Railway Reform: Toolkit for Improving Rail Sector Performance - ppiaf

Railway Reform: Toolkit for Improving Rail Sector Performance
10. Corporate Governance
• The external auditor opinion on company financial information and condition
10.4.3 Communication, reporting and disclosure
requirements
Corporate governance requirements and local legislation for listed companies
determine the nature and frequency of public information disclosure—for example,
quarterly and annual reports. Often, railways are an important element of
national transportation production. Most governments require substantial data
reporting to contribute to timely compilation of national statistics for transport
and productivity; railway companies should adopt proactive compliance with
these rules. State-owned railway companies should model best practice for other
transport and state-owned enterprises. The enterprise is responsible for all communication
of financial and operational information.
The railways should ensure transparency in particular for all remuneration and
compensation such as pensions, benefits, or bonuses for the board of directors
and CEO. In addition, the main principles underlying the compensation system
should be transparent and publicly disclosed.
10.4.4 Non commercial arrangements with state
The railway enterprise should disclose to the public the general principles of non
commercial arrangements with the state, as required for ‘related party transactions’
in annual statements, following requirements for listed companies. However,
confidential business matters should not be publicly disclosed.
10.5 Incentive Structures
The railway compensation system should be designed to support government
objectives and the enterprise strategy to achieve those objectives.
10.5.1 Compensation strategy
Most enterprises provide incentives for management and staff to align compensation
with company strategy. A properly functioning incentive system is a crucial tool to
motivate the CEO and railway staff to act for the benefit of the company and its
shareholders. Good practice railways develop performance indicators to drive incentive
compensation schemes. The incentive system should take into account shareholder
objectives and goals (government objectives for state-owned railways). Thus,
the incentive system can be an integral part of changing company culture to promote
innovation, commercial behavior, and staff loyalty.
Some employees may be covered by Civil Service rules: incentive schemes must be
designed within the restrictions of such rules when they apply. When restructuring,
employees of state-owned enterprises should not be covered by Civil Service rules as
such rules restrict commercial behavior and limit the accountability of covered employees
and the ability of management to provide incentives for performance.
10.5.2 Compensation and the board of directors
The World Bank Page 166