Russian rewards

Senior employees in Russia have access to pensions, share schemes, bonus plans and healthcare perks, but benefits packages that cover an entire workforce are rare.

Andrei Murygin, partner in Linklaters’ Moscow office, says: “There is no culture of offering [benefits] to every worker. The penetration levels are very low compared to the European countries.”

Tania Bearryman, group director of Ogier Corporate Services, adds: “The understanding of the benefits [employers] can get out of a properly implemented and communicated incentives package is just not there.”

Russia’s state pension system is constantly changing. Currently, Russians pay an average of 22%, capped for certain income levels, of their salary into the scheme, 16% of which goes to an insurance component and 6% to a savings fund. Ruxandra Stoian, partner, HR consulting leader at PricewaterhouseCoopers (PWC) Russia, says: “The state pension is around 16% of [final] income, compared to the rest of Europe at about 40%. Like in all former communist countries, it is quite minimal.”

But no workplace pensions culture exists in Russia. Some large employers, such as those in the oil and gas industries, have legacy pension plans, and some multinationals roll out the schemes offered by their head office abroad.

Short-term gain

“About two years ago, there would have been quite a strong interest, but pensions have fallen down the list of preferred benefits,” says Stoain. “As in many emerging markets, people prefer cash and short-term gain.”

Other workplace savings options are beginning to appear in Russia. For example, Ogier recently implemented a scheme that resembles a corporate individual savings account, in which an employee can save a portion of their salary with a 5% match from their employer. Bearryman says: “For the employer to give that element of recognition to the employee is quite unique in Russia.”

There is no legislation in Russia to incentivise employee share plans, and it is complicated to structure a scheme. “There is no regulation or legislation of share schemes in Russia, so it has to be tailor-made,” says Murygin. “It always involves structured solutions using offshore jurisdictions with more flexible legal systems.”

Bearryman adds: “Even though Russian legislation doesn’t really encourage share ownership through tax benefits, there are event-driven plans. For instance, an unlisted company might put a plan in place so that when it is sold or there is a listing, the management team would benefit. That is a clear message to the management that they need to build the business to see the benefit.”

Long-term incentives

About half of Russian employers have some form of long-term incentive plan for top management. Stoian says: “It might be a pure deferred cash bonus linked to key performance indicators, up to a phantom share or a real share scheme if the company is listed.”

Murygin adds: “It is common to offer share incentives to top managers, but penetration to the rest of the workforce is relatively low.”

Russia has a national healthcare system, but the concept of employers paying for medical cover is relatively new. Tim Slee, global sales director at Bupa International, says: “It is something the generations that lived under Soviet rule are still getting used to.”

But most employers do offer staff private medical insurance (PMI). Slee adds: “Russia is an emerging market and HR departments are recognising that to attract and retain the best staff, they need to provide the same level of healthcare cover that expatriates working in the region would expect.”