that you are a great publicly traded company, you are a great boss and our national games may not be very interesting, but I will remind you that 73%. Stocks of the company are managed by the Ministry of Finance ”, said Mykolas Majauskas, president of the Budget and Finance Commission (BFK) of the Seimas, at the beginning of the parliamentary control.

Kazys Starkevičius, Chairman of the Economic Committee, added that there was a certain stir in society, so full transparency is necessary.

The Seimas members who attended the Committee sessions were surprised that such an important decision by the state company was taken intergovernmentally, without providing detailed information on the objectives to be achieved by the managers. They also questioned how such a decision would affect consumers if a company that makes most of its profits from a monopoly seeks higher profits.

“We have a state-controlled monopolistic company that benefits from consumers. To increase profits possibly by placing a burden on consumers and rewarding managers for that, there may be reasonable doubts as to whether such a decision is appropriate,” the president questioned. of the Seimas BFK.

We have a state-controlled monopoly company that benefits from consumers. Increasing profits by potentially overburdening consumers and rewarding managers for this can raise reasonable doubts as to whether such a solution is appropriate.

At the end of the session, Mr. Majauskas declared that the doubts of the members of the Seimas had not been dispelled and proposed to discuss in an informal session what new actions to take.

Meanwhile, the Social Democrat Gintautas Paluckas asked the committees to ask the Ministry of Finance to cancel the Ignitis Group bonus program.

It was asked why the decision was made at the intergovernmental level.

During the session, members of the Seimas, one after another, expressed their concern that the award of the heads of the state-controlled company had been approved by the intergovernmental government.

“On December 4, when we had thousands of new covid In all cases, the focus was on managing the pandemic, we did not have a new government, and the old government was accumulating and we can say that no one was responsible for anything, on Friday night Ignitis Group announced an executive bonus. Such action not only does not contribute to public trust, but even raises reasonable questions, ”emphasized M. Majauskas.

Additionally, parliaments have noted that the company is reluctant to disclose exactly what metrics executives will need to achieve to receive share bonuses.

Seimas member Vytautas Gapšys also lacked more information on what shareholder performance indicators looked like in the future, if the set targets are not artificially small, what is the current compensation package for company managers.

In response to these allegations, Daritis Maikštėnas, Chairman and CEO of Ignitis Group, explained that the company has yet to disclose an Adjusted EBITDA ratio, which would result in a bonus for executives, as the rules of the stock exchange they do not allow future forecasts to be shared.

Ignitis grupė has been listed on the Nasdaq Baltic Stock Exchange since last year.

He promised that the 2023 targets will be revealed in February, presenting the company’s financial results for 2020.

When asked why it was decided to reward executives with shares, D.Maikštėnas said that the company had already “gone very far to the West”, but M.Majauskas did not allow D.Majštėnas to expand on the strategy for a long time and orientation of the company towards green energy.

“We like to see pasta on a plate, not in another place, let’s move on to the bonus system, why was this done”, interrupted the head of Seimas BFK to the head of the Ignitis Group.

Arguing the need for a bonus system, D.Maikštėnas explained that during the company’s IPO process, it is natural practice to set long-term goals for company managers and ensure that the compensation package does not is dominated by short-term goals.

During the meeting, Darius Daubaras, chairman of the company’s Supervisory Board, added that rewarding executives with shares is a good governance practice that applies to all publicly traded energy companies in Europe, including state-owned ones.

“It is very important for a public company to have such a program, and its abolition would cause a stir – all investors would flee,” warned D. Dubar.

He asked for the decision to be reversed

During the meeting, the social democrat G. Paluckas stated that this discussion came too late and that the general principles of governance must apply to all companies controlled by the state.

“Instead of pursuing a decision made by one or the other minister. The company belongs to the Lithuanian state and the Seimas has full right to say whether the company’s employees have a sufficient motivation system when assigning a variable part to the results, if the shares should be transferred in a certain way “, added the parliamentarian.

He saw that the bonus bond could lead to a significant conflict of public and private interest and asked the committees to appeal to the Finance Ministry to have the decision reversed. If the commissions did not do so, the parliamentarian promised that the Socialist Group would appeal.

Meanwhile, the “peasant” Valius Ąžuolas is convinced that this problem is programmed for the future.

“How many state representatives are on the Ignitis Group board? How the criteria are set: A group of friends sits down, the criteria are listed, which is not necessary because it is a monopoly company, and that’s it. By looking at the Ignytis’ activities, one has the impression that the interests of the State are not the most important thing, but the interests of certain people, ”the Seimas member resented.

Conservative Andrius Kupčinskas noted that if such a precedent arises, this practice may start to spread not only in state-owned companies but also in municipal companies, where there is much less transparency.

“How do the managers themselves feel, whether they deserved shares or couldn’t buy them themselves?” Asked A. Kupčinskas.

How will a resident company obtain the benefits of regulated activities?

Another problem arose during the meeting. The rector of the ISM, Dalius Misiūnas, who a few years ago and himself headed the Ignitis Group (then called Lietuvos Energija), emphasized that the option is not bad, but questioned whether it is suitable for a company that exceeds 80%. the income comes from a regulated tariff.

“In regulated businesses, profit is not an indicator of efficiency, profit is a deductible,” said D. Misiūnas.

Inga Žilienė, president of the State Energy Regulatory Authority, agreed that the targets set for profitability indicators are worrisome when a company receives two-thirds of its income from regulated activities.

“Questions arise about how company managers will achieve profitability indicators in regulated activities. To date, in regulated activities, we determine the rate of return on the investment, which is calculated from the fixed asset base. The question arises of how this rate of return on investment can be increased; you can’t, you only increase the value of the assets ”, I. Žilienė sees the risk.

There is a perceived risk that holding shares may be in the interest of executives to inflate the majority of the company’s assets from which performance is calculated and in order to obtain a higher return on shares. .

Meanwhile, D.Maikštėnas stated that the value of the company will increase through the development of green energy, and D.Daubaras added that in 5-6 years the benefit of unregulated activities will be greater than that of regulated activities.

D.Maikštėnas would receive the highest amount

In December, Ignitis grupė announced stock option agreements entered into by the directors of nine group companies through the stock exchange.

According to LRT Radio, Darius Maikštėnas, Chairman and CEO of Ignitis Group, could acquire up to 2,265 shares, and Darius Kašauskas, Dominykas Tučkus, Živilė Skibarkienė and Vidmantas Salietis, members of the Board, could acquire 1,178 shares each.

Mindaugas Keizeris, CEO of the ESO subsidiary, could request 653 shares, Darius Montvila, CEO of Ignitis, 661 shares, 605 CEO of Ignitis Renewables and Rimgaudas Kalvaitis, CEO of Ignitis Production, 601 shares.

The specific number of shares to be awarded will depend on the Ignitis Group’s performance indicators: return to shareholder, adjusted EBITDA, installed “green megawatts”, carbon reduction plan and fulfillment of its goals.

On December 4, the Ignitis Group Supervisory Board approved the objectives of the long-term share options promotion program for the group’s managers and its indicators for 2020-2023, the criteria for evaluating its achievement and the maximum number of shares offered to managers.

Ignitis grupė’s shares were listed on the Nasdaq Vilnius stock exchange last year.