Maxim Oreshkin makes a point of KPIs

10-07-2019

What problems the MinEc’s position spells for top manages of publicly-owned companies
Kommersant FM, July 10, 2019, 9:13 p.m.
 
Russia’s Minister of Economic Development Maxim Oreshkin has instructed to strengthen control over the achievement of key performance indicators (KPIs). They have been in use since 2014 but, as repeatedly noted in the media, the monitoring results rarely entail changes. Top managers may even retain annual bonuses, despite poor management. Maxim Oreshkin has obliged Russia's Federal Agency for State Property Management (Rosimushchestvo) to report quarterly on the use of KPIs at state-owned companies and called for personnel decisions based on monitoring results. These may affect both officers and members of Boards of Directors.
What performance indicators are actually meant? Can stunning dismissals be expected? According to Alexander Shevchuk, Executive Director of the Association of Institutional Investors, many KPIs are not clearly defined and not always met: “It is absolutely right to include TSR (total shareholder return based on capitalization and dividends) and RoIC (return on invested capital) in the list of KPIs. As far as we know, companies used individual criteria in some cases. In my view, that’s a direct responsibility of the Board of Directors, and we cannot have an exhaustive list of KPIs applying to all companies, as things are different everywhere. If you look at the calculation methodology of a certain KPI, you may find numerous deductions so that the management can meet the KPI.”
In June, according to Vedomosti, Russia’s Prime Minister Dmitry Medvedev introduced a new successful performance indicator for state-owned companies, “Assistance to the Government in implementing the President’s May Decrees.” Punishing top managers for errors and failures is a normal practice for the commercial sector, but state-owned enterprises will not make too rigorous demands on managers, Pavel Bezruchko, managing partner of Ecopsy Consulting, noted: “In a commercial entity, not a single shareholder venturing money would sustain underperformance for five years. The decision-making inefficiency must be overcome.
High tolerance to failures is evidence of poor management.
It is the CEO who is normally responsible for meeting the company’s KPIs and for building an effective team. Thus, if the shareholders are really disappointed at the performance indicators, the CEO should be replaced. Commercial entities handle such issues much easier, faster and tougher.”
Alexey Kudrin, Chairman of Russia’s Accounts Chamber also promised to keep an eye on how KPIs are met. He proposed that top managers forfeit their bonuses if found to be underperforming.
 
Anna Pestereva
 


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