According to the Bank of Russia’s analysis for 2025, such programs have been developed by only 34% of public joint-stock companies (PJSCs) whose shares are listed on the first and second quotation lists, indicating a lack of uniform market practice and explaining the introduction of the Recommendations.
The Recommendations are aimed at developing a uniform practice of providing members of executive bodies and other key employees of joint-stock companies (JSCs) with incentive payments in the form of company shares, rights to receive such shares, or their cash equivalent, with the goal of motivating Program participants to drive long-term growth in shareholder value and the company’s market capitalization.
The Recommendations effectively establish a basic “framework” for the Program, including the following key parameters:
key performance indicators (KPIs) – total shareholder return (TSR) or the company’s market value (market capitalization) (if the company does not pay dividends), with the Bank of Russia explicitly prioritizing metrics related to market value rather than solely operational indicators;
Program duration – from 3 years (for a short investment cycle) to 5–10 years (standard/long-term Program);
the Program limit—depending on market capitalization and the percentage of shares in free float, the Program limit may range from 2% to 5% of the issuer’s market value as of the Program’s approval date;
the payout structure—up to 50% of the Program’s absolute limit during the final period of the Program, and evenly distributed during the remaining periods;
form of payments – shares and/or cash, the amount of which is equivalent to the current value of the company’s shares (phantom shares), depending on market capitalization, the percentage of shares in free float, the degree of share liquidity, as well as current and expected net cash flow.
Among other things, the Recommendations also set forth the procedure for forming a share reserve, corporate procedures related to the implementation of the Program, the consequences of early termination of participation in the Program, as well as the procedure for disclosing information.
In effect, the Recommendations prioritize metrics directly linked to the company’s market value (market capitalization, TSR) over other metrics used in practice.
It is noteworthy that these Recommendations fit into a broader trend previously identified by the Bank of Russia. As we reported, in 2025 the Central Bank discussed the possibility of limiting and clawing back management bonuses in the banking sector should the financial condition of credit institutions deteriorate.
In this context, the development of long-term equity-based incentive programs appears to be a logical complement: the focus is shifting from short-term payments to instruments directly linked to the sustainability and long-term value of the business.