KMG: On the Managers’ Compensation Packages

KMG: What will Happen if Nazarbayev Leaves KazakhSTAN 2.0 - 17.04.2018

KMG: What will Happen if Nazarbayev Leaves

KazMunayGaz and KazMunaiGaz published the $10,5 billions Global Medium Term Note Programme.

How much do the managers of the Kazakhstan national companies earn? This is not an idle question considering the complicated situation in the economy. As we have found out, the average compensation package of a national company’s key manager constitutes 2 $ mln.

At the beginning of April 2017, JSC NC KazMunayGaz (a joint-stock company incorporated in the Republic of Kazakhstan) and KazMunaiGaz Finance Sub B.V. (a limited liability company incorporated in the Netherlands unconditionally and irrevocably guaranteed by the JSC NC KazMunayGaz) published the U.S.10,500,000,000 $ Global Medium Term Note Programme (The Base Prospect).

We started analyzing this document in our article «KMG: What Will Happen if Nazarbayev Leaves» and are now continuing to analyze this quite massive and rather obtuse material further since it allows us to look at many Kazakhstan’s topical issues from a different perspective, that of a large national company.

Today, we are going to talk about the compensation packages of the national companies’ managers. 

Note that, a couple of years ago, the people in Kazakhstan were actively discussing how justifiable the high salaries and compensation packages in the Samruk-Kazyna National Welfare Fund are. Then, the main blow was sustained by the central apparatus of the state development holding and had to be counterstriked by Umirzak Shukeyev personally.

In the meantime, the Base Prospect suggests that the members of the Board of Directors and the Management Board of KazMunayGaz JSC NC are the most well-paid persons in the quasi-state sector and perhaps in the entire country.

As at the date of this Base Prospectus, the Company’s Board of Directors consisted of the following member (order of names as in the Prospectus): Frank Kuijlaars (Chairman), Sauat Mynbayev, Peter Lane, Yerlan Baymuratov, Christopher Walton, Berik Beisengaliyev, Baljeet Grewal, Uzakbay Karabalin. As at the date of this Base Prospectus, the Company’s Management Board consisted of the following members: Sauat Mynbayev, Daniyar Berlibayev, Kayrat Sharipbayev, Dauren Karabayev, Serik Abdenov, Gleb Luxembourg, Ardak Z. Mukushov.

From the Base Prospect, it also follows (text in bold — Kazakhstan 2.0) -

«In accordance with the Company’s charter, the remuneration of the members of the Board of Directors is determined by the shareholders, while remuneration of the Chairman of the Management Board, the members of the Management Board and the Internal Audit Service is determined by the Board of Directors based on the policy of the shareholders.

Total compensation to the key management personnel of the Company amounted to KZT 9,797.4 million for the year ended 31 December 2016, KZT 9,017.2 million for the year ended 31 December 2015 and KZT 5,536.3 million for the year ended 31 December 2014. The increase in compensation since 2014 was primarily due to the impact of the devaluation of the Tenge in 2015 as management remuneration is fixed in U.S. Dollars». 

The Base Prospect does not specify who belongs to the key management of the company, but the cited paragraph, first, is a part of the chapter that names the members of KazMunayGaz JSC NC Board of Directors and presents their mini-biographies, second, is given immediately after these biographies in the text. Therefore, we assume that KMG has 14 key managers (Sauat Mynbayev belongs to both the Board of Directors and the Management Board).

An uncomplicated calculation shows that the average remuneration of a key manager of the company constituted 395 mln tenger for the year ended 31 December 2014, 644 mln for the year ended 31 December 2015, 700 mln for the year ended 31 December 2016.

Since we do not know when exactly the compensation packages were given to the members of the Board of Directors and the Management Boards of KazMunayGaz JSC NC, we cannot specify their size in the dollar terms. However, by rough estimations, considering the National Bank’s average official exchange rates for the given years, it turns out that, on average, the key managers received:

  • $2.2 mln each in 2014
  • $2.9 mln each in 2015
  • $2 mln each in 2016

The 2015 jump may likely be our mistake in the calculations since this year’s average exchange rate (221.73 tenge per dollar) that we used for our estimates is significantly lower than the official exchange rate as of the end of the period.

Therefore, the official document suggests that the compensation packages of the Board of Directors and the Management Boards of KazMunayGaz JSC NC are at the level of the compensation packages paid at the large oil and gas companies. These packages, therefore, are quite competitive which, sadly, cannot be said about the company itself.


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