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PAY ON PERFORMANCE? ANALYSIS OF 2012 REMUNERATION IN ITALIAN

LISTED COMPANIES

SERGIO CARBONARA

Analysis of 2012 Remuneration in Italian Listed Companies

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Index

Purpose and methodology..........................................................................................................4

1. The remuneration in Italian listed companies ......................................................................9

1.1. The overall compensation ........................................................................................................ 9

1.2. The CEO remuneration ........................................................................................................... 12

1.3. CEO remuneration by market capitalization .......................................................................... 19

1.4. CEO remuneration by industry ............................................................................................... 22

1.5. Total remuneration awarded ................................................................................................. 31

2. FTSE MIB: the overall compensations ................................................................................ 33

3. FTSE MIB CEOs’ remuneration ........................................................................................... 36

3.1. Overall compensation vested in 2012 .................................................................................... 36

3.2. The fixed component .............................................................................................................. 44

3.3. The annual bonus ................................................................................................................... 49

3.4. The long-term incentives ........................................................................................................ 59

Long-term incentives versus Total Shareholder Return ...................................................................................60

Long-term incentives versus operating results.................................................................................................64

3.5. Total remuneration awarded in 2012 .................................................................................... 67

3.6. Remuneration policies 2013 ................................................................................................... 70

Type of incentives .............................................................................................................................................73

Quality of disclosure .........................................................................................................................................74

Remuneration structure ...................................................................................................................................77

Discretionary variable components..................................................................................................................80

Correction mechanisms (malus or claw-back clauses) .....................................................................................81

4. FTSE MIB Chairpersons’ remuneration............................................................................... 83

Executive Chairmen ..........................................................................................................................................84

Non-executive Chairmen ..................................................................................................................................88

5. FTSE MIB Board members’ remuneration .......................................................................... 91

Executive Directors (not CEO)...........................................................................................................................91

Non-executive Board members ........................................................................................................................95


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6. An European comparison .................................................................................................. 99

6.1. European CEOs’ remuneration in 2012 ................................................................................100

6.2. Variable compensation by industry......................................................................................105

Aerospace & Defence .....................................................................................................................................106

Apparel & Textile Products .............................................................................................................................107

Asset Management.........................................................................................................................................108

Automotive .....................................................................................................................................................109

Banks...............................................................................................................................................................111

Construction Materials ...................................................................................................................................113

Engineering & Construction Services..............................................................................................................115

Financial Services ............................................................................................................................................116

Food & Beverage.............................................................................................................................................117

Healthcare.......................................................................................................................................................119

Industrial Goods & Services ............................................................................................................................120

Insurance ........................................................................................................................................................122

Media ..............................................................................................................................................................124

Oil & Gas .........................................................................................................................................................125

Retail ...............................................................................................................................................................127

Telecom...........................................................................................................................................................129

Travel, Lodging & Dining .................................................................................................................................130

Utilities............................................................................................................................................................132

6.3. European Chairpersons’ remuneration in 2012 ...................................................................134

Executive Chairpersons...................................................................................................................................135

Non-executive Chairpersons...........................................................................................................................137

6.4. Non-executive Board members’ remuneration in 2012 .......................................................140

Conclusions ............................................................................................................................ 144


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Purpose and methodology

Over the last few years, also due to the global financial crisis, executive officers’

remuneration has been contested with increasing intensity by shareholders, that perceived an

unacceptable disparity between the value created by the managers and their actual compensation.

The high level of dissent urged market regulators to give shareholders the right to discuss

remuneration policies at General Meetings (even through a non-binding vote in the majority of

cases), in order to enhance the transparency and to foster the alignment between executives’

compensation and shareholders’ interests. The vote on remuneration reports immediately showed

all its strength, so that many defined the proxy season 2012 as “the shareholder spring”,

analogizing the level of complaints to real revolts.

Since 2012, also Italian companies have to submit their Remuneration Report to the

approval of their shareholders, through the so-called “say-on-pay”. Actually, the correct definition

should be “say-on-policy”, as the vote officially refers on remuneration policies to be adopted the

following year, not on the actual compensation paid. The debate whether it would be more

appropriate a real “say-on-pay” is still alive, but the vote on policy has the great advantage to push

on higher transparency on the objectives that each company wants to reach, especially through

incentive plans. Anyway, it is not possible to evaluate any policy without taking into account how it

was applied in the past, through the analysis of compensations paid over last years. The “say-on-

policy” has the additional quality to foster a closer dialogue between institutional shareholders

and issuers, that may result in a greater alignment of interests.

The analysis of 2012 remuneration in Italian listed companies is therefore particularly

relevant for at least two reasons: thanks to the higher level of disclosure, for the first time each

remuneration component can be compared over the years and to relevant performances achieved

by company; secondly, it is possible to evaluate the actual effects of the shareholders’ vote on

remuneration policies.

The aim of this study is to investigate the differences among remuneration policies in

Italian listed companies, also through a comparison with main European peers, and to verify

whether compensations are effectively aligned with performances. With this purpose, the study

compares each remuneration component (base salary, annual bonus and long-term incentives) to


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relevant parameters, in terms of corporate characteristics and performance criteria, referred to

operating and stock market results.

The overall amount paid to each beneficiary thereby assumes a relative significance, being

not evaluated in “absolute” terms but in its ability to incentivize the creation of sustainable value

in the long term. It is not relevant here whether the overall compensation of a corporate member

is excessive or not, that may be an arbitrary conclusion if not compared with the market practices

and the specific company’s objectives. As a consequence, each remuneration package will be

referred to the specific role played within the organization, irrespectively of the individuals that

from time to time held those positions. When the remuneration policy did not change over the last

two years, the annual fees paid for the specific position will be considered, even when the

beneficiary changed in the meantime (except for the CEOs’ compensations, that will be always

based on individual payments).

A mere comparison of the overall remuneration may be misleading, as it is a result of a

multitude of components that are different by nature (cash, free shares, stock options, etc.), by

availability and, above all, by accrual basis. Granting 1'000 free share, of € 1 each at the time of

grant, has not the same value as paying € 1'000 in cash or allocating 1'000 stock options. Similarly,

the same amount may be differently valued if it is related to annual results, to cumulative 3-years’

results or to future events. An adequate comparison of remunerations paid over multiple years

should first of all take into account the differences between fixed and variable components,

together with all criteria each component depends on.

Thanks to the higher transparency of 2012 and 2013 Remuneration Reports, a two-fold

analysis is possible: on one side by taking into account all variable components vested during the

year, and therefore actually realised by the beneficiary, or by considering the compensation

awarded in 2012 even if not yet vested, that will be subject to future conditions. The two

methodologies may serve different purposes: through the analysis of the “vested” compensations

it is possible to evaluate the actual link between remuneration and performance achieved, while

the analysis of the “awarded” incentives may give a good representation of the current policy and

of company’s objectives.

Remuneration Reports issued by Italian companies do not necessarily follow the same

methodology: the large majority of reports discloses the actual amount paid during the year, based


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on the results achieved in the previous year, but it is not so unusual to find disclosed the potential

bonus, that will be paid in the following years on future performance conditions.

A practical example may better clarify the different results achieved through the utilisation

of the two alternative methodologies: UniCredit’s 2011 Remuneration Report included the free

shares allocated to the CEO, Mr. Federico Ghizzoni, of € 3 million fair value on the allocation date,

that will be actually granted at the end of 2013, subject to the achievement of predefined

performance targets. As per the “awarded” methodology, € 3 million long-term incentives would

have been part of the overall remuneration received by Mr. Ghizzoni in 2011, even if such amount

was not in his availability and it will depend on a number of future events, including UniCredit

shares’ stock market value. Conversely, according to the “vested” methodology, the CEO of

UniCredit did not realise any long-term incentives in 2011.

The effectiveness of one methodology over another depends on the purposes of the

analysis. For instance, the form generated by the Italian Market Authority (Consob) utilizes another

methodology, that is mandatory for all Italian listed companies, based on accounting accrual: the

reported fair value of equity compensation “does not refer to the entire assignment of equity

compensations made during the year, but only to the part of this noted on the financial

statements, in application of accounting standards establishing that the period in which the rights

accrue must be considered, assigning the relevant cost to the vesting period”1.

As the main purpose of this study is to verify the correlation of executives’ compensation

with performances achieved in past years, only vested compensations are taken into account.

Awarded shares and options, as well as deferred cash incentives, are not included in the annual

remuneration, if the rights to receive such components did not vest in the period under review. In

fact, the future value of long-term incentives may strongly differ from the fair value on the

allocation date (it may also be equal to zero, in case of stock options), depending on future

performances. On the other hand, the awarded (not vested) components is taken into account

when analysing the remuneration policies, in order to better verify their actual alignment with the

creation of sustainable long-term value.

1 Consob Regulation n. 11971 of 14 May 1999 (as amended by Consob resolution n. 18612 of 17 July 2013), Annex 3A,

Scheme n. 7.


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The analysis of remunerations over the time and the comparison among different

companies is based on the following criteria:

• The fixed compensation includes the base salary, together with additional fees related

to special tasks within the Group or affiliated companies and all other monetary

compensations not defined by the company as incentives or severance payments.

• “Benefits” include non-monetary benefits and, when disclosed, pension contributions

and Directors and Officers insurance policies.

• Cash incentives include monetary bonuses, long-term incentives and deferred

components of short-term incentives that vested in the year under review.

• Free shares are reported at the market value on the vesting date or, if the date is not

specified, at the end of the fiscal year.

• Stock options are taken into account if exercised during the year, at the difference

between the share market value on the exercise date and the strike price.

When analysing the remuneration policies, through the “awarded methodology”, all equity

components will be ascribed to the fiscal year of the assignment, regardless the vesting period,

according to the fair value disclosed in the Remuneration Report.

Eventual severances paid are not included in the overall annual compensation, to keep all

data as much comparable as possible. Indemnities paid for end of office assume a critical role in

the remuneration package: excessive severance payments, that are not clearly linked to

performance criteria, represent real “golden parachutes” that may discourage the pursuit of

company’s interests. Nevertheless, indemnities are extraordinary remuneration components, the

amount of which often depends on external factors, as national labour contracts or private

agreements between the company and its members. As the main purpose of this study is to

evaluate the remuneration as a governance tool, aimed at effectively motivating the long-term

value creation, all severance payments are excluded from the annual compensations and

separately reported.

The study takes into account all remuneration components related to the CEOs, the

Chairpersons and all other Board members of major Italian listed companies, differentiating


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between executives and non-executive members. In companies adopting the two-tier Board

structure, the analysis is referred to the Supervisory Board members, who are all non-executive by

definition as exclusively responsible of the supervision of the Management Board. Only 4 out of 98

major Italian listed companies adopt the dual governance system (A2A, Banca Popolare di Milano,

Intesa Sanpaolo and UBI Banca), while data related to all other companies are referred to the

Board of Directors.

All Board members’ fees are taken into account, even when the beneficiary held the

position only for few months. In those cases, individual fees will be reported on an annual basis

(i.e., in case the mandate terminated on April 2012, the relevant position will stand for 0,33

instead of 1 year). All figures are related to the January – December period, with the exceptions of

Mediobanca and Danieli, the fiscal year of which coincides with the July to June period.

The analysis is structured on three main levels:

1. compensations paid in 2012 by top 98 Italian issuers (large and mid cap)2, aggregated by

relevant industry and compared to average performances achieved;

2. remuneration structures in 38 Italian large caps (the FTSE MIB components), compared

over the time and to operating and stock market results;

3. remunerations paid by 38 FTSE MIB components are finally compared with a sample of

125 European issuers, selected by country, size and industry, in order to replicate the

composition of the main Italian index.

On 17 April 2013, the components of main Borsa Italiana’s indexes changed. In particular,

Fondiaria-Sai was included in the FTSE MIB to replace Impregilo. In order to keep as much

homogeneous as possible the comparison of 2012 compensations with the ones paid in 2011, and

also taking into account that large part of Remuneration Reports were released in the first half of

April, the analysis follows the old FTSE MIB composition, including Impregilo in place of Fondiaria-

Sai.

2 STMicroelectronics NV and Tenaris SA, that are listed on the main Borsa Italiana’s stock index (FTSE MIB) are

excluded as incorporated abroad (respectively in the Netherlands and in Luxembourg) and subject to different market

regulations.


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1. The remuneration in Italian listed companies

In this chapter, the study is focused on the remuneration of chief executives and all Board

members of 98 largest Italian companies, including: 98 CEOs, 167 executive Directors and 971 non-

executive Board members. The analysis takes into account all vested remuneration components, in

order to verify the eventual correlation with past performances: base salary, annual bonuses paid

in 2012 (related to 2011 performances), deferred cash bonuses (related to longer performance

periods, but paid in 2012), monetary and equity-based long-term incentives (shares granted and

stock options exercised) vested in the fiscal year under review.

1.1. The overall compensation

As previously highlighted, eventual severance payments have been excluded from the

overall compensation, due to their extraordinary nature and because often depending on external

factors (national labour contracts or private agreements). The Remuneration Reports of 98 major

Italian companies disclosed 17 individual severances payments to strategic executive officers, on

aggregate amounting to € 63.4 million. This figure does not include eventual indemnities paid to

the managers when appointed as CEO in the same company (e.g., the Managing Directors of Banca

Popolare dell’Emilia Romagna and Erg respectively received € 300'000 and € 280'000 severances

when appointed CEO).

Already in 2009, the Commission of European Communities felt the need to put a limit on

severances paid by listed companies, by recommending that: “termination payments should not

exceed a fixed amount or fixed number of years of annual remuneration, which should, in general,

not be higher than two years of the non-variable component of remuneration or the equivalent

thereof”. The Commission also recommended that “termination payments should not be paid if

the termination is due to inadequate performance”3. Looking at the severances paid in 2012, it

seems that many Italian listed companies still ignore the European Recommendations.

3 Recommendation 2009/385/EC, art. 3.5, complementing Recommendations 2004/913/EC and 2005/162/EC as

regards the regime for the remuneration of directors of listed companies.


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Severances paid in 2012 by major Italian listed companies

Officer – Company Role Severance

paid

Equivalent years of

non-variable

remuneration

Perissinotto – Generali CEO 10'657'387 5.7

Bolzonello – Geox CEO 9'616'920 7.8

Rubegni – Impregilo CEO 6'091'151 4.9

Gori – Pirelli Managing Director 5'900'000 4.1

Luciani – Telecom Italia Chairman TIM Partecipacoes 4'400'000 2.3

Peluso – Fondiaria Sai Managing Director 3'830'348 2.5

Tali – Saipem CEO 3'815'000 4.3

Perricone – RCS CEO 3'358'000 3.3

Briglia – Mondadori Chief Content Officier 3'037'431 4.5

Morelli – Intesa Sanpaolo Managing Director 2'850'000 2.3

Guha – UniCredit Chief Risk Officer 2'515'000 3.2

Chiesa – Banca Popolare Milano Managing Director 2'403'508 2.3

Girelli – Banca Generali CEO 2'021'956 3.0

Dacci – Banco Desio e Brianza CEO 1'275'832 1.7

Cavallini – Interpump Executive Chairman 960'000 0.9

Benuzzi – CIR Managing Director 475'000 1.3

Vitali – Brunello Cucinelli Executive Director 150'000 0.6

One of the positive effects of the shareholders’ vote on remuneration policies, is that

several companies amended their severance clauses in 2013, through a more clear definition of

the eventual indemnities due to the CEO in case of termination of office. Nevertheless, almost all

Remuneration Reports still refer to the equivalent of two years’ full compensation (including

average annual incentives paid in the past), instead of limiting it to the non-variable component, as

recommended by the European Commission four years ago. Nonetheless, the analysis of severance

payments arises a key question: is one ratio for all companies the best solution to define the

adequate indemnities’ amount? In fact, a strict implementation of a predefined severance-on-base

salary ratio risks to positively evaluate indemnities that are definitely excessive, only because

linked to fixed components that strongly exceeded the market practices (this was the case, for

instance, of € 10 million severance paid in 2011 by Fondiaria-Sai to the former CEO, whose non-

variable compensations from the Group amounted to approximately € 5 million). On the other

side, many remuneration structures that privilege the variable components, keeping the base


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salary on relatively low levels, would be penalized. As every “one-size-fits-all” approach, a

mandatory severance’ ratio for all companies may lead to the unintended effect to increase the

remuneration component that is not linked to any performance criteria, by this way enlarging the

gap between the executives’ compensation and the creation of sustainable value.

Net of severance payments, the overall compensation of main 98 Italian listed companies’

CEOs and Board members amounted to € 517.35 million in 2012:

Overall 2012 compensation by category of beneficiaries (€ million)

CEO € 230.41

Non-executive

Board members

€ 112.73

Executive Directors

€ 174.20

The overall amount is 15.3% higher than the aggregate remuneration vested in 2011, equal

to € 448.77 million. The increase is mainly due to the compensations paid to the CEOs and to other

executive Directors, whose average revenues respectively grew by 27.5% and by 29.6% last year,

while their non-executive colleagues’ compensation decreased by 5%.

Changes in average compensation by category (number of individuals)

€ 2'351'143

€ 1'043'135

€ 116'098

€ 1'844'438

€ 804'697

€ 121'807

29.63%27.47%

-4.69%

CEO

(98)

Executive Directors

(167 in 2012 - 180 in 2011)

Non-executive Board members

(971 in 2012 - 1'011 in 2011)

2012 2011 Change


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As reported in the previous chart, the lower number of executive Directors (14 less, or -

7.8%) did not result in any cost saving for listed companies, that on aggregate paid € 171.6 million

in 2012 net of severance payments, versus € 144.9 million in 2011.

The strong increase in total compensations, equal to € 68.6 million, is almost exclusively

due to the vesting of long-term incentives: monetary incentives, shares granted and stock options

exercised produced € 59.7 million higher revenues to the CEOs (€ 99.4 million in 2012, versus

€ 39.7 million in 2011) and € 38.5 million more to other executive Directors.

1.2. The CEO remuneration

The strong impact of vested long-term incentives on aggregate compensations becomes

more clear through the analysis of CEOs’ remuneration structure. The 27.5% growth of chief

executives’ compensation in 2012 was led by 150% increase of long-term variable components,

while base salaries and annual bonuses decreased respectively decreased by 7% and by 10%.

Changes in vested components of the CEOs’ remuneration

€ 102.23€ 95.46

€ 36.22 € 32.62€ 39.70

€ 99.37

€ 2.61 € 2.96

Base salary Annual bonus Long-term incentives Benefits

2011 2012

-9.9%

-6.6%+150.3%

+13.3%

On average, each analysed CEO earned € 2'351'144 in 2012, of which € 974'081 due to fixed

compensations (41%), € 332'896 deriving from the annual bonus (14%), € 1'013'989 from the

vesting of long-term incentives (43%) and € 30'178 from non-monetary benefits (1%).


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Average CEO’s 2012 remuneration structure

Base salary

41.4%

Annual bonus

14.2%

Long-term

incentives

43.1%

Benefits

1.3%

Long-term incentives vested in 2011 represented only 22% of average CEOs’ remuneration

(57% the fixed component and 20% the annual bonus). By analysing in deeper details the nature of

vested incentives, it is possible to verify that the sharp rise is substantially due to the free shares

(+1900%) and to the exercise of stock options (+204%). On the other hand, monetary incentives

(including the deferred portion of past annual bonuses) decreased by 27% in 2012.

Breakdown of vested long-term incentives

€ 8.60

€ 26.12

€ 2.63

€ 52.55

€ 28.47

€ 20.70

Exercised stock options Shares granted Monetary incentives

(including deferred bonuses)

2011 2012

-27.3%

+1899.7

%

+203.7

Aggregate values, as well as the averages, do not offer the correct picture of the great

differences existing among individual remuneration structures. Through a more in-depth analysis,

it is possible to accurately verify the real origins of long-term incentives’ impressive growth in

2012, that was ascribable to only 4 issuers and 3 CEOs:


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• Fiat, where the CEO, Mr. Sergio Marchionne, received 4 million free shares that

vested in 2012, of € 14.2 market value on the vesting date;

• Mr. Marchionne received further 4 million shares from Fiat Industrial, where he

serves as executive Chairman, of € 26.5 million market value on the vesting date; the

shares scheme was related to a Fiat’s incentive plan, that was approved before the

partial split of Fiat Industrial in 20114;

• Luxottica, where the CEO Mr. Andrea Guerra received 375'000 shares of € 10 million

market value on the vesting date, related to the 2009-2011 incentive plan;

• Yoox’ CEO Mr. Federico Marchetti realised € 23.55 million from the exercise of stock

options awarded over last 11 years.

Net of the above mentioned cases, the long-term incentives vested in other 94 listed

companies decreased by 34% in 2012 (€ 25.1 million versus € 38.2 million in 2011).

Looking at the figures reported so far, it is clear that equity-based incentives (paid through

free shares and stock options) play a critical role in the remuneration dynamics at listed

companies. The analysis of long-term incentives awarded in 2012, that did not yet vest, confirms

the strong increase of the equity-based components: during fiscal year 2012 top 98 Italian listed

companies awarded shares of € 18 million market value on the allocation date, versus € 2.6 million

in 2011, while the aggregated fair value of granted stock options was € 9.9 million, versus € 8.6

million in 2011.

4 Mr. Marchionne still benefits of two retention incentive plans, related to both Fiat and Fiat Industrial, providing for

the grant of 7 million Fiat and 2.1 million Fiat Industrial shares, that will vest in 2015 subject to his continuative

relationship with the Group.


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Awarded vs. vested equity-based incentives in 2011 and 2012

€ 8.60€ 2.63

€ 9.94

€ 17.97

€ 26.12

€ 52.55

€ 11.59

€ 59.08

2011 2012

Exercised stock options Vested shares

Awarded stok options Awarded shares (not vested)

It should be noted that in 2012 three CEOs renounced to exercise the vested rights to

receive equity-based incentives: Mr. Pier Francesco Saviotti (Banco Popolare) did not exercise the

right to receive 186'097 free shares, of € 382'800 value on the vesting date, Mr. Luigi Odorici

(BPER) renounced to 2'156 phantom shares5 and Mr. Emanuele Bosio (Sogefi) did not exercise the

rights related to 99'000 phantom shares.

The higher value of awarded equity-based incentives is also due to better market

conditions in 2012, when the average stock value of companies under review increased by 15.3%.

Actually, the number of Italian listed companies that utilize equity-based incentives plan is at the

lowest level in Europe. Out of 38 Italian large-caps, more than one-fifth (21%) provide exclusively

for monetary incentives, related to both the short and the long term, versus only 5% European

issuers included in a group of 125 peers. The replacement of stock option plans with cash

incentives started in 2008, in particular at State-owned companies. For an in-depth analysis of the

remuneration policies, please see the following paragraph 3.6 (regarding the CEO’s remuneration

policy at FTSE MIB companies) and paragraph 6.1 (where Italian policies are compared with a

group of European peers).

Individual CEOs remuneration may strongly differ, in terms of amount and structure, mostly

according to the weight of long-term incentives and to the relevance of base salaries. Highest

5 Phantom shares or stock options plans are cash incentive plans, under which the amount is determined by reference

to the increase in value of the shares. No shares are actually delivered to the beneficiary on the vesting date.


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compensations may be equal to even 40 times the lowest ones, depending on a number of factors.

The following charts report the highest and lowest remunerations, highlighting how the overall

amount may depend on several components.

Highest 15 CEO remunerations in 2012

FIAT INDUSTRIAL - Marchionne

YOOX - Marchetti

FIAT - Marchionne

LUXOTTICA - Guerra

SALVATORE FERRAGAMO - Norsa

ENI - Scaroni

MONDADORI - Costa

ENEL - Conti

SAIPEM - Tali

AUTOGRILL - Tondato Da Ruos

GTECH - Sala

PIRELLI - Tronchetti Provera

INTESA SANPAOLO - Cucchiani

INDESIT - Milani

MEDIASET - Adreani


€ 27'800'300

€ 24'834'060

€ 18'700'000

€ 14'363'692

€ 7'471'605

€ 6'397'000

€ 5'102'279

€ 4'617'027

€ 4'551'361

€ 4'337'247

€ 3'222'148

€ 3'083'550

€ 3'037'000

€ 3'004'542

€ 2'987'190

Structure of 15 lowest CEO remunerations in 2012

TREVI FIN INDUSTRIALE - S. Trevisani

EI TOWERS - Barbieri

ITALMOBILIARE - C. Pesenti*

BANCO DESIO E BRIANZA - Dacci

BUZZI UNICEM - M. Buzzi

ASTM - Sacchi*

MARR - Rossi**

GEMINA - Bertazzo

CAMFIN - Schinelli

IGD - Albertini

ASCOPIAVE - Zugno

MILANO ASSICURAZIONI - Erbetta*

BONIFICHE FERRARESI - Bolognesi

COFIDE - R. De Benedetti*

DEA CAPITAL - Ceretti*


€ 453'000

€ 407'327

€ 385'497

€ 380'831

€ 351'084

€ 345'610

€ 342'722

€ 310'000

€ 303'259

€ 267'000

€ 264'299

€ 142'016

€ 120'086

€ 120'000

€ 90'000


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The CEO of Marr, Mr. Pierpaolo Rossi, is marked by two asterisks in the chart as his

compensation is related to 6 months in charge (July 1st

– December 31st

), while Chairman Mr. Ugo

Ravanelli received € 349'933 when he also held the CEO position in the first half of 2012. When

CEOs are marked by one asterisk in the chart, their aggregate remuneration does not include

additional fees received from subsidiaries and associates that are part of 98 analyzed issuers: Mr.

Carlo Pesenti (Italmobiliare) received further € 1'832'500 from Italcementi (of which € 587'500 as

variable components), Mr. Alberto Sacchi (ASTM) further € 324'000 from SIAS, Mr. Emanuele

Erbetta (Milano Assicurazioni) additional € 1'824780 from Fondiaria-Sai, Mr. Rodolfo De Benedetti

(Cofide) € 1'488'233 from CIR and Mr. Paolo Ceretti (DeA Capital) benefited of an additional

compensation from the non-listed parent company Da Agostini SpA (the amount is not disclosed in

the Remuneration Report issued by DeA Capital). As the purpose of the study is not to identify the

overall individual earnings, but to analyse companies’ remuneration policy, further compensations

from companies under review have not been aggregated, in order to avoid any double counting.

Nevertheless, it is clear that many of lowest compensations are the result of multiple policies, that

provide for higher rewards from the parent company or from principal operating subsidiaries.

Reported highest and “lowest” compensations highlight that the amounts are not

necessarily correlated with the size of the company: 20% of 15 highest compensations are related

to mid-cap issuers (Yoox, Mondadori and Indesit), while 5 FTSE MIB companies are included in the

list of 30 “lowest” CEO’s remunerations (Buzzi Unicem, Diasorin, Ansaldo, Banca Popolare

dell’Emilia Romagna and Mediolanum).

The absence of correlation between remuneration and market capitalization is even more

evident taking into account the base salaries. The following charts show the trend of fixed

compensations at decreasing levels of ordinary market capitalization, as of 31 December 20126.

6 The market capitalization’s scale range is limited to € 10 billion. At the end of 2012, 9 companies exceeded € 10

billion market cap: Eni (€ 66.7 billion), Enel (€ 29.5 billion), UniCredit (€ 21.5 billion), Generali (€ 21.4 billion), Intesa

Sanpaolo (€ 20.2 billion), Luxottica (€ 14.7 billion), Saipem (€ 13 billion), Snam (€ 11.9 billion) and Fiat Industrial (€ 10.1

billion).


18

Base salaries vs. ordinary market capitalization (as of 31 December 2012)

€ 0

€ 1'000'000

€ 2'000'000

€ 3'000'000

€ 4'000'000

€ 5'000'000

€ 6'000'000

€ 7'000'000

€ 8'000'000

€ 9'000'000

€ 10'000'000

Base salary Market capitalization (€ k)

The above chart highlights how the base salary’s trend is completely independent of the

company’s size: i.e., the average emolument of the CEOs of Mondadori, Premafin and Cementir

(respectively 91st

, 92nd

and 93rd

by size) is higher than the average base salary paid by Eni, Enel and

UniCredit, that are the largest Italian issuers. The CEO’s non-variable compensation exceeds € 1

million in 17 out of 60 Italian mid-cap companies (28%), the average capitalization of which equals

€ 0.61 billion. Such amount is higher than average base salaries observed in 46 issuers based in the

UK, in Benelux and in Scandinavia, of € 24 billion average market capitalization.

The following table reports the highest 18 non-variable compensations paid in 2012, that

exceeded € 1.5 million.


19

Base salaries exceeding € 1.5 million in 2012

Company – CEO Stock market index Base salary

Ordinary market

capitalization

(as of 12/31/12)

Pirelli – Tronchetti Provera FTSE MIB € 3'077'554 € 4'117.5

Luxottica – Guerra FTSE MIB € 2'509'568 € 14'731.2

Mediaset – Adreani FTSE MIB € 2'327'794 € 1'838.0

Unipol – Cimbri FTSE Italia Mid Cap € 2'319'192 € 674.9

Fiat – Marchionne FTSE MIB € 2'300'000 € 4'739.0

Intesa Sanpaolo - Cucchiani FTSE MIB € 2'300'000 € 20'151.7

Mondadori – Costa FTSE Italia Mid Cap € 2'217'384 € 276.5

Mediobanca – Nagel FTSE MIB € 2'117'688 € 2'991.6

Exor – Elkann FTSE MIB € 2'000'000 € 2.857,5

Cattolica Ass. – Mazzucchelli FTSE Italia Mid Cap € 1'966'668 € 663.3

Fondiaria Sai – Erbetta FTSE Italia Mid Cap € 1'809'309 € 873.6

Finmeccanica – Orsi FTSE MIB € 1'740'000 € 2'516.1

Banco Popolare – Saviotti FTSE MIB € 1'700'000 € 2'218.8

Premafin – G. Ligresti FTSE Italia Mid Cap € 1'692'254 € 273.7

UniCredit – Ghizzoni FTSE MIB € 1'591'338 € 21'454.8

Tod’s – D. Della Valle FTSE MIB € 1'570'945 € 2'927.8

Indesit – Milani FTSE Italia Mid Cap € 1'560'089 € 657.0

Saras – M. Moratti FTSE Italia Mid Cap € 1'536'000 € 941.5

1.3. CEO remuneration by market capitalization

Total remunerations represented 0.20% of 98 largest Italian companies’ market

capitalization in 2012. The highest ratios were recorded in Yoox with 3.63% and in Mondadori with

1.85%. Of course, the ratio is higher at lower levels of market capitalization: 19 out of 20 issuers

with the highest remunerations/capitalization ratios are mid-caps, with the only exception of Fiat

(while Fiat Industrial ranks 21st

), where € 18.7 million granted to the CEO represented 0.39% of the

market capitalization at the end of 2012.


20

20 highest CEO compensation/capitalization ratios

Company – CEO Stock market index CEO compensation on market

capitalization (as of 12/31/12)

Yoox – Marchetti FTSE Italia Mid Cap 3.63%

Mondadori – Costa FTSE Italia Mid Cap 1.85%

Cementir – F. Caltagirone FTSE Italia Mid Cap 0.67%

Premafin – G. Ligresti FTSE Italia Mid Cap 0.62%

Reply – T. Rizzante FTSE Italia Mid Cap 0.46%

Indesit – Milani FTSE Italia Mid Cap 0.46%

Safilo – Vedovotto FTSE Italia Mid Cap 0.45%

L’Espresso – Mondardini FTSE Italia Mid Cap 0.43%

Fiat – Marchionne FTSE MIB 0.39%

Sogefi – Ballester FTSE Italia Mid Cap 0.38%

Falck Renewables – Manzoni FTSE Italia Mid Cap 0.36%

Unipol – Cimbri FTSE Italia Mid Cap 0.35%

IMA – A. Vacchi FTSE Italia Mid Cap 0.34%

Engineering – Pandozy FTSE Italia Mid Cap 0.33%

Cattolica Assicurazioni – Mazzucchelli FTSE Italia Mid Cap 0.32%

Interpump – Montipò FTSE Italia Mid Cap 0.31%

Astaldi – Cerri FTSE Italia Mid Cap 0.30%

Banca IFIS – Bossi FTSE Italia Mid Cap 0.28%

Vittoria Assicurazioni – Guarena FTSE Italia Mid Cap 0.28%

Credito Valtellinese – Fiordi FTSE Italia Mid Cap 0.28%

According to all data analyzed so far, it would seem that no differences exist between the

overall compensation paid by medium and large listed companies. On the contrary, substantial

differences appear taking into account the average values and the remuneration structure: the

average 2012 CEO’s compensation at 38 large-caps was 137% higher than the one paid by 60 mid-

caps (€ 3'639'135 versus € 1'535'415). Furthermore, variable compensations were predominant in

FTSE MIB companies’ remuneration structure, representing 64% of total fees (14% the annual

bonuses and 50% the long-term incentives), while the fixed component represented 51% of the

2012 CEO’s compensation paid by 60 mid-cap (versus annual bonuses’ 14% and 34% of long-term

incentives).


21

Average CEO’s remuneration structure in 2012: FTSE MIB vs. FTSE Italia Mid Cap

The following chart shows how average remuneration components changed according to

relevant market capitalization from 2011 to 2012: the crucial role played by equity-based

incentives is once again more than evident.

Average remuneration components vested in 2011 and 2012: Large-Caps vs. Mid-Caps

€ 853'155€ 209'348

€ 101'244€ 78'176

€ 15'386

€ 795'052

€ 212'685€ 86'041

€ 427'512€ 14'126

€ 1'343'124

€ 622'598€ 589'325

€ 172'055

€ 44'380

€ 1'256'758€ 522'703

€ 408'842€ 1'395'310

€ 55'523

2012

2011

2012

2011

Larg

e C

ap

Mid

Ca

p

Base salary Annual bonusMonetary long-term incentives Equity-based long-term incentivesBenefits

FTSE MIB

Base salary

35%

Annual

bonus

14%

Monetary

long-term

incentives

11%

Equity-

based long-

term

incentives

38%

Benefits

2%

FTSE Italia Mid Cap

Base salary

51%Monetary

long-term

incentives

6%

Equity-based

long-term

incentives

28%

Benefits

1%

Annual

bonus

14%


22

1.4. CEO remuneration by industry

In previous paragraph, it was shown that remunerations may substantially vary according

to the company’s size, but differences depend much more on variable components than on base

salaries. This paragraph will analyse how the remuneration structure may vary according to

relevant industries. The definition of industry here is the one specified by Borsa Italiana as “Super

Sector”.

Thanks to the stock options exercised by the CEO of Yoox in 2012, the average

compensation realised in the Retail industry results more than 5 times the market’s average

(€ 12.6 million). The extraordinary nature of Yoox’ long-term incentives, that were related to stock

options plans active since 2001, risk to invalidate the ranking.

Average remuneration vested by sector (number of issuers): 2012 vs. 2011

€ 553'000

€ 776'741

€ 849'504

€ 972'640

€ 1'063'719

€ 1'322'000

€ 1'445'538

€ 1'455'372

€ 1'478'888

€ 1'592'950

€ 2'678'640

€ 2'678'769

€ 3'636'923

€ 3'779'698

€ 3'849'505

€ 5'134'853

€ 604'500

€ 907'683

€ 1'513'382

€ 968'820

€ 1'304'423

€ 1'843'000

€ 1'703'779

€ 1'627'447

€ 1'699'107

€ 1'831'704

€ 2'165'728

€ 1'115'029

€ 3'035'606

€ 2'102'967

€ 2'809'378

€ 5'541'969

€ 12'588'391€ 809'531

Real Estate (2)

Technology (3)

Food & Beverage (3)

Financial Services (4)

Construction & Materials (7)

Telecommunications (1)

Banks (15)

Utilities (10)

Insurance (8)

Healthcare (4)

Media (4)

Industrial Goods and Services (16)

Oil & Gas (4)

Travel & Leisure (2)

Personal & Household Goods (8)

Automobiles & Parts (5)

Retail (2)

Average compensation 2012 Average compensations 2011


23

The stunning increase recorded in Retail companies (+1455%) did not occur in any other

industry, in confirmation of its exceptional nature. Net of Retail, the average CEO remuneration in

other industries increased by 8%: the highest growth was recorded in Industrial Goods & Services

(+140%, mainly due to the long-term incentives vested in Fiat Industrial) and Travel & Leisure

companies (+80%), while Food & Beverage marked the highest decrease (-44% versus 2011). The

average remuneration structure by industry highlights, once again, the key relevance of long-term

incentives.

Average remuneration structure by industry (number of companies)

Real Estate (2)

Technology (3)

Food & Beverage (3)

Financial Services (4)

Construction & Materials (7)

Telecommunications (1)

Banks (15)

Utilities (10)

Insurance (8)

Healthcare (4)

Media (4)

Industrial Goods and Services (16)

Oil & Gas (4)

Travel & Leisure (2)

Personal & Household Goods (8)

Automobiles & Parts (5)

Retail (2)


€ 12'588'391

€ 5'314'853

€ 3'849'505

€ 3'779'698

€ 3'636'923

€ 2'678'769

€ 2'678'640

€ 1'592'950

€ 1'455'372

€ 1'445'538

€ 1'322'000

€ 1'063'719

€ 972'640

€ 849'504

€ 1'478'888

Long-term incentives do not tend to vest every year, being usually based on 3 or 5-years

performance periods. Therefore, an accurate analysis of the CEO remuneration structure should

€ 776'741

€ 849'504

€ 553'000


24

take into account the aggregate compensation paid over a multiple years period. The first effects

of the introduction of the “say-on-pay” in Italy are observable starting from Financial Statements

related to 2011 fiscal year, while the level of disclosure related to remunerations paid in 2010 was

still not enough detailed to allow an accurate analysis. In particular, not all companies duly

disclosed monetary incentives’ relevant vesting period, nor the distinction between awarded and

vested equity-based components. Moreover, at least 10% of Italian large and mid-caps changed

since 2010. Due to the lack of historical information available, and in order to compare

homogeneous data, the following analysis will take into account the aggregate remuneration paid

to Italian CEOs in 2011 and 2012.

Average annual CEO remuneration by industry: years 2011 and 2012

Retail (€ 3'349'481)

Long-term

incentives

89%

Annual bonus

3%

Base salary

8%

Benefits

0%

Automobiles & Parts (€ 2'669'205)

Benefits

1%Base salary

30%

Annual bonus

15%

Long-term

incentives

54%

Oil & Gas (€ 1.668.132)

Long-term

incentives

29%

Annual bonus

31%

Base salary

40%

Benefits

0%

Personal & Household Goods (€ 1'664'720)

Benefits

1%

Base salary

37%

Annual bonus

16%

Long-term

incentives

46%

Travel & Leisure (€ 1'470'666)

Long-term

incentives

37%

Annual bonus

31%

Base salary

30%

Benefits

2%

Media (€ 1'211'092)

Benefits

1%

Base salary

65%

Annual bonus

21%

Long-term

incentives

13%


25

Industrial Goods and Services(€ 948'450)

Long-term

incentives

48%

Annual bonus

11%

Base salary

41%

Benefits

0%

Healthcare (€ 856'163)

Benefits

1%

Base salary

44%

Annual bonus

19%

Long-term

incentives

36%

Insurance (€ 840'211)

Long-term

incentives

2%Annual bonus

12%

Base salary

85%Benefits

1%

Telecommunications (€ 791'250)

Benefits

3%

Base salary

70%

Annual bonus

27%

Long-term

incentives

0%

Utilities (€ 770'705)

Long-term

incentives

20%

Annual bonus

33%

Base salary

46%

Benefits

1%

Banks (€ 768'212)

Benefits

5%

Base salary

79%

Annual bonus

9%

Long-term

incentives

7%

Food & Beverage (€ 592'971)

Long-term

incentives

39%

Annual bonus

21%

Base salary

38%

Benefits

2%

Construction & Materials (€ 592'035)

Benefits

1%

Base salary

68%

Annual bonus

24%

Long-term

incentives

7%


26

The above charts, ordered by decreasing average annual compensation, clearly highlight

how the CEO remuneration structure may vary according to the relevant industry. Main

differences may be summarized in three categories:

i. Retail, Automobiles & Parts, Personal & Households Goods, Travel & Leisure, Industrial

Goods & Services and Food & Beverage companies count more on long-term incentives

to remunerate the CEO;

ii. Oil & Gas, Media, Insurance, Telecommunications, Utilities, Construction & Materials

and Technology companies tend to privilege short-term variable components;

iii. Banks, Financial Services and Real Estate companies reported the lowest level of

variable components, at least over the last two years (Banks also stand out for the

highest level of non-monetary benefits, on average amounting to € 81'500 per year, or

5% of aggregate compensations).

Financial Services (€ 485'365)

Long-term

incentives

1%

Annual bonus

2%

Base salary

97%

Benefits

0%

Technology (€ 421'106)

Benefits

2%

Base salary

64%

Annual bonus

34%

Long-term

incentives

0%

Real Estate (€ 289'375)

Long-term

incentives

0%

Annual bonus

4%

Base salary

94%

Benefits

2%


27

Of course, the vested amount of variable components highly depended on the

performances achieved over the vesting period, that was the previous year (respectively 2010 and

2011) with regards to annual bonuses, or cumulative 3-years’ performances with regards to long-

term incentives. As reported in the following paragraph 3.6, related to the analysis of

remuneration policies, companies tend to utilize multiple performance criteria in defining the

variable components. Despite the high variety, the following operating criteria are included in the

large majority of incentive plans: EBITDA is the key criterion in industrial companies, Tier 1 Ratio in

banks, Solvency Ratio in insurance companies and Assets Under Management in financial services

companies. Furthermore, the comparison between remuneration and performance cannot

disregard the value created to shareholders (Total Shareholder Return, or TSR), that takes into

account the stock market performance and dividends paid over the relevant vesting period.

The following chart shows how annual bonuses changed in 2012 respect to 2011, compared

to the changes occurred in operating results in 2011 (in terms of EBITDA, Tier 1 Ratio, Solvency

Ratio and AuM). Basically, the chart illustrates how the bonuses paid to the CEOs changed in

relation to different level of performances.

% change of annual bonuses vs. % change of operating results

94

%

18

%

-12

%

5%

19

0%

-60

%

-10

0%

-44

%

-26

%

-6%

0%

-51

%

22

%

14

%

14

5%

46

%

-15

% 35

%

61

%

31

%

30

%

21

%

19

%

18

%

11

%

9%

7%

6%4%

0%

-6%

-9%

-11

%

-14

%

-100%

-50%

0%

50%

100%

150%

200%

Fin

an

cia

l Se

rvic

es

Te

chn

olo

gy

Insu

ran

ce

Me

dia

Co

nst

ruct

ion

&

Ma

teri

als

Re

al

Esta

te

Te

leco

mm

un

ica

tio

ns

Ind

ust

ria

l G

oo

ds

&

Se

rvic

es B

an

ks

Tra

ve

l &

Le

isu

re

He

alth

care

Re

tail

Pe

rso

na

l &

Ho

use

ho

ld G

oo

ds

Oil

& G

as

Uti

liti

es

Fo

od

& B

ev

era

ge

Au

tom

ob

ile

s &

Pa

rts

Annual bonus change (2012 vs. 2011) Operating performance change (2011 vs. 2010)

The completely different trend of the two lines is a clear sign of the absence of any

correlation between annual bonuses and performances achieved in the short-term period, at least

with regards to industry averages. The bonuses moved in the same direction of operating results

with regards to only 7 industries out of 17: Financial Services (-15% the average bonus and -14.5%


28

the average Assets Under Management), Construction & Materials (+21.8% the bonus and +0.1%

the EBITDA), Banks (+0.2% the bonus and +9.1% the Tier 1 Ratio), Healthcare (+4.6% and +18.3%),

Retail (+190% and +19.5%), Utilities (+17.9% and +31.3%) and Food & Beverage (+93.5% and

34.7%). Average bonuses and operating performances moved on opposite directions in all other

industries: in 3 cases the average bonus increased despite worst performances, while in remaining

7 industries better operating results produced lower annual bonuses.

Two industries stand out for the highest distance between average bonus and performance

changes: Insurance, where the average bonus increased by 144.5% despite the Solvency Ratio’s

decline of 11%, and Automobiles & Parts, where average bonus paid in 2012 went down by 43.7%

even if the average EBITDA increased by 61%.

The picture does not change comparing the average bonuses to the Total Shareholder

Return. The following chart shows the average bonus paid in 2012 to the CEOs at different levels of

TSR realised the previous year.

Average bonus paid in 2012 vs. average TSR 2011 by industry

€ 0

€ 552'875

€ 326'931

€ 140'981

€ 20'090

€ 290'000

€ 463'729

€ 122'371

€ 279'000

€ 960'500

€ 317'631€ 334'033

€ 553'305€ 588'750

€ 275'071€ 336'000

€ 881'971

Re

al

Est

ate

Me

dia

Co

nst

ruct

ion

&

Ma

teri

als

He

alt

hca

re

Ba

nk

s

Fin

an

cia

l S

erv

ice

s

Fo

od

& B

ev

era

ge

Uti

liti

es

Re

tail

Au

tom

ob

ile

s &

Pa

rts

Pe

rso

na

l &

Ho

use

ho

ld G

oo

ds

Ind

ust

ria

l G

oo

ds

&

Se

rvic

es

Insu

ran

ce

Te

leco

mm

un

ica

tio

ns

Oil

& G

as

Tra

ve

l &

Le

isu

re

Te

chn

olo

gy

-50%

-40%

-30%

-20%

-10%

+0%

+10%

Average bonus 2012 Average TSR 2011

The entire Italian stock market strongly suffered the financial crisis during 2011: only the

Technology companies (Ei Towers, Engineering and Reply) realised a positive average TSR (+3.7%).

Nonetheless, highest 2012 annual bonuses were rewarded in industries reporting negative

performances. Only two exceptions can be observed: Real Estate companies (Beni Stabili and IGD)

did not pay any short-term incentives due to the worst TSR average performance (-43.4%), and


29

Financial Services (Azimut, Camfin, DeA Capital and Exor), that paid low bonuses (€ 20'090 on

average) and realised a negative TSR in 2011 (-28.3%).

The analysis of long-term incentives takes into account the aggregate incentives that vested

in 2011 and 2012, compared to the average performance realised over a 3-years’ vesting period

(2008-2011). As already highlighted, due to the lack of relevant information available, it is not

possible to include the incentives vested in 2010.

Average incentives vested in 2011 and 2012 vs. operating performances in the 2008-2011 period

€ 5'730'768

€ 621'964

€ 3'092'563

€ 24'118€ 207'922€ 6'667€ 0

€ 1'778'230

€ 171'558€ 625'000

€ 1'233'520

€ 11'875'475

€ 1'937'590

€ 915'891€ 0

€ 2'157'851

€ 51'429

-21% -16% -8%

+4% +10% +12% +17% +19% +22% +23%+32%

+39% +40% +43%+49%

+71%

+143%

Me

dia

Co

nst

ruct

ion

&

Ma

teri

als

Insu

ran

ce

Ind

ust

ria

l G

oo

ds

&

Se

rvic

es

Te

leco

mm

un

ica

tio

ns

Te

chn

olo

gy

Tra

ve

l &

Le

isu

re

Re

al

Est

ate

Ba

nk

s

Fo

od

& B

ev

era

ge

Fin

an

cia

l S

erv

ice

s

Pe

rso

na

l &

Ho

use

ho

ld G

oo

ds

Oil

& G

as

Uti

liti

es

Au

tom

ob

ile

s &

Pa

rts

He

alt

hca

re

Re

tail

-50%

+0%

+50%

+100%

+150%

Average incentives vested in 2011 and 2012 Average operating performances 2008-2011

Also in this case it is not possible to verify a clear correlation between incentives and

operating results, at least with regards to the main performance criteria reported in the

remuneration policies. Nonetheless, differently from the analysis of the annual bonuses, some kind

of positive relationship may be observed in 3 out of 4 industries where long-term incentives

represent the main remuneration component (see page 26): Retail, Automobiles & Parts and

Personal & Household Goods. Such result confirms the key role played by long-term incentive

plans in realizing the alignment of interests between executives’ pay and performances.


30

Average incentives vested in 2011 and 2012 vs. Total Shareholder Return 2009-2011

€ 625'000€ 0

€ 621'964€ 1'778'230

€ 11'875'475

€ 24'118

€ 5'730'768

€ 51'429 € 171'558 € 207'922€ 915'891

€ 0

€ 2'157'851

€ 6'667

€ 1'233'520€ 1'937'590

€ 3'092'563

+119%

+100%

+66%+65%+62%+62%

+37%

+8%

-9% -10% -14% -16% -17% -28% -32% -33%

-52%

Insu

ran

ce

Co

nst

ruct

ion

&

Ma

teri

als

Me

dia

Ba

nk

s

Fo

od

& B

ev

era

ge

Re

al

Est

ate

Te

leco

mm

un

ica

tio

ns

Uti

liti

es

Tra

ve

l &

Le

isu

re

Ind

ust

ria

l G

oo

ds

&

Se

rvic

es

Te

chn

olo

gy

He

alt

hca

re

Re

tail

Oil

& G

as

Pe

rso

na

l &

Ho

use

ho

ld G

oo

ds

Au

tom

ob

ile

s &

Pa

rts

Fin

an

cia

l S

erv

ice

s

-100%

-50%

+0%

+50%

+100%

+150%

Average incentives vested in 2011 and 2012 TSR 2009-2011

The comparison of average incentives and TSR realised over the 3-years’ vesting period7

seems to confirm once again that executives’ compensation is not aligned to shareholders’

interests. In particular, the CEOs of Travel & Leisure’s companies on average realised € 2 million

from the vesting of long-term incentives, while their shareholders suffered an aggregate loss of 9%

over the same vesting period. Similarly, average incentives paid to Food & Beverage’s CEOs

amounted to € 915'891, versus an aggregate loss of 17% of shareholders’ value. The same

consideration applies to Utilities and Media, but also to those industries where incentives were

much lower than the value created to shareholders: Financial Services and Technology.

On the other hand, a sort of alignment of interests seems to be realised in 6 industries,

where the incentives grew (even if more than proportionally) together with the created value:

Industrial Goods & Services, Healthcare, Retail, Oil & Gas, Personal & Household Goods and

Automobile & Parts. The same level of alignment is observable in the Real Estate and the

Telecommunications industries, where incentives did not vest and the TSR was negative.

Looking at all data analysed so far, it is possible to conclude that annual bonuses paid by

largest 98 Italian listed companies are completely independent from operating and market results

achieved on the previous year. On the other side, some kind of correlation may be observed with

7 All share market values are referred to the 31 December 2008 – 31 December 2011 period, except for Mediobanca

and Danieli, whose data are referred to the 30 June 2008 – 30 June 2011 period.


31

regards to the long term, in particular in those companies where long-term incentives represent

the main CEO remuneration component.

1.5. Total remuneration awarded

As already highlighted at the beginning of this study, the analysis may lead to different

conclusions when considering the variable remuneration that was awarded during the fiscal year,

instead of the vested one. In fact, awarded long-term incentives are not yet available to the

beneficiary, being subject to future vesting conditions. Anyway, the analysis of the awarded

components is useful to evaluate the remuneration policy and the structure of incentives.

The overall remuneration of Italian CEOs increased also considering the awarded

components: € 223.1 million in 2012 versus € 197.4 million, or +13%. The average compensation

did not change too much alternatively utilizing the two methodologies (€ 2'276'898 the average

awarded CEO’s compensation, versus € 2'351'143 the vested one), as well as the overall

remuneration structure: base salaries represented 43% of the awarded compensation (41% of the

vested one), annual bonuses 15% (14% the vested ones), long-term incentives 41% (44% the

vested ones) and the benefits 1% as per both methodologies.

Total remuneration awarded in 2012 vs. total remuneration vested

The main reason of the similarities between awarded and vested remuneration structure is

that the alternative methodologies only affect the long-term incentives, the value of which

depends on future performances. On the other hand, differences between awarded and vested

compensations are much more evident taking into account individual compensations. Net of the

Vested remuneration structure 2012

Annual

bonus

14%

Benefits

1%Long-term

incentives

44%

Base salary

41%

Awarded remuneration structure 2012

Benefits

1%Base salary

43%Long-term

incentives

41%

Annual

bonus

15%


32

CEO of Fiat and executive Chairman of Fiat Industrial, whose 2012 compensation does not really

change, substantial differences may be observed in the value of awarded incentives (that will vest

in the future) of other top-paid CEOs: the fair value of the stock options awarded to the CEO of

Yoox (€ 5.9 million on the vesting date) is much lower than the gain realised from the exercise

(€ 23.6 million), as well as the value of free shares awarded to Luxottica’s CEO (€ 2.4 million, versus

€ 10 million of shares vested in 2012).

Structure of highest 15 compensations awarded to the CEOs in 2012

FIAT - Marchionne



YOOX - Marchetti

LUXOTTICA - Guerra

ENI - Scaroni

AUTOGRILL - Tondato da Ruos

GTECH - Sala

MONDADORI - Costa

EXOR - Elkann

ENEL - Conti


CIR - R. De Benedetti

UNICREDIT - Ghizzoni

SAIPEM - Tali


€ 33'935'000

€ 17'669'800

€ 7'471'605

€ 7'169'913

€ 6'746'317

€ 6'397'000

€ 5'780'478

€ 5'197'406

€ 5'102'279

€ 4'710'800

€ 4'617'027

€ 3'937'000

€ 3'777'000

€ 3'541'550

€ 3'134'000

Of course, the value of base salaries and annual bonuses do not change, as both

components vest on the same date of grant.


33

2. FTSE MIB: the overall compensations

Net of eventual severance payments, that have been excluded to keep all data as much

homogeneous as possible, the aggregate remuneration paid to CEOs and Board members by 38

largest Italian companies amounted to € 307.99 million in 2012.

FTSE MIB: aggregate 2012 remuneration (€ mil.)

CEOs € 138.29

Executive

Directors

€ 111.79

Non-executive

Board

members

€ 57.91

The overall cost of FTSE MIB Boards increased by 18.7% in 2012, from € 259.4 million

recorded in 2011. Taking into account that the number of Board members decreased by 7% last

year (from 549 members in 2011 to 512 in 2012), the growth of average compensations is even

higher: +27.2%, from € 472'660 in 2011 to € 601'354 in 2012. The remuneration trend was not the

same for all members: while CEOs and executive Directors benefited of higher revenues

(respectively +31.3% and +26.3%), their non-executive colleagues incurred in 11.7% lower

emoluments.

Aggregate remuneration by category (€ mil.)

€ 138.29

€ 57.91€ 65.55

€ 111.79

€ 88.51

€ 105.32

-11.7%

+26.3%

+31.3%

CEOs Executive Directors Non-executive Board members

Aggregate 2012 remuneration Aggregate 2011 remuneration Changes


34

The value of vested remunerations does not always coincide with the actual cost suffered

by the company. Equity-based incentives, for instance, are often served by own shares that were

repurchased by the company over previous years, even through multiple buy-back programs. In

those cases, the actual cost is given by the amounts paid for every single repurchase. Although not

representative of the actual impact of Board fees on companies’ financials, the comparison

between remunerations paid and total revenues may give a first rough idea of the impact of Board

members’ compensation on listed companies’ activities.

On average, the main corporate body represented 0.41% of total revenues8 realised in

2012 by 38 largest Italian companies: +78.3% respect to the same ratio in 2011. Of course, the

simple average does not take into account the remarkable differences of FTSE MIB components’

size: the impact of € 9 million remunerations is much lower if compared to € 127 billion Eni’s

revenues (0.01%) than to Exor’s € 110.7 million (8.1%). At the same time, Eni’s remuneration

structure is not more adequate than the Exor’s one only because of the lower weight on revenues.

The specificities of each company and relevant industry should be always taken into account: the

revenues’ structure strongly differs from industrial companies (such as Eni) to financial holdings

(such as Exor), where incomes mostly depend on dividends paid by subsidiaries.

In order to reduce the distortions caused by different sizes, it is possible to compare the

aggregate remuneration amount paid by 38 FTSE MIB companies to aggregate revenues. By this

way, the ratio results much more reasonable: 0.051%, increasing by 8.5% respect to 0.047%

recorded in 2011. The increasing ratio is a first signal of the disproportion between remunerations

and operating results, that also increased by 8.9% in 2012.

Another term of comparison may be represented by the wages paid to employees, that

increased by 3.8% in largest Italian companies (€ 53.6 billion versus € 51.6 billion in 2011). As the

number of employees went up in 2012 (1.57 million versus 1.56 million the previous year), the

increase of their average wages was slightly lower (+2.9%, to € 40'423 from € 39'270 in 2011)9. On

8 Revenues at banking groups are represented by the intermediation margin

9 Some companies did not disclose consolidated wages and salaries on Financial Statements (Fiat, Fiat Industrial,

Luxottica and Salvatore Ferragamo), in those cases average wages have been estimated on the basis of the aggregate

labour costs or on historical data.


35

average, each Board member received 14.9 times the average employees’ salary in 2012. Also in

this case, the ratio increased during the year under review, by 24.2%.

Changes in corporate members’ compensation vs. revenues and average wages

+2.9%

+8.9%

+18.7%

+0%

+5%

+10%

+15%

+20%

CEOs and Board members Total revenues Average employees' wages

Changes of Board Compensations/Total revenues ratio

and of Board Compensations/Employees wages ratio

0.051%0.047%

14.88

12.04

0.000%

0.013%

0.025%

0.038%

0.050%

2011 2012

0

3

6

9

12

15

Compensations / Revenues Compensations / Wages


36

3. FTSE MIB CEOs’ remuneration

The study defines as CEO the main responsible of company’s management, who may also

be not a member of the Board. When the person in charge changed during the year under review,

the remuneration of the new CEO will be taken into account, unless they held the position for a

period of time too short to allow a clear evaluation of the annual remuneration.

3.1. Overall compensation vested in 2012

Before analysing the CEOs’ overall compensation, it may be useful to remind the

methodology utilised to calculate the vested components, that include:

• All cash payments and non-monetary benefits awarded in the year under review;

• The value on the vesting date of free shares granted, even if awarded in previous years;

• The gain realised from the exercise of stock options, as the difference between the

options’ strike price and the share market value on the exercise date.

As already highlighted in the previous chapter, the overall CEO’s remuneration in FTSE MIB

companies increased by 31.3% in 2012, to € 138.3 million from € 105.3 million in 2011. The

increase is substantially due to the vesting of long-term incentives, more than doubled in 2012,

amounting to € 68.6 million versus € 28.9 million the previous year. On the other side, base

salaries and annual bonuses respectively decreased by 5.4% and by 16%.


37

FTSE MIB: aggregate CEOs’ remuneration components (€ mil.)

€ 105.3

€ 138.3

€ 52.7 € 49.9

€ 23.7 € 19.9€ 28.9

€ 68.6

Total

compensation

Base salary and

benefits

Annual bonus Long-term

incentives

2011 2012

-16.0%

+31.3%

+137.0%

-5.4%

In order to better identify the actual reasons of the 31% increase in the CEOs’

remuneration, it is necessary to further break variable components down by nature (cash versus

equity-based).

FTSE MIB: breakdown of CEOs’ variable remuneration 2012 (€ mil.)

€ 23.7€ 19.5

€ 22.4

€ 15.5

€ 6.5

€ 53.4

Monetary annual bonus Monetary long-term

incentives

Equity-based long-term

incentives

2011 2012

-30.6%

+716.1%

-17.5%

The vesting of deferred share schemes, together with the value realised from the exercise

of stock options, clearly boosted the aggregate CEOs’ remuneration in 2012. Anyway, such

impressive trend was not generalized on the Italian market, but it was limited to only 3 large

companies, and 2 CEOs, where the equity-based incentives that vested in 2012 represented more

than two thirds of the vested amount of all FTSE MIB incentive plans: the CEO of Fiat and executive


38

Chairman of Fiat Industrial, Mr. Sergio Marchionne, received 4 million free shares of each

company, of an aggregate value of € 40.7 million on the vesting date10

(€ 14.2 million related to

Fiat and € 26.5 million to Fiat Industrial), while Luxottica’s CEO, Mr. Andrea Guerra, received

375'000 free shares related to the 2009 Performance Share Plan, of € 10 million value on the

vesting date. In 2011 no long-term incentives vested for both Mr. Marchionne and Mr. Guerra.

Net of € 50.7 million incentives granted by Fiat Group and Luxottica, the aggregate value of

equity-based incentives that vested in other 35 companies was only € 2.7 million in 2012,

considerably decreasing by 59% versus 2011.

The very small number of equity-based incentives that vested over last year is the clear

evidence that Italian companies do not like such incentive tools to stimulate the value creation.

Less than one half of Italian large caps’ remuneration policies provide for equity-based variable

components (17 out of 38), of which only one-third include stock option plans. Nevertheless, if

adequately structured, stock option plans may represent the strongest means of alignment of

interests in the long term. In addition, Fiat and Fiat Industrial’s share schemes were not subject to

any performance criteria, but to the mere continued relationship of the beneficiary with the Group

(“retention plans”).

On average, each FTSE MIB components’ CEO realised € 3'639'135 last year (€ 2'771'482 in

2011), but the structure of individual remunerations substantially varied, passing from € 27.8

million paid by Fiat Industrial to € 351'084 realised by Buzzi Unicem’s CEO, Mr. Michele Buzzi. In

2011, the highest remuneration level vested in Pirelli, where the Chairman and CEO realised € 22.3

million, while the lowest one was still awarded to Mr. Buzzi, with € 322'221.

In order to reduce the distortion effects caused by extreme amounts, it is possible to

calculate median values in place of simple averages. Quite surprisingly, the median remuneration

decreased by 18.5% in 2012, to € 1'666'322 from € 2'044'183 in 2011. The gap between average

and median values is a clear evidence of the huge differences occurring in individual remuneration

structures.

10 In February 2012 Mr. Marchionne sold 980'000 Fiat and 980'000 Fiat Industrial ordinary shares, in order to pay part

of the tax liabilities associated with the allotment of the shares.


39

The following chart reports the remuneration structure of each FTSE MIB components’

CEO. Once again, long-term incentives (both monetary and equity-based) stand out as the

discriminating components of individual remuneration policies.

FTSE MIB: individual CEO’s remuneration structure 2012 (€ mil.)

BUZZI UNICEM - Michele Buzzi

DIASORIN - Rosa

ANSALDO - De Luca

BPER - Odorici

MEDIOLANUM - Ennio Doris

PARMALAT - Guérin

BANCA POP MILANO - Montani

IMPREGILO - Pietro Salini

A2A - Ravanelli

TELECOM ITALIA - Patuano

UBI BANCA - Massiah

CAMPARI - Kunze Concewitz

ENEL GREEN POWER - Starace

AZIMUT - Giuliani

ATLANTIA - Castellucci

BANCA MPS - Viola

PRYSMIAN - Battista

TOD'S - Diego Della Valle

SNAM - Malacarne

BANCO POPOLARE - Saviotti

FINMECCANICA - Orsi

GENERALI - Greco

EXOR - Elkann


MEDIOBANCA - Nagel


TERNA - Cattaneo

MEDIASET - Adreani

PIRELLI & C. - Tronchetti Provera

GTECH - Sala


SAIPEM - Tali

ENEL - Conti

ENI - Scaroni


LUXOTTICA - Guerra

FIAT - Marchionne


Base salary Annual bonus Monetary long-term incentives Equity-based long-term incentives

1.57

1.61

1,70

1,74

1.84

2.00

2.06

2.12

2.66

2.71

2.98

3.08

3.14

4.28

4.54

4.55

6.38

7.46

14.34

18.47

27.80

1.57

1.55

0.65

0.72

0.81

0.83

0.93

0.97

1.05

1.24

1.28

1.39

1.40

1.47

1.49

1.51

0.34


40

Individual remuneration’s changes are reported in the following chart. As already widely

verified, highest annual changes are due to long-term incentives, that tend to vest over longer

periods (usually every 3 years): in Fiat, Fiat Industrial and Autogrill, the incentives vested in 2012

and not in 2011, while in Pirelli and Campari the incentives vested the previous year.

CEOs’ total remuneration changes: 2012 vs. 2011

+988%+654%

+172%

+144%

+126%

+116%

+68%

+31%

+22%

+19%

+16%

+10%

+10%

+7%

+6%

+4%

-0%

-1%

-9%

-10%

-10%

-12%

-12%

-13%

-13%

-16%

-16%

-16%

-20%

-22%

-30%

-33%

-36%

-44%

-51%

-54%

-64%

-86%

Fiat Industrial

Fiat

Autogri llLuxottica

Ferragamo

Saipem

Parmalat*Eni

A2A

GtechPrysmian

Intesa*

Ansaldo

Buzzi UnicemExor

Enel

Azimut

AtlantiaUniCreditMediaset

UBI BancaMediolanum

B. Popolare

BPM*

Finmeccanica*

Enel GP

Banca MPS*SnamGenerali*

Telecom Ital ia

Tod's

MediobancaTernaImpregilo*

BPER*CampariPirell i & C

Diasorin

The CEO of 8 companies, that are marked with an asterisk in the above chart, changed

during the year under review. Due to the presence of different beneficiaries in each year, and due

to different vesting periods of relevant remuneration components, the comparison of overall

annual compensations is not meaningful. Long-term incentives are by their nature deferred over

multiple periods, subject to annual or cumulative results achieved. The most accurate comparison

of total compensations should take into account all components vested over the last 3-years’

period, that represents the average duration of the long-term incentive plans.


41

The new rules introducing the shareholders’ vote on remuneration policies, and that

notably enhanced the quality of disclosure of all remuneration components, was implemented for

the first time in 2012. Hence, not enough details are available with regards to incentives that

vested before fiscal year 2011. In particular, not all 2010 Financial Statements clearly reported

whether the awarded variable components were related to annual bonuses or to long-term

incentive plans, as well as the relevant vesting period. Nevertheless, it is possible to calculate the

overall compensation received by the CEOs in 2010, broken down by nature: base salary, cash

variable and equity-based incentives.

The following chart includes the aggregate remuneration realised by each CEO over the last

three years, in order to better evaluate their actual structure. Enel Green Power, Fiat Industrial and

Salvatore Ferragamo are excluded, as not yet listed in 2010. It is also necessary to remind that

several CEOs changed over the last three years, hence some aggregate remuneration may be

partial and not fully representative of the actual company’s policy.


42

Aggregate remuneration realised over the 2010 - 2012 period (€ mil.)11

BUZZI UNICEM

PARMALAT

MEDIOLANUM

ANSALDO

BPM

A2A

UBI BANCA

BPER

AZIMUT

ATLANTIA

BANCA MPS

DIASORIN

SNAM

IMPREGILO

PRYSMIAN

EXOR

TELECOM ITALIA

BANCO POPOLARE

FINMECCANICA

UNICREDIT

MEDIOBANCA

TOD'S

CAMPARI

GENERALI

AUTOGRILL

GTECH (EX-LOTTOMATICA)

INTESA SANPAOLO

MEDIASET

TERNA

SAIPEM

ENEL

ENI

FIAT

LUXOTTICA

PIRELLI & C

Base salary Monetary variable components Exercised stock options Shares granted

31.30

26.56

24.21

15.67

11.85

10.83

9.87

9.59

8.30

7.93

7.63

7.60

7.07

6.94

6.72

6.66

6.32

6.10

5.67

5.64

5.37

11 Non-monetary benefits have been excluded to keep the chart clearer. Over the 2010-2012 period, benefits

represented 1.6% of the aggregate compensations.

5.30

5.04

4.97

4.82

4.53

4.47

4.39

4.26

3.72

3.08

2.80

2.59

2.03

0.97


43

The analysis of aggregated three-years’ compensations clearly highlights that the cash

payments are by far the main incentive tool utilised by large Italian companies: Luxottica, Fiat,

Campari and Diasorin are the few companies where equity-based incentives represented the main

variable component awarded over the last three years.

Breakdown of remuneration components awarded over the 2010-2012 period

(35 FTSE MIB companies)

Base salaries

50.8%

Benefits

1.6%

Cash variable

components

32.6%

Shares granted

10.5%Exercised stock

options

4.5%

For a complete evaluation of CEO remunerations’ trend, overall compensations have been

compared to average wages paid to the employees over the same period. On average, each CEO

realised 90 times the average salary of the employees at FTSE MIB companies in 2012 (70.6 times

in 2011). Taking into account the median values, in order to eliminate the distortions caused by

extremities, the compensations/salaries median ratio was 41.2 in 2012, decreasing from 52

recorded in 2011.

Over the 2010-2012 period, the CEO average remuneration equalled the salaries paid to

74.7 employees. In the same 3-years’ period, the top managers’ compensation increased by 46.9%,

versus +2.8% realised by approximately 1.3 million employees.


44

Average CEO’s remuneration versus wages and salaries in the 2010-2012 period

€ 0

€ 1'000'000

€ 2'000'000

€ 3'000'000

€ 4'000'000

2010 2011 2012

Average wages and salaries Average CEO's compensation

63.0 70.6

90.0

+2.8%

+46.9%

3.2. The fixed component

The average base salary paid by large Italian companies to their CEOs decreased by 6.4% in

2012, to € 1'256'758 from € 1'343'124 in 2011. The average exclusively includes the amounts paid,

even when the CEO changed during the year under review. Of course, in those cases the reported

base salary is related to the months in charge and not to the full year. In particular: (i) the new CEO

of Impregilo, Mr. Pietro Salini, has been in charge for 5 months in 2012, receiving € 54'628 of his

€ 800'000 annual base salary, and (ii) the newly appointed CEO of Generali, Mr. Mario Greco,

received € 541'666 of € 1'300'000 annual base salary, for 5 months in charge during 2012. Taking

into account the annual amounts, the average base salaries decreased by 3.5% in 2012.

The following chart reports all fixed components on annual basis, highlighting great

differences among individual compensations: the highest base salary, that was paid by Pirelli to

Mr. Tronchetti Provera, is more than 10 times the lowest one, paid by Buzzi Unicem to Mr. Buzzi.

In both cases, the CEO is a representative of the controlling shareholder, but Mr. Tronchetti

Provera also holds the role of Chairman of the Board. Nevertheless, the huge difference seems not

to be justified neither by the different role nor by the company’s size, as Pirelli’s ordinary market

capitalization is approximately 2.4 times the Buzzi Unicem’s one.


45

Fixed component of the CEO remuneration in 2012

€ 301'787

€ 426'794

€ 511'291

€ 600'000

€ 710'000

€ 736'574

€ 771'000

€ 780'000

€ 783'357

€ 800'000

€ 813'000

€ 834'292

€ 837'000

€ 851'679

€ 930'821

€ 971'312

€ 1'005'000

€ 1'008'423

€ 1'118'730

€ 1'300'000

€ 1'300'300

€ 1'391'375

€ 1'414'522

€ 1'423'357

€ 1'430'000

€ 1'485'000

€ 1'490'000

€ 1'570'945

€ 1'591'338

€ 1'700'000

€ 1'740'000

€ 2'000'000

€ 2'117'688

€ 2'300'000

€ 2'300'000

€ 2'327'794

€ 2'509'568

€ 3'077'554


ANSALDO - De Luca

DIASORIN - Rosa

PARMALAT - Guérin

SNAM - Malacarne



A2A - Ravanelli



BPER - Odorici

MEDIOLANUM - Ennio Doris

SAIPEM - Tali

GTECH - Sala


BANCA POP MILANO - Montani



PRYSMIAN - Battista

GENERALI - Greco


UBI BANCA - Massiah

BANCA MPS - Viola

ENEL - Conti

ENI - Scaroni

TERNA - Cattaneo

AZIMUT - Giuliani

TOD'S - Diego Della Valle


BANCO POPOLARE - Saviotti

FINMECCANICA - Orsi

EXOR - Elkann

MEDIOBANCA - Nagel


FIAT - Marchionne

MEDIASET - Adreani

LUXOTTICA - Guerra

PIRELLI & C. - Tronchetti Provera


46

According to the Italian Corporate Governance Code, criterion 6.C.1, “the non-variable

component shall be sufficient to reward the director when the variable component was not

delivered because of the failure to achieve the performance objectives specified by the Board of

Directors”. Furthermore, the same criterion recommends that the fixed component should be

defined also “taking into account the business sector in which it operates and the nature of the

business carried out”.

The role and powers of each CEO, as well as the corporate structures supporting their

activities, may strongly differ according to each company’s specificities. Nevertheless, both

organizational aspects seem not to be enough to justify the huge differences among base salaries

paid by Italian companies. Other key factors that should be taken into account are represented by

the size of the company and by the relevant markets of operations. In fact, the international

competition may highly influence the remuneration dynamics at large corporations. The overall

CEO’s compensation in global groups should be high enough to win the competition of similar

organizations, in order to attract the most valuable professionals worldwide.

The base salaries paid by the FTSE MIB components will be compared with the European

peers in paragraph 6.1. At this stage of the analysis, each fixed component of the CEO

remuneration will be compared with a group of indicators representing the size of each company:

ordinary stock market capitalization (as of 31 December 2012), total revenues realised and the

average personnel employed in the fiscal year under review.

Base salaries vs. market capitalization and total revenues 2012

Base salary Market capitalization Total revenues


47

In the above chart, 38 FTSE MIB components are arranged in descending order by the base

salary paid to the CEO. The discontinuous trend of both the market capitalization and the total

revenues’ lines is a clear evidence that the amounts paid to the CEO are completely independent

from companies’ size, at least with regards to the two parameters taken into account. In fact,

Pirelli’s market capitalization is equal to one seventeenth of Eni’s (and total revenues are one

twentieth), but the base salary of Mr. Tronchetti Provera is more than twice the one of Mr. Scaroni

(CEO of Eni). Both Pirelli and Eni are global groups facing the international competition, hence an

accurate evaluation of their remuneration structures should also take into account the best

practices in each industry. As reported in the following comparison with European peers, the fixed

component of Pirelli’s CEO and Chairman is the highest one in a group of 10 Automotive & Parts’

companies (€ 3'077'554 versus an average of € 1.5 million).

Actually, the amount of the base salary is much more dependant on the specific market and

corporate culture: the fixed components in 18% of largest Italian companies exceeded € 2 million

in 2012, versus 8% of European peers (60% of which were Spanish), despite the much lower FTSE

MIB average market capitalization (€ 8 billion versus € 23 billion of European peers, as of 31

December 2012).

Another interesting parameter of comparison may be represented by average wages paid

to employees by each listed company. As already evidenced, CEO fixed compensations decreased

by 3.5% in Italian large companies, while average wages increased by 2.8% in 2012. Each top

manager’s emolument equalled the salaries paid to 30.2 employees, with a maximum ratio of

124.7 in Pirelli and a minimum of 6.9 in Ansaldo12

. In 2011 the average ratio was 33.1, still with the

highest level in Pirelli (146.6) and the lowest in Ansaldo (8.3).

12 In this case, the annual base salaries approved by the Board have been taken into account, regardless the number of

months in charge. Considering the amount actually paid, the minimum ratio would have been recorded in Impregilo,

where the CEO’s fixed compensation, for 5 months in charge, was equal to the average salary of 1.3 employees.


48

CEO’s fixed compensation vs average wages in 2012

20.5

20.6

23.8

24.2

25.0

26.3

28.6

29.0

29.4

29.9

30.2

30.6

32.8

36.8

55.7

57.5

60.9

99.0

124.7

€ 62.15

€ 31.16

€ 50.49

€ 67.30

€ 118.87

€ 53.01

€ 52.15

€ 48.94

€ 45.61

€ 45.55

€ 46.35

€ 52.65

€ 42.18

€ 31.28

€ 72.60

€ 40.56

€ 42.43

€ 53.74

€ 31.24

€ 52.99

€ 49.94

€ 48.77

€ 71.97

€ 33.58

€ 47.06

€ 36.59

€ 39.67

€ 50.81

€ 68.67

€ 50.89

19.2

34.2

33.9

33.5

42.6

6.9

9.7

10.1

12.4

12.5

14.0

14.8

14.8

15.1

15.6

17.9

18.4

18.4

19.0

€ 142.95

€ 24.68

€ 25.34

€ 37.78

€ 40.00

€ 28.22

€ 37.40

€ 25.32

ANSALDO

BUZZI UNICEM

DIASORIN

MEDIOLANUM

AZIMUT

EXOR

ENEL GREEN POWER

FERRAGAMO

CAMPARI

SNAM

BPER

GTECH

BPM

IMPREGILO

PARMALAT

TERNA

SAIPEM

ATLANTIA

GENERALI

A2A

UBI BANCA

ENI

BANCA MPS

MEDIOBANCA

TELECOM ITALIA

ENEL

PRYSMIAN

FIAT INDUSTRIAL

BANCO POPOLARE

MEDIASET

FINMECCANICA

AUTOGRILL

UNICREDIT

TOD'S

INTESA SANPAOLO

FIAT

LUXOTTICA

PIRELLI & C

Fixed compensation/average wages ratio Average wages 2012 (€ thousands)


49

3.3. The annual bonus

In order to accurately evaluate the correlation between remunerations and performances,

it is necessary to separately analyse the variable compensations according to their relevant vesting

period: (i) the annual bonus, that should exclusively depend on the results achieved the previous

year, and (ii) the long-term incentives, that vest over multiple years’ period, subject to predefined

performance criteria.

In 2012, the FTSE MIB components totally paid € 19.9 million annual bonuses to their CEOs

(-16% respect to € 23.7 million paid in 2011), representing 14% of their compensations and 41% of

relevant annual base salaries.

All annual bonuses were paid in cash, with the only exception of UniCredit, where 84'023

shares were granted to the CEO on the results achieved in 2011, of € 337'016 aggregate value, that

represented the 50% upfront component of the performance share plan.

Highest bonuses were paid by Enel (€2'735'036) and Eni (€ 2'110'000), that are both State-

owned companies. More specifically, Enel’s CEO received the equivalent amount of 192% his base

salary (more than 150% upper limit disclosed in the company’s Remuneration Report), while Eni’s

CEO bonus was equal to 148% his fixed component (on 155% disclosed upper limit).

Eleven companies did not award any annual bonus: Azimut (where the CEO and Chairman

does not benefit of any variable compensation), Banco Popolare, Banca Popolare dell’Emilia

Romagna, Banca Popolare di Milano, Fiat Industrial, Finmeccanica, Mediobanca, Pirelli, Tod’s, Exor

and Mediolanum (the two latter only provide for long-term incentive plans). Hence, the annual

bonus was awarded by 77% of FTSE MIB companies that provide for a short-term variable

compensation to the CEO. In two cases, the bonus amount was definitely nominal (€ 1'170 in UBI

Banca) or almost nominal (€ 32'604 in Buzzi Unicem).

A first comparison criterion, often utilised by the proxy advisers to evaluate the variable

components, may be represented by the annual bonuses on fixed compensations ratio.


50

Annual bonus as percentage of base salary

192%

170%

148%

125%

100%

89%

86%

81%

72%

66%

65%

59%

57%

54%

50%

50%

47%

34%

28%

28%

26%

21%

17%

16%

11%

10%

0%

0% 50% 100% 150% 200%

ENEL - Conti

GTECH - Sala

ENI - Scaroni


GENERALI - Greco


FIAT - Marchionne

SAIPEM - Tali

LUXOTTICA - Guerra


SNAM - Malacarne

A2A - Ravanelli

TERNA - Cattaneo

PARMALAT - Guérin



ANSALDO - De Luca


MEDIASET - Adreani


DIASORIN - Rosa


PRYSMIAN - Battista



BANCA MPS - Viola

UBI BANCA - Massiah

According to the internationally recognized best practices, large part of the overall

remuneration should be represented by the variable components, the majority of which should be

made of long-term incentives. The following chart shows the weight of the annual bonuses on total

remunerations vested in 2012.


51

Annual bonus on total remuneration 2012

55%

49%

47%

45%

37%

34%

33%

33%

32%

31%

28%

27%

22%

21%

20%

15%

15%

13%

12%

12%

11%

9%

9%

7%

5%

0%

59%

0% 15% 30% 45% 60%

ENEL - Conti


GENERALI - Greco


GTECH - Sala

A2A - Ravanelli


ENI - Scaroni


PARMALAT - Guérin

TERNA - Cattaneo

SNAM - Malacarne

ANSALDO - De Luca

MEDIASET - Adreani


DIASORIN - Rosa

SAIPEM - Tali


LUXOTTICA - Guerra

PRYSMIAN - Battista


FIAT - Marchionne


BANCA MPS - Viola



UBI BANCA - Massiah

Of course, the above reported ratios depend on both the annual bonus’ amount and the

eventual vesting of long-term incentives. The total remuneration awarded over a longer period, at

least equal to long-term incentives’ vesting period, should be taken into account to accurately


52

define the actual weight of each variable component. In any case, first data on annual bonuses

highlight that some companies, such as Enel, Gtech and Impregilo, appreciated the results

achieved in 2011 much more than others, such as Pirelli and Tod’s, that did not award any bonus in

2012.

Although the new rules on the say-on-pay have strongly improved the quality of disclosure,

not all 2013 Remuneration Reports duly reported all performance criteria related to annual

bonuses: only 14 reports out of 35 (40%) duly disclosed the short-term performance conditions.

Performance criteria were partially disclosed in 21 Remuneration Reports, most of which only

generically reported Group-related criteria, without disclosing individual performance conditions.

The main reason of the lack of disclosure is due to avoid giving competitors an advantage from a

full disclosure of the company’s short-term targets. Despite the motivation being absolutely

understandable, the Remuneration Reports did not even disclose to which condition the bonuses

paid in 2012 were subject to. By this way, shareholders cannot adequately analyse the structure of

short-term variable components, nor whether performance criteria are sufficiently challenging.

More than 30 short-term performance criteria were disclosed in 2013 remuneration

policies, from minimum 2 up to maximum 11 criteria per bonus plan. Where detailed, criteria may

be of the most varied nature, from profitability or financial stability ratios to qualitative

performances (such as the safety on workplaces) or organizational criteria (i.e., the

implementation of a new organizational structure). Despite the great variety and complexity of the

factors taken into account in the definition of the annual bonus, some indicators are reported in

almost all bonus plans: Tier 1 Ratio (banks), Solvency Ratio (insurance companies), Assets Under

Management (financial services) and EBITDA (all others). The following charts will compare the

annual bonus rewarded by each company in 2012 to the relevant performance achieved in 2011.

To simplify the chart, financial companies (banks and insurers) are separately reported. Where the

EBITDA is not clearly disclosed in the Financial Statements, similar criteria have been analysed13

.

Financial services’ companies (Azimut and Exor), as welll as Mediolanum, are excluded as all of

them do not provide any short-term variable compensation.

13 EBIT performance is reported for Fiat and Fiat Industrial, while Ansaldo and Finmeccanica disclosed the EBITA

(“earnings before interest, taxes and amortization”).


53

Annual bonus paid in 2012 vs. EBITDA change in 2011 (non-financial companies)

€ 0

€ 500'000

€ 1'000'000

€ 1'500'000

€ 2'000'000

€ 2'500'000

€ 3'000'000

En

el

En

i

Fia

t

Luxo

ttic

a

Gte

ch

Imp

reg

ilo

Te

rna

Saip

em

Ca

mp

ari

Me

dia

set

En

el

Gre

en

Po

we

r

Atl

an

tia

Sna

m

A2

A

Ferr

ag

am

o

Pa

rma

lat

Au

tog

rill

Te

leco

m I

tali

a

An

sald

o

Pry

smia

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Dia

sori

n

Bu

zzi

Un

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m

Fia

t In

du

stri

al

Fin

me

cca

nic

a

Pir

ell

i

To

d's

-150%

-100%

-50%

+0%

+50%

+100%

+150%

+200%

+250%

+300%

Bonus EBITDA change 2011

The EBITDA realised in 2011 by 5 companies was lower than in 2010, of which only

Finmeccanica did not award the bonus to the Chairman and CEO, Mr. Giuseppe Orsi, in charge

since December 2011. On the other hand, the CEOs of Fiat Industrial, Pirelli and Tod’s did not

receive any bonus despite higher EBITDA realised in 2011.

It should be said that the many plans define as main performance indicator the Adjusted

EBITDA, that does not take into account the non-recurring items (such as goodwill impairments).

For instance, impairments strongly affected Prysmian’s operating results, so that the company’s

EBITDA decreased by 26.4%, while the Adjusted EBITDA’s increased by 46.8%. Apart from that

necessary distinction, it is not possible to verify a clear correlation between awarded bonuses and

operating performances.

Exactly the same result is observed in financial sectors, where the analysed performance

criteria are the Tier 1 Ratio (for banks) and the Solvency Ratio (for insurers).


54

Annual bonus paid in 2012 vs. Tier 1 (banks) or Solvency (insurers) ratios’ change in 2011

€ 0

€ 200'000

€ 400'000

€ 600'000

€ 800'000

€ 1'000'000

€ 1'200'000

€ 1'400'000

Ge

ne

rali

Inte

sa S

an

pa

olo

Un

icre

dit

Ba

nca

MP

S

UB

I B

an

ca

Ba

nco

Po

po

lare

BP

ER

BP

M

Me

dio

ba

nca

-15%

-10%

-5%

+0%

+5%

+10%

+15%

+20%

+25%

+30%

+35%

Bonus Tier 1 Ratio and Solvency Ratio changes 2011

Both companies that realised a negative performance (Generali and UniCredit) paid the

annual bonus in 2012, while 5 out of 7 banks that improved the Tier 1 Ratio in 2011 did not reward

the CEO for such result14

.

One plausible reason of the absence of alignment of the annual bonus with operating

results is the high number and variety of criteria provided by the short-term incentive plans.

Nevertheless, another reason, much less justifiable, is that several rewards were expressly not

linked to any performance criteria. The CEOs of Impregilo, Generali and Banca MPS were not in

charge in 2011, yet they received a variable remuneration in 2012 (respectively of € 1 million, of

€ 1.3 million and of € 140'000), as mere “entry bonus”. It is necessary to highlight that the new

CEO of Banca MPS, Mr. Fabrizio Viola, in May 2012 renounced to € 400'000 severance payments

awarded by the Board of Directors, when he took on the double position of CEO and General

Manager. At the same time, the CEO of Banco Popolare, Mr. Pier Francesco Saviotti, renounced to

granted shares related to year 2011, of € 382'800 aggregate value on the assignment date.

14 The CEO of UBI Banca also received an annual bonus of a symbolic amount compared to the overall compensation (€

1'170), so that it cannot be considered as a real reward.


55

As it is not possible to identify only one operating parameter for all companies, a more

homogeneous comparison may be performed by taking into account the value created to

shareholders, or Total Shareholder Return, realised in 201115

. The TSR includes the capital gain

realised plus the dividends paid over the period under review.

Although it is not the most appropriate parameter to evaluate the short-term performance,

as it highly depends on market volatility and external factors, the TSR gives the best representation

of the interests’ alignment between managers and shareholders, in particular over a long period of

time (in fact, the TSR is one of the most frequent performance criteria utilized in long-term

incentive plans).

The following charts compare the bonus received by each CEO to the TSR realised in 2011:

the first chart includes 20 companies that awarded highest bonuses in 2012, while remaining 15

companies are reported in the second chart16

(red bars in case of negative TSR in 2011).

Annual bonus 2012 vs. TSR 2011 (top 20 bonuses)

€ 0

€ 500'000

€ 1'000'000

€ 1'500'000

€ 2'000'000

€ 2'500'000

€ 3'000'000

En

el

En

i

Fia

t

Luxo

ttic

a

Gte

ch

Ge

ne

rali

Imp

reg

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Te

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Saip

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Ca

mp

ari

Me

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set

En

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Gre

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Po

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Atl

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tia

Sna

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A2

A

Ferr

ag

am

o

Inte

sa S

an

pa

olo

Un

icre

dit

Pa

rma

lat

Au

tog

rill

-80%

-60%

-40%

-20%

+0%

+20%

+40%

Bonus TSR 2011

Average TSR

2011 = -21%

15 Mediobanca’s TSR relates to fiscal year July 2010 – June 2011.

16 Azimut, Exor and Mediolanum are excluded as no short-term variable compensations are provided by those

companies.


56

Annual bonus 2012 vs. TSR 2011 (others)

€ 0

€ 50'000

€ 100'000

€ 150'000

€ 200'000

€ 250'000

€ 300'000

Te

leco

m I

tali

a

An

sald

o

Pry

smia

n

Ba

nca

MP

S

Dia

sori

n

Bu

zzi

Un

ice

m

UB

I B

an

ca

Ba

nco

Po

po

lare

BP

ER

BP

M

Fia

t In

du

stri

al

Fin

me

cca

nic

a

Me

dio

ba

nca

Pir

ell

i

To

d's

-80%

-60%

-40%

-20%

+0%

+20%

+40%

Bonus TSR 2011

Average TSR

2011 = -21%

The lack of alignment between CEO’s revenues and the value created to shareholders is

even more clear in the above charts: annual bonuses were paid by 20 companies despite the

negative TSR realised in 2011, while no bonus was paid by 2 out of 8 companies with a positive

result (Mediobanca and Pirelli).

So far, no clear correlation has been verified with regards to EBITDA, Tier 1, Solvency and

TSR performances achieved in 2011. Another attempt may take into account the net result

achieved in 2011, although this parameter is not really representative, as affected by the tax

regimes , by extraordinary items and adjustments.

The following chart reports all companies were a short-term incentive plan is active,

ordered by descending bonus paid in 2012. The highly irregular trend of the net results’ line is a

clear signal that annual bonuses were not aligned even to this performance criterion: the highest

increase of net results was recorded in Pirelli (+1'981%), that did not pay any bonus, differently

from A2A, Intesa Sanpaolo, UniCredit, Telecom Italia, Prysmian and Banca MPS, where net results

decreased by more than 100%.


57

Annual bonus 2012 vs. Net results change 2011

€ 0

€ 500'000

€ 1'000'000

€ 1'500'000

€ 2'000'000

€ 2'500'000

En

el

En

i

Fia

t

Luxo

ttic

a

Gte

ch

Ge

ne

rali

Imp

reg

ilo

Te

rna

Saip

em

Ca

mp

ari

Me

dia

set

En

el

Gre

en

Po

we

r

Atl

an

tia

Sna

m

A2

A

Ferr

ag

am

o

Inte

sa S

an

pa

olo

Un

icre

dit

Pa

rma

lat

Au

tog

rill

Te

leco

m I

tali

a

An

sald

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Pry

smia

n

Ba

nca

MP

S

Dia

sori

n

Bu

zzi

Un

ice

m

UB

I B

an

ca

Ba

nco

Po

po

lare

BP

ER

BP

M

Fia

t In

du

stri

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Fin

me

cca

nic

a

Me

dio

ba

nca

Pir

ell

i

To

d's

-1'200%

-600%

+0%

+600%

+1'200%

+1'800%

Bonus Net results change 2011

For the sake of completeness, 2012 short-term incentives have been also compared to

dividends paid during the same year (related to 2011 results): 3 companies that did not distributed

dividends paid the bonus (Banca MPS, Fiat and UniCredit), while 5 dividend payers did not award

any bonus (Banca Popolare dell’Emilia Romagna, Fiat Industrial, Mediobanca, Pirelli and Tod’s).

So far, all criteria have been compared with the bonus amount awarded to the CEO in 2012,

highlighting that no correlation exists between the rewards and the performances achieved in

2011. The same result can be also observed taking into account how the short-term incentives

changed over the last two years.

The following chart reports, on the left axis, the difference between bonuses rewarded in

2012 and in 2011, compared, on the right axis, to the changes of relevant performance criteria

(EBITDA, Tier 1 Ratio or Solvency Ratio): e.g., the increase of the Gtech’s EBITDA (formerly

Lottomatica) was by 435% higher in 2011 respect to previous year (+19.5% in 2011, versus +3.5%

in 2010) and the company paid € 166'873 higher bonus to the CEO. Companies are ordered by

descending changes of bonus amounts17

.

17 Fiat Industrial was decoupled from Fiat on January 2011, therefore its 2010 performances are related to the

“discontinued operations”, while Fiat 2010 results are related to the “continuing operations”.


58

Changes of short-term incentives rewarded in 2012 and 2011 vs. operating performances

(EBITDA, Tier 1, Solvency)

-€ 5'000'000

-€ 4'000'000

-€ 3'000'000

-€ 2'000'000

-€ 1'000'000

€ 0

€ 1'000'000

€ 2'000'000

€ 3'000'000

Fia

t*

Ge

ne

rali

En

el

Inte

sa S

an

pa

olo

Un

icre

dit

Pa

rma

lat

Gte

ch

A2

A

Ca

mp

ari

An

sald

o

Imp

reg

ilo

Luxo

ttic

a

Sa

ipe

m

Bu

zzi

Un

ice

m

Sn

am

Atl

an

tia

BP

ER

En

i

Me

dio

ba

nca

Te

rna

UB

I B

an

ca

En

el

Gre

en

Po

we

r

Pry

smia

n

BP

M

Ba

nca

MP

S

Ferr

ag

am

o

Dia

sori

n

Ba

nco

Po

po

lare

Au

tog

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Te

leco

m I

tali

a

Me

dia

set

Fin

me

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nic

a

Fia

t In

du

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al*

To

d's

Pir

ell

i

-800%

-600%

-400%

-200%

+0%

+200%

+400%

Bonus changes Performance changes

Once again, the lack of alignment is evident, as 10 companies paid higher short-term

incentives despite worse performance achieved in 2011: Generali (where the CEO received an

entry bonus of € 820'000 higher than his predecessor’s 2011 short-term incentive), Enel (where

the annual bonus is at the highest level in Italy despite the EBITDA increased only by 1.1% in 2011,

versus +6.8% in 2010), UniCredit (the only company that paid the bonus through free shares),

Parmalat, A2A, Campari, Ansaldo, Impregilo (that paid an entry bonus, not related to any

performance criteria), Luxottica and Snam. On the contrary, the bonus paid in 2012 by 6

companies was lower than in 2011, despite better performances: UBI Banca, Enel Green Power,

Banca Popolare di Milano, Banca MPS (that paid an entry bonus, not related to any performance

criteria), Banco Popolare and Telecom Italia.

In only 14 cases out of 35 it is possible to observe a direct correlation between the changes

of annual bonuses and performances: Fiat, Intesa Sanpaolo, Gtech, Saipem and Buzzi Unicem paid

higher bonuses and achieved better results, while the opposite happened in Prysmian, Ferragamo,

Diasorin, Autogrill, Mediaset, Finmeccanica, Fiat Industrial, Tod’s and Pirelli.

Banca Popolare dell’Emilia Romagna and Mediobanca did not pay any bonus over the last

two fiscal years, while the 2012 short-term incentives awarded by Eni, Terna and Atlantia were


59

exactly the same as the previous year. The annual bonus paid by Eni and Terna to their CEOs was

slightly lower than the upper limit provided by their remuneration policies (148% of Eni’s CEO base

salary, versus a cap of 155%, and 57% of Terna’s CEO base salary, versus a cap of 67%). Finally, if

the increase of Atlantia’s EBITDA was in line over the two years under review (+6.8% in 2011

versus +5.1% in 2010), both Eni and Terna realised worse performances in 2011: Eni’s EBITDA

increased by 0.4% in 2011, versus +19.5% the previous year, and Terna’s EBITDA increased by

4.7%, versus +17.1% in 2011.

3.4. The long-term incentives

The analysis of long-term incentive plans has the same characteristics of the one related to

annual bonuses: high variety of performance criteria (approximately 25 different parameters were

reported in 2013), the quality of disclosure is not always adequate (but only 6 Remuneration

Reports did not disclose the performance criteria) and non-performance related incentives are

provided (by Exor, Fiat and Fiat Industrial, where retention plans are active).

Long-term incentive plans are defined by all major Italian banks, as well as by Salvatore

Ferragamo and Tod’s, exclusively as the deferment of a portion of the annual bonus. All banks’

remuneration policies link the vesting of the deferred bonus to further performance conditions,

also through malus clauses: the deferred amount may be lower in case of worse future

performances. In this way, the deferment has the same characteristics of a real long-term

incentive plan. On the other side, the deferred bonus provided by Ferragamo and Tod’s is not

subject to any performance criteria over the vesting period. Similarly, some companies define

long-term incentives also multi-year plans providing for annual payments based on previous year’s

results: as the long-term variable components should be subject to aggregate multi-year

performances, such plans are here defined as short-term incentives.

A2A and Buzzi Unicem’s remuneration policies include only the short-term variable

component, while Azimut’s CEO is not entitled to receive any variable compensations.

An accurate analysis of long-term incentives should take into account the results achieved

over the relevant vesting period, that may be different according to each plan, also depending on

their nature: i.e., stock option plans cover very long periods, including the performance period, the


60

exercise period and the eventual holding period, during which the shares cannot be sold by the

beneficiary.

Example of long-term incentive plans’ timeline

2008 2009 – 2010 – 2011 2012 2012 – 2015

The above reported timeline is very generic and basic, as the full incentive is awarded on

the vesting date, but the complexity of each plan may notably change according to each policy,

that may provide, for instance, for annual instalments and/or for further deferments, subject to

additional performance criteria, etcetera. Anyway, almost all incentive plans are based on at least

3-years’ vesting periods. Taking into account the stock options’ exercise period and eventual

shares’ lock-up periods, equity-based long-term incentive plans may produce effects for 5 / 8 fiscal

years.

Due to the lack of disclosure related to the variable compensations awarded before year

2011, the following analysis will take into account the incentives vested over the last two years

(2011 and 2012) together with the aggregate performances achieved over the 2009-2011 three-

years’ vesting period.

Long-term incentives versus Total Shareholder Return

It is highly recommended to condition the vesting of long-term incentives to multiple

criteria, including operating, financial, market and sustainability performances. Nevertheless, the

TSR is the only parameter that allows an immediate evaluation of the actual alignment of interests

between executive officers and shareholders. When the TSR is calculated over long periods of

time, the distortions caused by stock markets’ short-term volatility are much diluted.

The aggregate incentives vested in 2011 and 2012 have been compared to the TSR realised

over the 2009-2011 vesting period. Mediobanca’s TSR refers to 30 June 2008 – 30 June 2011

Definition of

performance criteria

and allocation of shares

and/or stock options

Vesting period:

performances are

achieved (EBITDA,

TSR, FOCF...)

Payment of cash / vesting of

equity-based incentives (i.e.,

min 0% max 150% of the target

level, according to results)

Stock options exercise

period / eventual share

schemes’ holding period


61

period. When the IPO occurred during the performance period under review, the initial placement

price is taken into account: Enel Green Power has been listed since 4 November 2010 (at € 1.6),

Exor since 2 march 2009 (resulting as the merger of IFI and IFIL, at € 6.15), Fiat Industrial was split

from Fiat on 3 January 2011 (€ 9) and Salvatore Ferragamo has been listed since 29 June 2011

(€9.95).

Cumulative incentives vested in 2011 and 2012 vs. TSR 2009-2011

€ 0

€ 5'000'000

€ 10'000'000

€ 15'000'000

€ 20'000'000

€ 25'000'000

€ 30'000'000

Fia

t In

du

stri

al

Fia

t

Pir

ell

i

Luxo

ttic

a

Ferr

ag

am

o

En

i

Saip

em

Au

tog

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Te

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Ca

mp

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Sna

m

Gte

ch

En

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En

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Po

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Fin

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Me

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*

Pry

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Ba

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An

sald

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Bu

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Un

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m

-100%

-50%

+0%

+50%

+100%

+150%

+200%

+250%

Long-term incentives 2011 + 2012 TSR 2009-2011

The above chart reports 21 companies where long-term incentives vested over the last two

years. In 8 cases (38%) the 3-years’ TSR was negative, including Fiat Industrial (TSR -26.4%), where

the vested incentives were related to previous Fiat Group plans (TSR +94.5%). Other misalignments

were observed in: Gtech (formerly Lottomatica), where € 1'286'165 CEO’s incentives vested when

the TSR was -26%; UniCredit (€ 538'772 incentives versus -56% TSR); Finmeccanica (€ 427'223

incentives versus -62.5% TSR), that in 2011 also paid € 9.48 million severances to the former

Chairman and CEO, Mr. Guarguaglini; Mediobanca (€ 384'000 cash incentives versus -8.9% TSR);

Prysmian (€ 253'158 cash incentives versus -4.5% TSR); Banca MPS (€ 205'000 cash incentives

versus -77.6% TSR); Buzzi Unicem (€ 28.903 equity-based incentives versus -37% TSR).

Long-term incentives did not vest in 15 companies (A2A and Azimut are excluded as not

providing for long-term variable compensations), 7 of which realised positive performances in

terms of TSR over the 2009-2011 period: Exor (+168%), Tod’s (+149%), Diasorin (+42%), Parmalat


62

(+37%), Impregilo (+29%), Atlantia (+24%) and Mediolanum (+14%). In remaining 8 companies

incentives did not vest, in line with negative performances achieved: Banco Popolare (-68%), UBI

Banca (-57%), Banca Popolare di Milano (-55%), Intesa Sanpaolo (-39%), Banca Popolare dell’Emilia

Romagna (-38%), Generali (-36%), Mediaset (-23%) and Telecom Italia (-14%).

Net of Fiat Industrial, where incentives were related to the former parent company’s

performances, the vesting of 14 incentives (40%) seemed to be independent from TSR results over

the vesting period. On the opposite, it is possible to verify an alignment of interests with regards to

21 incentive plans out of 35 (60%). More specifically, highest 10 incentives vested in companies

that realised a positive TSR over the vesting period (minimum Ferragamo’s +2.3% up to maximum

Saipem’s +193%).

Finally, it is possible to observe some kind of alignment between long-term incentives and

TSR, even if the amounts awarded are often disproportionate respect to the shareholders’ return.

If an hypothetical investor had invested € 1.5 million in each one of the FTSE MIB components on

31 December 2008 (subsequently subscribing the IPO shares of Enel Green Power, Fiat Industrial

and Salvatore Ferragamo), the initial investment would have reached € 57 million, slightly more

than € 51 million aggregate CEOs’ base salaries in 2011. After three years, on 31 December 2011,

the profits realised by the hypothetical investor would have reached € 8.3 million, equal to +14.5%

TSR: € 2.1 million related to capital gains plus € 6.2 million of dividends paid by the investee

companies over the 2009-2011 period. The aggregated incentives received by the CEOs in 2011

and 2012, mostly related to the same performance period, amounted to € 97.5 million (€ 28.9

million in 2011 and € 68.6 million in 2012), equal to 98.7% of their aggregate base salaries.


63

TSR realised in 2009-2011 period (hypothesis: € 1.5 million invested in each FTSE MIB company)

vs. aggregate CEOs’ revenues related to the same vesting period

€ 57'000'000

€ 6'156'957€ 2'094'892

€ 8'251'849

€ 47'756'794

€ 28'932'457

€ 68'557'756

€ 51'038'731

14.48%

56.69%

143.56%

Initial

investment

Dividends 2009-

2011

Capital gain

2009-2011

TSR Base salary

2011

Base salary

2012

LTI vested in

2011

LTI vested in

2012

Shareholder's

return on

investment

CEOs' return on

base salary

The alignment of interests is even less evident from the analysis of the TSR realised over

the previous 5-years’ period (2007-2011): out of 14 companies that realised a negative 2007-2011

TSR, the long-term incentives did not vest only in Diasorin and Tod’s, while only in 6 cases both the

CEO and the shareholders realised a positive return. Anyway, the comparison over the 5-years’

period is not really meaningful with regards to Italian companies, as large part of long-term

incentive plans are subject to maximum 3-years’ vesting periods and are not subject to further

conditions (such as the stock options’ exercise period or the eventual shares’ holding period).

Furthermore, incentives vested in 2010 should be also taken into account for a homogeneous

comparison with 2007-2011 results, but, as already highlighted, the relevant performance period

related to incentives paid in 2010 was not disclosed by all companies.


64

Long-term incentives versus operating results

Although the TSR represents the best indicator for evaluating the alignment of interests

between the management and the shareholders over the long term, it cannot represent the only

condition for vesting of incentives. An accurate evaluation must also take into account the

operating results, that are more connected to the day-by-day activity of the top managers and less

dependent on stock markets’ fluctuations.

Despite the high number of performance criteria utilized by each company, similarly to

annual bonus’ plans, it is possible to identify the same indicators in almost all incentive plans: the

Tier 1 Ratio in banks, the Solvency Ratio in insurers, the Asset Under Management in financial

services and the EBITDA in all other industries.

To evaluate the actual reward for the CEO, it is possible to compare the ratio incentives /

base salary to the changes of relevant performance parameters over the last 3-years’ period.

Long-term incentives / base salary ratio vs. Operating performance changes 2009-2011

5%4%7%11%8%14%17%

36%44%76%93%

201%

102%

164%208%

146%

569%

230%212%

311%

1019%

-150%

0%

150%

300%

450%

600%

750%

900%

1050%

Fia

t In

du

stri

al

- E

BIT

Fia

t -

EB

IT

Pir

ell

i -

EB

ITD

A

Luxo

ttic

a -

EB

ITD

A

Ferr

ag

am

o -

EB

ITD

A

En

i -

EB

ITD

A

Saip

em

- E

BIT

DA

Au

tog

rill

- E

BIT

DA

Te

rna

- E

BIT

DA

Ca

mp

ari

- E

BIT

DA

Sna

m -

EB

ITD

A

Gte

ch -

EB

ITD

A

En

el

- E

BIT

DA

En

el

Gre

en

Po

we

r -

EB

ITD

A

Un

icre

dit

- T

IER

1

Fin

me

cca

nic

a -

EB

ITA

Me

dio

ba

nca

* -

TIE

R 1

Pry

smia

n -

EB

ITD

A

Ba

nca

MP

S -

TIE

R 1

An

sald

o -

EB

IT

Bu

zzi

Un

ice

m -

EB

ITD

A

Incentives / base salary Cumulative performance 2009-2011


65

In the above chart, companies are ordered by descending aggregate amount of incentives

vested over the last 2 years. The incentives/salary ratio represents the additional revenues realised

by the CEO thanks to the long-term results. The similar trend of the two lines finally shows an

alignment between rewards and operating performances. In particular, the alignment is more

evident at higher levels of incentives (Fiat Industrial, Fiat, Ferragamo and Pirelli), while it is much

less clear at companies that realised worse results: long-term incentives vested in 4 companies

that realised negative operating performances (Finmeccanica, Prysmian18

, Buzzi Unicem and

Ansaldo), but the average incentive amount paid by those companies (€ 187'310) was much lower

than the one awarded by top performers (€ 2.7 million).

The median value of 2009-2011 operating results of 21 companies that paid the incentives

was +23.8%, while it was +10.2% in remaining 17 FTSE MIB components. In particular, no long-

term incentives vested in Impregilo, Diasorin, Tod’s and Intesa Sanpaolo, despite the positive

operating results (equal to +49.8% on average). The CEOs of Impregilo and Intesa Sanpaolo

changed in 2011, hence they could not benefit of any long-term variable components.

The higher correlation between incentives and performances over the long term is also

verified through the combination of operating and market indicators (the combined parameter

includes 50% of each indicator).

18 Net of extraordinary and non-recurring items, Prysmian’s Adjusted EBITDA increased by 41% over the 2009-2011

period.


66

Long-term incentives vested in 2011 and 2012 vs. combined performance parameter

(50% operating performances + 50% TSR)

€ 0

€ 1'500'000

€ 3'000'000

€ 4'500'000

€ 6'000'000

€ 7'500'000

€ 9'000'000

€ 10'500'000

€ 12'000'000

€ 13'500'000

€ 15'000'000

Fia

t In

du

stri

al

Fia

t

Pir

ell

i

Luxo

ttic

a

Fe

rra

ga

mo

En

i

Sa

ipe

m

Au

tog

rill

Te

rna

Ca

mp

ari

Sn

am

Gte

ch

En

el

En

el

Gre

en

Po

we

r

Un

icre

dit

Fin

me

cca

nic

a

Me

dio

ba

nca

*

Pry

smia

n

Ba

nca

MP

S

An

sald

o

Bu

zzi

Un

ice

m

To

d's

Dia

sori

n

Imp

reg

ilo

Azi

mu

t

Pa

rma

lat

Atl

an

tia

Me

dio

lan

um

Inte

sa S

an

pa

olo

Te

leco

m I

tali

a

Me

dia

set

A2

A

BP

ER

UB

I B

an

ca

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

Incentives vested in 2011 and 2012 Combined performances: 50% operating criteria + 50% TSR

As shown by the above chart, incentives’ amounts followed almost the same trend of the

combined performances, that are represented by the descending line. Misalignments are still

evident with regards to 14 companies, 7 of which awarded the incentives despite worse results

(Gtech, UniCredit, Finmeccanica, Prysmian19

, Banca MPS and Buzzi Unicem), while the same

number of positive performers did not pay any long-term variable compensations to the CEO

(Tod’s, Diasorin, Azimut, Parmalat, Atlantia and Mediolanum). Anyway, all misalignments are

related to relatively low incentives’ amounts.

In conclusion, conversely to what observed for annual bonuses, it is possible to verify some

kind of correlation between vested incentives and performances achieved over the long period. In

particular, a higher degree of correlation can be verified with regards to operating performances

(EBITDA, Tier 1 Ratio, Solvency Ratio and Assets Under Management), yet the incentives’ amount is

disproportionate to the total value created to shareholders (TSR) over the last three years.

One of the reasons of the incentives-TSR disproportion may be ascribable to the very high

use of monetary variable components, while equity-based incentives are less and less provided by

19 Taking into account the Adjusted EBITDA, the combined Prysmian parameter would be +7%, in line with the average

incentive on performance ratio recorded in FTSE MIB components.


67

remuneration policies of Italian issuers. To better verify the nature and composition of the variable

components, the following two paragraphs will report the analysis of the awarded compensation

(even if not yet vested) and the main characteristics of remuneration policies related to the CEOs.

3.5. Total remuneration awarded in 2012

All remuneration amounts reported so far were related to the actual compensation realised

by each CEO during the years under review, in order to verify the alignment with performances

achieved over relevant vesting periods. In order to better evaluate the remuneration structure

defined by each policy, the awarded components should be taken into account, even if not yet

vested. The alternate use of the two methodologies (“vested” versus “awarded”) affects only

equity-based variable components: in this section of the analysis, vested shares and exercised

stock options are replaced by awarded shares and stock options, that will be eventually realised by

the beneficiary in the future, subject to future vesting conditions. Granted shares are reported at

the market value on the assignment date, while stock options are reported at the fair value

disclosed in the Remuneration Report.

The aggregate amount of remunerations awarded in 2012 was € 144.9 million, increasing

by 21.3% versus the previous year. Also in this case, equity-based incentives led the growth, thanks

to a 190% increase on 2011. On the opposite, awarded monetary incentives (related to annual

bonuses and long-term incentives) decreased by 24%, and the fixed components by 5%.

Aggregate remuneration components awarded in 2012 (€ mil)

€ 119.5

€ 144.9

€ 52.7 € 49.9 € 46.1€ 35.1

€ 20.7

€ 60.0

Total Base salary +

benefits

Monetary

incentives

Equity-based

incentives

2011 2012

-23.9%

+190.0%-5.4%

+21.3


68

Equity-based incentives are the only remuneration components affected by the different

methodology, hence the structure of overall CEO’s awarded remuneration is very similar to the

vested one.

CEO’s awarded remuneration breakdown in 2012

Annual bonus

14%

Long-term

incentives

52%

Benefits

1%Fixed

component

33%

The above reported structure of 2012 awarded remuneration is in line with the basic goal

of all remuneration policies: to motivate the sustainable value creation in the long term. In fact,

awarded remunerations are mostly made of variable components, more than 80% of which are

related to long-term performance periods.

It should be said that the “awarded” methodology is not really representative of the actual

remuneration policy, as monetary and short-term incentives are related to past results while the

value of awarded shares and stock options is merely potential. In any case, the overall

remuneration is still affected by the egregious share plans awarded by Fiat Group: in 2012, 7

million Fiat shares and 2.1 million Fiat Industrial’s were assigned to the relevant CEO and executive

Chairman, Mr. Sergio Marchionne, of an aggregate value of € 45.8 million on the assignment date.

Both Fiat and Fiat Industrial’s share schemes will vest in 2015, only subject to the continuative

relationship of the beneficiary with the Group (“retention plans”).

Shares and stock options are generally awarded at the beginning of the vesting period, that

is usually of three years. Hence, the total compensation awarded over the last three years should

be taken into account to have a clear picture of the actual structure defined by the remuneration

policy. As already highlighted, compensations awarded before fiscal year 2011 were not duly

disclosed by all listed companies, therefore the following chart includes the aggregate


69

remuneration awarded to each CEO in 2011 and 2012. The CEOs of companies marked with an

asterisk changed in the period under review.

Aggregated remuneration awarded in 2011 and 2012

BUZZI UNICEM

ANSALDO

PARMALAT

DIASORIN

MEDIOLANUM

BANCA POP MILANO*

A2A

BPER*

AZIMUT

UBI BANCA

SNAM

ENEL GREEN POWER

BANCA MPS*

CAMPARI

BANCO POPOLARE

FINMECCANICA*

TELECOM ITALIA

TOD'S

IMPREGILO*

GENERALI*

TERNA

SAIPEM

ATLANTIA

PRYSMIAN

MEDIOBANCA

INTESA SANPAOLO*

MEDIASET

UNICREDIT

AUTOGRILL

ENEL

GTECH

SALVATORE FERRAGAMO

ENI

EXOR

LUXOTTICA

FIAT INDUSTRIAL

PIRELLI & C

FIAT


€ 36'385'200

€ 25'360'360

€ 20'225'800

€ 14'749'401

€ 12'930'600

€ 11'281'000

€ 10'773'105

€ 10'147'669

€ 8'992'717

€ 8'737'894

€ 8'734'494

€ 6'360'121

€ 6'360'000

€ 5'907'511

€ 5'657'528

€ 5'320'919

€ 5'239'000

€ 5'062'681

€ 4'995'807

€ 3'949'465

€ 3'902'895

€ 3'656'000

€ 3'836'000

€ 3'646'968

€ 3'606'076

€ 3'449'464

€ 3'279'533

€ 3'085'000

€ 3'059'448

The following analysis of remuneration policies disclosed in 2013 will allow an even more

in-depth evaluation of the alignment between the remuneration structure and the company’s

goals.

€ 2'988'000

€ 2'574'000

€ 2'277'674

€ 2'228'214

€ 1'785'525

€ 1'606'101

€ 1'577'083

€ 1'463'140

€ 644'401


70

3.6. Remuneration policies 2013

The Legislative Decree n. 259, of 30 December 2010, provided that the first section of the

Remuneration Reports, related to the remuneration policy, must be voted by the shareholders at

the Annual General Meeting. Although the vote is mostly consultative20

, the introduction of the so-

called say-on-pay revolutionised in some way the relationship between issuers and shareholders.

Already since the first year of application of the new rules, in 2012, many issuers felt the need of a

closer dialogue with institutional investors and their advisers, to better understand the reasons of

eventual oppositions on a so delicate item.

Not all companies were actually open to a constructive discussion with their shareholders,

but the say-on-pay produced positive effects after only one year of implementation: the average

quality of disclosure considerably increased in Remuneration Reports 2013, with particular regards

to long-term performance criteria and to some critical remuneration clauses, such as severances

and eventual discretionary bonuses. Criticalities are still present, and the deep gap between

remuneration policies and shareholders’ view is still far from being filled, but the new rules clearly

traced the right path.

The first and most evident effect of the closer confrontation between issuers and

shareholders is the considerable decrease of dissent votes on Remuneration Reports in 2013.

Excluding all strategic shareholders and related parties21

, average negative votes of strictly

independent shareholders decreased by 17.3% in 2013, to 30.2% from 36.5% in 2012. Net of major

shareholders’ power, 11 Remuneration Reports would have been rejected by minority

shareholders in 2013, versus 13 the previous year22

.

20 The shareholder vote is binding only for banks and insurance companies, according to special provisions issued by

the Bank of Italy on March 2011.

21 The definition of strategic shareholder may be different according to the parameters taken into account. All

shareholders associated with major shareholders by any external interests, respect to the company, are here defined

as strategic.

22 Cooperative listed banks are excluded, as not complying with the “one share – one vote” principle: only registered

cooperative shareholders are enabled to one vote each, regardless the amount of shares held. By this way institutional

shareholders are essentially excluded from General Meetings.


71

Strictly independent shareholders’ vote on Remuneration Reports

(average % related to 34 FTSE MIB components)

59.7%

67.6%

36.5%30.2%

3.8% 2.2%

For Against Abstain

2012 2013

The definition of the remuneration structure for executive officers is a highly complex

exercise, that involves a large number of internal and external factors, not always quantifiable nor

foreseeable. To simplify, it is possible to identify some critical aspects that proxy advisers tend to

carefully scrutinize when analysing remuneration-related Agenda items:

• The base salary should guarantee an adequate remuneration to executives when the

performance targets are not met. It is not possible to identify one definition of the fixed

compensation valid for all companies, as it depends on multiple parameters related to the

specific company (size, industry, complexity of activities and of the internal structure,

etcetera) and to the market (job market competition, specific country’s economic situation

and wage system, etcetera).

• The variable components, at the target level of performances, should represent more than

50% of annual compensation, so that the beneficiary is highly stimulated to pursue the

company’s goals. Nonetheless, egregious incentives may raise serious concerns about

excessive risk-taking by executive officers, aimed at achieving the predefined targets at all

costs. In order to evaluate the incentives’ amount, proxy advisers generally take into

account the variable components on base salary ratio (i.e. all annual incentives should not

represent more than 300% of the non-variable component).

• Long-term incentives should represent the majority of the aggregate variable components,

to motivate a sustainable value creation over a long period of time.


72

• All short-term and long-term incentives should be subject to the achievement of predefined

and measurable performance criteria. Companies increasingly tend to link incentives also

to qualitative criteria, related to social and sustainability aspects: such practice is more than

welcome and it should be supported by investors, providing that also ESG targets are

clearly predefined and measurable. Discretionary and extraordinary incentives are not

acceptable, as well as any other non fixed compensations that were not clearly linked to

predefined results. All performance criteria should be adequately disclosed in the

Remuneration Reports. The non disclosure of short-term targets may be justifiable by

confidentiality needs with regards to corporate strategy. Nevertheless it should be

appropriate to disclosed at least previous years’ performances, on which basis the bonus

was awarded.

• Equity-based incentive plans (share schemes and stock option plans) are preferable, with

regards to both short-term and long-term plans, in order to strengthen the alignment of

interests between executives and shareholders. To the same extent, equity-based

incentives should not result in an excessive dilution of existing shareholders’ rights.

• Severance payments should be strictly limited, to avoid the origination of real golden

parachutes in case of poor results.

• Pay-for-performance systems should always include claw-back clauses, for the recovery of

any incentives which are subsequently found to be not due. The claw-back mechanisms

should be used any time the beneficiary wilfully altered data or put the company’s security

at risk for the achievement of the targets, or the same targets were achieved in violation of

company or legal regulations.

Severance payments have been already analysed at the beginning of this study, as well as

the structure of the variable compensations vested in the last two fiscal years. At this stage, the

analysis will be focused on the remuneration structure, on the disclosure of the relevant policy and

on eventual clauses that are contrary to the above mentioned best practices.


73

Type of incentives

As already highlighted during the analysis of 2012 and 2011 remuneration structures, large

part of Italian CEO variable compensations are paid in cash. Only 5 short-term incentive plans are

partially awarded through free shares, that means 14% of all plans. Such percentage increases up

to 62% with regards to long-term incentive plans: 21 out of 34 LTIPs23

include at least a share

scheme or a stock option plan, of which 12 (35%) are exclusively equity-based.

Equity-based incentive plans may be also replaced by phantom shares or phantom stock

options (as it happens in Banca Popolare dell’Emilia Romagna): beneficiaries do not receive actual

shares of stock on the grant date but they receive an account credited with a number of

hypothetical shares; the final incentive will be paid in cash, based on the appreciation of the

market stock price over the vesting period. Phantom stock plans have the advantage to improve

the alignment of interests between executives and shareholders, without diluting existing

shareholders’ rights.

Type of incentive plans provided by Remuneration Policies of large Italian companies

Short-term incentive plans (% on 38 FTSE MIB components)

Cash

78.9%

No annual bonus

7.9%Cash + Shares

13.2%

23 Azimut, A2A, Buzzi Unicem and Mediaset are excluded as no long-term incentive plans were reported by 2013

remuneration policies.


74

Long-term incentive plans (% on 38 FTSE MIB components)

No LTIP

10.5%

Cash

34.2%

Shares + Options

5.3%

Stock options

7.9%

Shares

18.4%

Equity-based

plans

31,6%

Cash + Equity

23.7%

Quality of disclosure

The level of disclosure is probably the most delicate issue for institutional investors and

their advisers: a full of all aspects of executives’ remuneration policy is the minimum requisite

needed for a positive evaluation of the Remuneration Report. More specifically, all details should

be disclosed at least with regards to: (i) target and maximum amounts reachable by the variable

compensations (the minimum should always be zero), and (ii) the vesting period and all

performance criteria on which the variable components are awarded.

The remuneration structure is duly disclosed, or it can be estimated on reported

information, by only 46% of large Italian companies (17 out of 37, excluding Aziumt that does not

pay variable compensations to the CEO). The target level reachable by the annual bonus is duly

disclosed by 69% FTSE MIB components, while only 4 Remuneration Reports do not report any

information about the maximum short-term incentives’ amount (Atlantia, Gtech, Mediobanca and

UBI Banca). The quality of disclosure worsen with regards to the 34 long-term incentive plans:

target and maximum levels are available only in 44% of plans, while 35% of 2013 Remuneration

Reports do not disclose any information about the potential structure of the CEO’s remuneration

and 21% only disclose the maximum amount reachable by long-term incentives.


75

Quality of disclosure related to the CEO remuneration structure

17

24

15

9

7

7

11

4

12

0%

20%

40%

60%

80%

100%

Total variable components Annual bonus Long-term incentives

Fully disclosed Maximum levels were disclosed No disclosure of potential amounts

The lower quality of disclosure related to long-term incentives is not necessarily ascribable

to an intentional lack of transparency, but it may depend on their specific nature: as already

highlighted, long-term plans tend to include more equity components, and the definition of the

future value of shares and options is much more complex. Nevertheless, it would be highly

recommendable to report at least the estimated maximum level reachable by shares and stock

option plans, based on past incentive plans or applying a maximum cap to the aggregate value of

the stocks to be granted.

With regards to the vesting performances, 51% of Remuneration Reports duly disclosed all

criteria, while 35% partially or too generically illustrated the performance conditions (e.g., “targets

in terms of profitability”, without specifying the relevant indicators). Transparency was definitely

insufficient in the 2013 Remuneration Reports issued by Atlantia, Banca MPS, Campari, Fiat and

Fiat Industrial, where no performance criteria were clearly disclosed.


76

Quality of disclosure about variable compensation’s performance criteria

19 18

24

13 11

4

5 6 5

1

0%

20%

40%

60%

80%

100%

All variable components Annual bonus Long-term incentive plans

All criteria duly disclosed Partial disclosure

Insufficient disclosure Not subject to performance criteria

As shown by the above chart, performance conditions are better disclosed with regards to

long-term incentive plans than to annual bonuses. The difference is mainly due to the stated

necessity of listed companies to not advantage their competitors through the disclosure of

confidential information related to short-term strategies. Nevertheless, the lack of disclosure, on

performance criteria and on the eventual weight of short-term incentives on overall remuneration,

does not allow a shareholders’ informed evaluation of the remuneration policy, often resulting in a

negative voting position. Although the necessity of confidentiality being absolutely

understandable, listed companies should make an effort to provide for more information, at least

with regards to the performance criteria related to annual bonuses paid in the last year.


77

Remuneration structure

In order to effectively align the CEO’s remuneration with the sustainable value creation, at

target levels of performance variable compensations should represent the main remuneration

component, and long-term incentives should be the major variable component. According to the

information disclosed by 38 FTSE MIB components, it is possible to accurately identify 26

remuneration structures: in 14 cases long-term incentives exceed 50% of the maximum variable

compensation, in 3 cases the variable components are equivalent and remaining 9 remuneration

policies provide for annual bonuses higher than the long-term incentives.

It should be noted that several policies provide that a certain percentage of the annual

bonus is deferred over the long-term period, subject to further performance conditions. This is the

case, for instance, of Pirelli, where the maximum annual bonus would represent 56% of total

incentives, but thanks to the deferral provisions (also called “co-investment”) the variable

compensation is mostly subject to long-term performances. On the other hand, some incentive

plans are defined as “long-term” by the company only because of their duration, but incentives

vest each year based on short-term results, achieved the previous year.

The following chart shows the potential composition of variable compensations at the

maximum level of performance. All incentive plans providing for annual instalments based on

previous year’s results are considered as short-term incentives.


78

Variable compensation’s structure at maximum performance level

Exor and Mediolanum’s remuneration policies exclusively provide for long-term incentive

plans, in both cases delivered through equities: stock options in Mediolanum and both shares and

options in Exor. As both companies did not disclose the maximum value reachable by the equity-

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Exor

Mediolanum

Autogrill

UniCredit

Prysmian

Telecom Italia

Snam

Generali

Banca MPS

Intesa Sanpaolo

Saipem

Fiat

Fiat Industrial

Eni

BPER

Campari

Impregilo

Terna

Enel Green Power

Pirelli*

BPM

Banco Popolare

Enel

Finmeccanica**

Buzzi Unicem

A2A

Annual bonus Long-term incentives

* Thanks to the "co-investment plans", Pirelli's long-term incentives represent the majority of the variable

compensation, but the relevant maximum amount cannot be estimated.

** One of Finmeccanica's incentive plans is defined as "long-term" by the company, but it is provides for annual

instalments based on previous year's results.


79

based incentives, it is not possible to estimate the potential variable compensation on base salary

ratio, that is reported in the following chart with regard to other 24 FTSE MIB components.

Maximum amount reachable by the variable compensations on base salary

15%

40%

30%

80%

51%

67%

60%

60%

131%

65%

78%

119%

120%

150%

140%

155%

150%

77%

100%

250%

90%

150%

250%

250%

20%

34%

63%

90%

90%

44%

111%

117%

96%

120%

96%

140%

168%

230%

309%

319%

200%

400%

450%

375%

375%

15%BPER

Buzzi Unicem

BPM

A2A

Banco Popolare

Terna

Banca MPS

Intesa Sanpaolo

Finmeccanica**

Snam

Saipem

Enel Green Power

Campari

Enel

Impregilo

Eni

Generali

UniCredit

Prysmian

Pirelli*

Autogrill

Telecom Italia

Fiat

Fiat Industrial

Max Annual bonus/Salary ratio Max Lon-term incentives/Salary ratio

625%

625%

600%

490%

450%

419%

386%

380%

323%

280%

246%

240%

215%

195%

176%

175%

150%

150%

The variable-on-fixed compensation ratio is often utilised by proxy advisers in order to

evaluate the overall remuneration structure. In fact, through such ratio it is possible to identify the

main variable component, as well as to evaluate the maximum amount reachable by the aggregate

executive compensation. Some analysts tend to define a maximum acceptable threshold for

variable components (i.e., incentives should not exceed 300% of the base salary).

Net of Azimut, where the CEO variable compensation is zero, the base salary represents the

main component in other 5 remuneration policies (Banco Popolare, A2A, Banca Popolare di

85%

80%

50%

40%

30%

130%


80

Milano, Buzzi Unicem and Banca Popolare dell’Emilia Romagna). Conversely, in 9 cases the variable

components may exceed the equivalent of three times the base salary, including Telecom Italia,

Fiat Industrial and Fiat, where the ratio may exceed 600%.

Discretionary variable components

Any variable compensation that is not clearly and previously linked to performance criteria

may represent a critical issue for the evaluation of the remuneration policy. Discretionary variable

compensations may be represented by: (i) retention plans, exclusively vesting on the continuative

relationship of the beneficiary with the Group; (ii) entry bonuses, or extra-payments only due to

the new role within the company; (iii) excessive severance payments and (iv) the Board of

Directors’ power to pay extraordinary bonuses, also related to exceptional events, of an amount

and at conditions that are not disclosed in the Remuneration Report.

Severance payments have been already mentioned at the beginning of this study

(paragraph 1.1 “Overall compensation”). It should be noted here that several companies recently

modified the severance clauses, moving toward a higher alignment with internationally recognized

best practices. As often highlighted in this study, the implementation of one strict rule to all

organizations may produce non-desirable effects, such as an improper increase of the base

salaries. Nonetheless, all clauses that may represent real golden parachutes, whereby the CEO

receives at least the same expected incentives’ amount regardless the results achieved, should be

strictly avoided. As guaranteed payments, excessive severance provisions represent a real risk for

public companies, as the CEO may be not sufficiently motivated to create sustainable long-term

value.

The CEO’s variable compensation is fully linked to performance criteria in 24 out of 38

remuneration policies under review (or 63%), but some of which provide for discretionary or

extraordinary bonuses payable to other managers or to the executive Chairman, as it happens in

Enel. The Remuneration Reports issued by 8 companies (or 21%) specifically provide for

exceptionally payable bonuses (so-called “una tantum”), in case of non previously defined

extraordinary events or performances: Banco Popolare, Eni, Finmeccanica, Gtech, Mediaset, Snam,

Tod’s and UBI Banca.


81

As already verified during the analysis of remunerations paid in 2012, Banca MPS, Generali

and Impregilo paid an entry bonus to the newly appointed CEO, while Exor, Fiat and Fiat Industrial

provide for equity-based retention plans, granting the attribution of shares or stock options

exclusively subject to the continuative relationship of the beneficiary within the Group. More

specifically, the CEO of Fiat and executive Chairman of Fiat Industrial, Mr. Sergio Marchionne, will

benefit of aggregate 9.1 million free shares (7 million Fiat shares and 2.1 million Fiat Industrial

shares) if he will still be in charge in 2015, regardless the performances achieved over the 3-years’

vesting period. The aggregate value of Fiat Group’s retention plans amounted to approximately €

60 million on the granting date: if the market value of the two stocks will decrease by 50% over the

vesting period, Mr. Marchionne would realise € 30 million despite the strong losses suffered by

long-term shareholders.

Non-performance related variable components (% on 38 FTSE MIB components)

None

63%

Extraordinary or

discretionary

bonus

21%

Retention bonus

8%

Entry bonus

8%

Correction mechanisms (malus and claw-back clauses)

Another factor that may be used to evaluate the alignment between the remuneration

policy and company’s goals, is represented by eventual correction mechanisms of long-term

incentive plans.

As often reminded during this study, every incentive plan should not be limited to just

reward the achievement of good performances, but it should be defined in order to guarantee that

achieved results are sustainable over time and that the beneficiary will not take excessive risks to

perform. Most of the times, the evidence of unsustainable or too risky results arises in future


82

periods, when incentives have been already awarded. Therefore, correction mechanisms would be

highly recommended to allow the company to eventually reclaim undue incentives.

Italian remuneration policies generally differentiate two main correction clauses: (i) the

malus clause, that provides for the partial deferment of the incentive, that may be reduced if

performances worsen in the future; (ii) claw-back mechanisms, that allow the company to reclaim

already vested incentives, which are subsequently found to be not due.

Correction mechanisms (% on 37 large companies)

None

58%Malus

14%

Claw-back

14%

Malus and

Claw-back

14%

Net of Azimut, 22 remuneration policies out of 37 (58%) do not include any correction

clause. Claw-back mechanisms are provided in 10 policies, of which 5 also provide for malus

clauses (Banca Popolare dell’Emilia Romagna, Banca Popolare di Milano, Generali, Intesa Sanpaolo

and UniCredit, all banks and insurers), while malus represents the only correction mechanism in

remaining 5 companies. Specifically, malus clauses are exclusively utilised by banks and insurers,

while claw-back mechanisms are also provided by industrial companies such as Ansaldo, Enel, Enel

Green Power, Eni and Saipem.


83

4. FTSE MIB Chairpersons’ remuneration

The definition of the Chairperson’s role may differ according to specific Board structures,

mainly depending on the eventual assignment of executive powers. The relevant remuneration

structure is of course affected by the definition of the Chairperson’s role, that can be classified in

three categories:

• Chairman-CEO: 6 Italian large companies combined the two roles in 2012 (Azimut, Exor,

Fiat Industrial24

, Finmeccanica25

, Pirelli and Tod’s).

• Executive Chairman (not CEO): 14 companies (Ansaldo, Atlantia, Banca Popolare

dell’Emilia Romagna26

, Buzzi Unicem, Campari, Enel, Eni27

, Fiat, Gtech, Luxottica,

Mediaset, Mediobanca, Salvatore Ferragamo and Telecom Italia).

• Non-executive Chairman: 18 companies (A2A, Autogrill, Banca MPS, Banca Popolare di

Milano, Banco Popolare, Diasorin, Enel Green Power, Generali, Impregilo, Intesa

Sanpaolo, Mediobanca, Mediolanum, Parmalat, Prysmian, Saipem, Snam, Terna, UBI

Banca and UniCredit).

As the remuneration structure of Chairmen-CEOs were analysed in the previous sections,

the following analysis will be focused on the other two categories, involving 32 large Italian

companies.

24 As no CEO has been appointed in Fiat Industrial, the executive Chairman, Mr. Sergio Marchionne, is the main

responsible of the company’s management, hence he has been defined as CEO in this study.

25 CEO and Chair positions were separated on February 2013, following the resignation of former Finmeccanica’s CEO

and Chairman Giuseppe Orsi.

26 No specific executive powers are assigned to the Chairman of Banca Popolare dell’Emilia Romagna, Ettore Caselli.

Nonetheless, he is executive according to the company’s definition, as he also chairs the Executive Committee.

27 According to the company, Eni’s Chairman Giuseppe Recchi is “non executive”, but he is entitled to some executive

powers, such as the definition of integrated projects and of strategic international agreements. Furthermore,

performance related short-term incentives are provided to Mr. Recchi. Hence, the Eni’s Chairman is defined as

“executive” in this study.


84

Executive Chairmen

The analysis of every executive member may be alternatively based on the vested or on the

awarded compensation in the period under review.

FTSE MIB Executive Chairmen: compensation vested in 2012

TELECOM ITALIA - Bernabè

MEDIASET - Confalonieri

MEDIOBANCA - Pagliaro

FIAT - Elkann

ENEL - Colombo

LUXOTTICA - Del Vecchio

CAMPARI - Garavoglia

ENI - Recchi

ATLANTIA - Cerchiai

FERRAGAMO - F. Ferragamo

BPER - Caselli

GTECH - Pellicioli

BUZZI UNICEM - A. Buzzi

ANSALDO - Pansa


€ 2'980'000

€ 2'745'479

€ 1'463'400

€ 1'387'000

€ 1'283'775

€ 1'045'000

€ 1'014'000

€ 711'280

€ 606'000

€ 481'000

€ 440'000

€ 360'214

€ 0

€ 2'596'681

None of the executive Chairmen realised a variable compensation from the vesting of long-

term incentives. Actually, only 5 remuneration policies provide for Chairman’s long-term incentive

plans: Atlantia, Campari, Mediaset, Telecom Italia and Salvatore Ferragamo. The different

structure between other executives and the Chairman, who may generally benefits only of short-

term incentives, is mainly due to the specific powers assigned to the latter, that are much more

addressed to strategic and extraordinary activities, without a direct effect on operating results.

The executive Chairman of Ansaldo, Mr. Alessandro Pansa, does not receive any

compensation from the company, due to his CEO position in the parent company Finmeccanica (in

2012 Mr. Pansa was Finmeccanica’s General Manager).

The analysis of the compensation awarded in 2012 will provide a better picture of

executive Chairmen’s remuneration structure.


85

FTSE MIB Executive Chairmen: compensation awarded in 2012




FIAT - Elkann

ENEL - Colombo



ENI - Recchi

ATLANTIA - Cerchiai


BPER - Caselli

GTECH - Pellicioli


ANSALDO - Pansa


€ 2'980'000

€ 2'745'479

€ 1'463'400

€ 1'387'000

€ 1'345'200

€ 1'283'775

€ 1'014'000

€ 985'030

€ 883'000

€ 481'000

€ 440'000

€ 360'214

€ 0

€ 2'596'681

Only 3 companies awarded long-term incentives in 2012, none of which vested yet: Atlantia

(77'244 stock options vesting in 2018 plus 14'489 free shares vesting in 2015, of aggregate fair

value of € 273'750 on the assignment date), Campari (190'000 stock options, of € 300'200 fair

value, that will eventually vest over the 2017-2019 period) and Salvatore Ferragamo (deferred

monetary incentive of € 227'000, vesting in 2015).

The analysis of awarded compensations allows a more accurate evaluation of the average

executive Chairman’s remuneration structure: contrary to the CEO’s remuneration, that is mainly

made by long-term incentives (52% of total awarded compensation), the base salary is by far the

main source of revenues for Chairman, representing more than 80% of their aggregate

remuneration.


86

Executive Chairmen’s remuneration components awarded in 2012

Long-term

incentives

4.5%

Benefits

5.7%

Annual bonus

7.7%

Fixed

component

82.2%

The average vested compensation of executive Chairmen decreased by 17% in 2012, to

€ 1'221'559 from € 1'472'184 in 2011. Similarly to the case of CEOs, also the changes in Chairmen’s

revenues strongly depended on the variable components. Only two significant changes were

recorded with regards to the fixed components: the base salary of Mediaset’s Chairman, Mr.

Fedele Confalonieri, decreased by 20%, to € 2'734'715 from € 3'413'669 in 2011, and the executive

Chairman of Mediobanca, Mr. Renato Pagliaro, realised 12% lower compensation in 2012

(€ 2'245'123 versus € 2'550'000 in 2011). The average remuneration of other 12 executive

Chairmen increased by 2.6% in 2012, to € 811'012 from € 790'745 in 2011.

Executive Chairmen’s remuneration changes: 2012 vs. 2011




FIAT - Elkann

ENEL - Gnudi + Colombo



ENI - Poli + Recchi

ATLANTIA - Cerchiai


BPER - Caselli

GTECH - Pellicioli


ANSALDO - Pansa

2012 2011

-19%

-20%

+9%

-16%

+4%

-65%

-11%

+1%

0%

+5%

+2%

-7%

0%

+2%


87

Both Enel and Eni appointed new Chairmen in 2011, without changing the relevant

remuneration structures, hence the reported remuneration results as the sum of amounts paid to

the former and to the newly appointed Chairmen. The Chairman of Banca Popolare dell’Emilia

Romagna, Mr. Caselli, was appointed on 18 January 2011, hence his 2011 remuneration refers to

11 months in charge.

For a more accurate comparison between incentives and performances, the aggregate

remuneration that vested over the last two years will be compared with the Group results

achieved over the vesting period.

Annual bonuses paid in 2011 and 2012 versus EBITDA changes in relevant performance periods

600'000525'000

245'000

890'000

1'540'000

375'000

+2.67% +0.38%+1.10%

+7.31%

+19.63%

+6.77%

0

250'000

500'000

750'000

1'000'000

1'250'000

1'500'000

ENEL - Gnudi + Colombo TELECOM ITALIA - Bernabè ENI - Poli + Recchi

+0%

+5%

+10%

+15%

+20%

+25%

Bonus 2012 Bonus 2011 EBITDA changes 2011 EBITDA changes 2010

All three short-term incentives paid in 2012 decreased respect to previous year, in line with

EBITDA results achieved by Enel and Eni, but conversely to Telecom Italia’s better 2011 results.

Long-term incentives vested only for Campari’s Chairman over the last two years, who exercised

1'303'780 stock options, that were awarded in 2006, for an aggregate revenue of € 1'955'670. Over

the vesting period, Campari generated +48.7% TSR, justifying the executive Chairman’s reward.

The above figures seem to confirm that no performance correlation exists also with regards

to executive Chairmen’s short-term incentives. Nonetheless, it worth to be noted that higher

incentives paid in 2011 to Telecom Italia’s Chairman, Mr. Franco Bernabè, are likely due to the

combined Chairman-CEO positions he held until April 2011. On the other side, both Enel and Eni’s

executive Chairmen are specifically charged of strategic powers, not directly linked to operating

annual performances.


88

Non-executive Chairmen

Even when non executive, the Chairperson plays a key role in the Board, ensuring that the

company’s duties to shareholders are being filled. The Chairperson acts as a link between the

Board and the upper management, and is responsible of the accurate and timely distribution of all

relevant documentation to the non-executive Board members. By fact, the Chairperson is the

guarantor of the correct functioning of the main decision-making corporate body. Of course, the

relevant remuneration should be defined taking into account the very delicate position and the

strict independence from executives’ decisions.

The base salary should adequately compensate high responsibilities and a continuative

commitment within the company. Non-executives’ remuneration should not be linked in any way

to company’s performances, in order to guarantee the strictly independence of their revenues

from the upper management. Nonetheless, specific market practices may support the assignment

of a non-majority equity-based component, which helps to align the interests of outside directors

with those of shareholders. The compensation of all Italian non-executive Chairmen is exclusively

paid in cash, with no equity-based components.

The average remuneration of 18 non-executive Chairmen of FTSE MIB companies

amounted to € 439'041 in 2012, decreasing by 29.4% versus € 621'705 in 2011. Only 6 annual

compensations increased (Parmalat, Terna, Snam, Banco Popolare, Autogrill and Saipem), versus

10 decreasing and 2 unchanged (Diasorin and Enel Green Power).


89

Non-executive Chairmen’s remuneration in 2012 and 2011

€ 1'517'555

€ 1'090'000

€ 969'034

€ 803'340

€ 596'662

€ 582'065

€ 400'000

€ 399'505

€ 363'000

€ 275'000

€ 233'300

€ 200'000

€ 113'958

€ 90'000

€ 75'000

€ 70'000

€ 66'518

€ 57'800

€ 1'807'799

€ 1'378'000

€ 1'481'383

€ 696'128

€ 521'383

€ 600'000

€ 400'000

€ 576'500

€ 300'000

€ 240'000

€ 579'385

€ 198'000

€ 1'404'515

€ 70'000

€ 100'000

€ 70'000

€ 712'521

€ 55'079

UNICREDIT - Vita + Rampl (former)

INTESA SANPAOLO - Bazoli

GENERALI - Galateri di Genola*

TERNA - Roth

BANCO POPOLARE - Fratta Pasini

UBI BANCA - Faissola**

DIASORIN - Denegri

A2A - Ranci Ortigosa + Tarantini (former)

PARMALAT - Tatò

SNAM - Bini Smaghi + Sardo (former)

BPM - Annunziata

SAIPEM - Meomartini

IMPREGILO - Costamagna***

PRYSMIAN - Tononi

MEDIOLANUM - Secchi + Ruozi (former)

ENEL GREEN POWER - Ferraris

BANCA MPS - Profumo

AUTOGRILL - G. Benetton

2012 2011

Seven Chairmen changed in the years under review, but only in two cases the relevant

remuneration policy was affected: the new Chairman of Banca MPS, Mr. Alessandro Profumo, who

was appointed on April 2012, renounced the compensation due for the specific role, that was set

in € 500'000 by the Board (40% less than his predecessor’s emoluments); the new remuneration

policy of Impregilo strongly reduced the Chairman’s annual compensation, from € 1.3 million to

€ 200'000 (Mr. Claudio Costamagna was appointed on 17 July 2012). Other 4 non-executive

Chairmen changed in 2012, but their remuneration structure did not change: A2A (new Chairman

Mr. Ranci Ortigosa was appointed on 30 May 2012), Mediolanum (Mr. Secchi, since 31 July), Snam

(Mr. Bini Smaghi, since 15 October) and UniCredit (Mr. Vita, 11 May). When the remuneration

policy did not change, the analysis of relevant annual compensation includes the partial fees

received by both the former and the newly appointed Chairmen. A special mention is due for the

former UBI Banca’s Chairman, Mr. Corrado Faissola, who died on 20 December 2012.


90

As clearly shown in the previous chart, also non-executive Chairmen’s compensation may

strongly differ among different issuers, but it tends to be higher in the financial sector: 5 out of 6

highest compensations paid in 2012 were related to banks or insurers (the same result was

recorded in 2011, when in the sixth place was former Impregilo’s Chairman Mr. Massimo

Ponzellini, at the time also chairing Banca Popolare di Milano).

No variable compensations linked to performance are provided to non-executive Chairmen,

with the only exception of Generali, where all Board members are entitled to an almost symbolic

annual bonus, that is on aggregate capped at 0.01% of consolidated net profits (the individual

variable component was € 554 in 2012 and € 5'036 in 2011).


91

5. FTSE MIB Board members’ remuneration

Also when analysing the compensation of other Board members, executive and non-

executive positions should be differentiated, in order to allow the most homogeneous comparison.

Executives included in the following analysis may coincide with the Chairman, but in no cases with

the CEO.

Executive Directors (not CEO)

The practice to include Board members charged of executive duties highly depends on

specific corporate governance systems and on market practices. When the company adopts the

two-tier governance system, all executive powers are referred to the Management Board, while

the Supervisory Board is mainly charged of a monitoring role. Hence, all Supervisory Board

members, who are appointed by the shareholders, must be non-executives. The dual governance

system is mostly adopted in Germany, Austria and other North European markets. On the

opposite, British Boards of Directors tend to include a large number of executive members

(generally more than 3). In Scandinavian markets, the CEO is usually the only executive Board

member, while in France the combined CEO-Chairman position is still quite common.

Italian Boards are not clearly characterised in terms of executive members: at the end of

fiscal year 2012, only 4 listed companies adopted the two-tier governance system (A2A, Banca

Popolare di Milano, Intesa Sanpaolo and UBI Banca), 8 Boards of Directors did not include

executive members except the CEO, while 65 executive Directors sat on remaining 26 Boards,

including the executive Chairmen. The highest number of executive members was recorded in

Banca Popolare dell’Emilia Romagna and Mediaset with 6. Nonetheless, while all Mediaset’s

executive Directors were company’s managers, Banca Popolare dell’Emilia Romagna defines as

“executive” all the members of the Executive Committee, even when not charged of specific

executive responsibilities.

The adequate number of executive Board members should always be based on the

specificities of the company, of the industry and on the complexity of the activities. Although it is

not possible to define one rule for all organizations, it is highly recommendable that all Boards

include a large majority of non-executive members, most of which should be strictly independent


92

from the company and the management, in order to guarantee the effectiveness of the Board’s

supervisory duties.

The average compensation of executive Board members was € 1'715'482 in 2012, 57.8%

higher than in 2011 (€ 1'087'139). Nevertheless, the strong increase was mainly due to stock

options exercised by 3 Luxottica’s Directors, who realised € 38'763'251 on aggregate. Net of

Luxottica, the executives’ compensation increased by 9.7% during the year under review (to

€1'119'423 from € 1'020'829 in 2011).

Average executive Directors’ compensation

€ 700'994€ 799'936

€ 216'843€ 195'479€ 156'689

€ 676'043

€ 12'613 € 44'025

Fixed

components

Annual bonus Long-term

incentives

Benefits

2011 2012

+249.0%

+331.5%+14.1%

-9.9%

The following chart shows the average executives’ remuneration structure by company, the

number of executive members is reported in brackets. All averages are based on annual

compensations, also when the amounts are partial as referred to former and newly appointed

Directors. Former CEOs and executive Chairmen are included.


93

Average executives’ remuneration structure in 2012 (CEOs are excluded)

Ansaldo (1)

BPER (6,5)

BPM (2)

Diasorin (1)

Azimut (4)

Banco Popolare (3,8)

Buzzi Unicem (4)

Ferragamo (1)

Tod's (4)

Atlantia (1)

Mediolanum (3)

Pirelli (1)

Eni (1)

Prysmian (3)

Finmeccanica (1)

Gtech (2)

Mediaset (6)

Enel (1)

Exor (3)

Campari (3)

Mediobanca (4)

Saipem (1)

Telecom Italia (1)

Fiat (2)

Generali (1,3)

Impregilo (0,6)

Luxottica (3)

Fixed components Annual bonus Long-term incentives Benefits

€ 14'067'149

€ 3'807'100

€ 3'588'678

€ 3'498'700

€ 2'968'000

€ 2'465'504

€ 2'018'119

€ 1'553'254

€ 1'517'197

€ 1'387'000

€ 1'350'180

€ 1'200'871

€ 1'169'000

€ 1'110'508

€ 1'014'000

€ 952'292

€ 747'686

€ 711'280

€ 697'550

€ 606'000

€ 600'186

€ 563'099

€ 448'500

The above chart clearly shows the strong impact on market averages of revenues realised

by Luxottica’s executives from the exercise of stock options.

The following analysis of the incentives awarded in 2012, even if not yet vested, gives a

more accurate view of each company’s remuneration policy.

€ 402.697

€ 266.915

€ 182.615

€ 0


94

Average executives’ awarded remuneration components in 2012 (CEOs are excluded)

Ansaldo (1)

BPER (6,5)

BPM (2)

Diasorin (1)

Azimut (4)

Buzzi Unicem (4)

Ferragamo (1)

Banco Popolare (3,8)

Tod's (4)

Prysmian (3)

Pirelli (1)

Atlantia (1)

Eni (1)

Mediolanum (3)

Finmeccanica (1)

Mediaset (6)

Enel (1)

Saipem (1)

Luxottica (3)

Campari (3)

Exor (3)

Gtech (2)

Mediobanca (4)

Telecom Italia (1)

Fiat (2)

Generali (1,25)

Impregilo (0,6)

Fixed components Annual bonus Long-term incentives Benefits

€ 3'807'100

€ 3'588'678

€ 3'498'700

€ 2'968'000

€ 2'018'119

€ 1'791'265

€ 1'722'709

€ 1'542'661

€ 1'465'866

€ 1'440'000

€ 1'387'000

€ 1'350'180

€ 1'169'000

€ 1'018'341

€ 1'014'000

€ 985'030

€ 952'292

€ 940'648

€ 697'550

€ 629'090

€ 606'000

€ 600'186

€ 448'500

The comparison between vested and awarded compensations clearly highlights the

different results obtainable using the two methodologies. On average, the awarded variable

components amounted to € 1'351'597 in 2012, versus more than € 1.7 million vested incentives.

€ 402.697

€ 266.915

€ 182.615

€ 0


95

Non-executive Board members

Although not charged of executive powers, non-executive members are also critical for the

fulfilment of Board’s main goals, as their key role is to bring an independent, objective and

external perspective. More specifically, non-executive members act as a link between the Board

and the shareholders, also monitoring the executives’ conduct and that shareholders’ rights are

not jeopardized by Board’s decisions. As per internationally recognised best practices, the large

majority of non-executive members should be strictly independent from the management and

form the major shareholders.

As per the Italian Civil Code (art. 2364), the fees exclusively due for the Board membership

shall be defined by the General Meeting called to renew the Board (generally every three years). In

this case, the shareholders’ vote is always binding, while the vote on executives’ remuneration

policy is binding only with regards to financial companies.

In order to preserve their independence from executives’ decisions, the remuneration of

non-executive members should not include any variable components linked to economic results.

Such provision is also included in the Italian Corporate Governance Code, that however allows

insignificant performance-linked compensations. Only two large Italian companies provide for a

non-executives’ variable compensation: Eni (all Board members may benefit of an annual bonus

capped at € 20'000, that is linked to Eni’s stock market performance versus main competitors) and

Generali (the Board members’ aggregate annual bonus is equal to 0.01% of consolidated net

incomes and capped at € 300'000).

The Code also recommends that “non-executive directors shall not be beneficiaries of

share-based compensation plans, unless it is so decided by the annual shareholders’ meeting”

(criterion 6.C.4). Actually, the Board fees of all Italian listed companies are exclusively paid in cash,

without any share-based components, which are frequent in other European markets in order to

also align a non-significant component of non-executive members to shareholders’ interests.

The Boards of 38 FTSE MIB listed companies included 410 non-executive members at the

end of fiscal year 2012 (429 in 2011), who received an average annual remuneration of € 141'558

(-7.3% versus € 152'678 in 2011).


96

Average annual non-executive members’ remuneration

€ 297'252

€ 290'233

€ 286'662

€ 203'068

€ 197'293

€ 173'052

€ 166'669

€ 162'857

€ 160'949

€ 158'918

€ 157'692

€ 150'955

€ 143'143

€ 140'727

€ 133'263

€ 124'791

€ 122'250

€ 117'402

€ 114'735

€ 105'808

€ 104'458

€ 98'750

€ 96'700

€ 96'572

€ 94'307

€ 92'624

€ 85'750

€ 84'213

€ 79'827

€ 78'667

€ 74'124

€ 72'222

€ 71'611

€ 70'316

€ 70'130

€ 70'000

€ 47'500

€ 45'000

€ 351'700

€ 294'241

€ 280'578

€ 345'985

€ 175'072

€ 168'609

€ 154'815

€ 159'286

€ 198'500

€ 179'509

€ 170'109

€ 220'295

€ 127'728

€ 86'300

€ 102'425

€ 147'039

€ 108'750

€ 189'235

€ 108'485

€ 100'238

€ 93'043

€ 98'750

€ 84'857

€ 76'986

€ 89'378

€ 69'862

€ 74'375

€ 79'044

€ 75'750

€ 88'200

€ 69'286

€ 66'258

€ 70'000

€ 74'349

€ 63'479

€ 72'791

€ 47'500

€ 48'147

Intesa Sanpaolo (18.9)

Generali (14.4)

UniCredit (17.8)

Exor (11.8)

Terna (8)

UBI Banca (22.8)

Impregilo (13.9)

Eni (7)

Mediobanca (16.3)

Banco Popolare (18.2)

Telecom Italia (13)

Banca MPS (10.3)

Enel (7)

BPER (7.3)

Gtech (6)

A2A (14.3)

Azimut (4)

BPM (19)

Parmalat (8.8)

Buzzi Unicem (7.8)

Luxottica (9.3)

Diasorin (8)

Ferragamo (10)

Mediolanum (9.1)

Pirelli (17.2)

Atlantia (12.9)

Snam (8)

Autogrill (12)

Fiat (7.5)

Finmeccanica (9.8)

Saipem (7)

Ansaldo (6.8)

Prysmian (6.3)

Fiat Industrial (9.5)

Tod's (7)

Enel Green Power (9)

Campari (5)

Mediaset (8)

2012 2011

Average = € 141'588

As already verified with regards to non-executive Chairpersons, the average remuneration

of other non-executive members is higher at financial companies, despite several large banks

substantially cut the Board members’ emoluments, that decreased more than in other industries (-

9.3% in financial companies versus -3.2% in other industries).


97

Average annual remuneration changes: financial sector vs. others

€ 215'007€ 195'032

€ 112'866 € 109'293

Banks and insurers Others

2011 2012

-9.3%

-3.2%

The highest reduction was recorded in Exor (-41%), where non-executive Directors’ fees are

still higher than market average (€ 203'068). Banca Popolare di Milano and Banca MPS also

strongly cut the non-executives’ fees (respectively by 38% and by 31%), while the highest increases

were recorded in Banca Popolare dell’Emilia Romagna (+63%), Atlantia (+33%) and Gtech (+30%).

The Italian Corporate Governance Code recommends that non-executive independent

members shall not benefit of “a significant additional remuneration” from the issuer or affiliated

companies (criterion 3.C.1). This last provision only relates to the eventual remuneration due for

non Board-related activities (e.g., advisory services, other memberships at subsidiaries or affiliated

companies, etc.), but all compensations related to the specific company’s Board activities are

excluded. Nevertheless, even the amount paid in relation to the non-executive membership may

arise concerns over the strictly independence of the member. In particular, an excessive number of

Group mandates may lead to highly increase the individual compensation and the level of

dependency of members’ revenues from the specific listed company.

Non-executive members of 21 FTSE MIB Boards did not receive any additional

compensations in 2012, while in Terna the only case was represented by the non-independent

Chairman, Mr. Luigi Roth, who received further € 250'000 (31% of his annual compensation from

Terna) for his chairmanship at subsidiary Terna Rete Italia. On aggregate, 62 non-executive

members of remaining 16 Boards (11 of which are no more in charge) received additional € 4.1

million related to external mandates. The following chart compares the average additional fees

with the emoluments paid to non-executive Board members by each FTSE MIB component.


98

“Other remuneration” and additional fees paid by subsidiaries and affiliates

vs. average non-executive members’ fees

€ 70'130

€ 297'252

€ 96'572

€ 286'662

€ 45'000

€ 122'250

€ 157'692

€ 160'949

€ 158'918

€ 92'624

€ 173'052

€ 203'068

€ 140'727

€ 117'402

€ 105'808

€ 124'791

€ 220'000

€ 137'125

€ 136'600

€ 104'302

€ 82'500

€ 82'500

€ 67'000

€ 66'704

€ 63'351

€ 60'800

€ 49'150

€ 49'000

€ 36'000

€ 30'075

€ 22'368

€ 20'981

Tod's

Intesa Sanpaolo

Mediolanum

UniCredit

Mediaset

Azimut

Telecom Italia

Mediobanca

Banco Popolare

Atlantia

UBI Banca

Exor

BPER

BPM

Buzzi Unicem

A2A

Average non-executive members' fees Average additional compensation

Group fees and “other remunerations” exceeded the average non-executives remuneration

in Tod’s (the affiliated non-executive Director Mr. Maurizio Boscarato received € 220'000 for

advisory services, out of € 259'278 total remuneration in 2012), Mediolanum (multiple members

received additional compensations, of which the affiliated non-executive Director Mr. Paolo

Sciumè, who received further € 299'420 for legal advisory services) and Mediaset (the affiliated

Director Mr. Alfredo Messina received further € 82'500 for Group mandates).

In addition to the above, it is necessary to mention the case of Intesa Sanpaolo, where 8

independent Supervisory Board members received additional compensations from subsidiaries and

affiliates, among which Mr. Jean-Paul Fitoussi (€ 183'000 from Telecom Italia), Ms. Rosalba

Casiraghi (on aggregate further € 163'000 from Banca CR Firenza, Nuovo Trasporto Viaggiatori and

NH Hoteles) and Mr. Giulio Stefano Lubatti (€ 155'000 from Banco di Napoli and Eurizon), who are

still in charge.


99

6. An European comparison

An accurate analysis of large companies’ remuneration structure cannot exclude the

comparison with international practices. To keep the analysis as much homogeneous as possible,

FTSE MIB components have been compared with European large capitalization companies,

operating in the same industries included in the major Borsa Italiana’s index (except for Biotech &

Pharma companies Novartis and Sanofi, that have been included in the European sample in order

to balance the markets’ weight).

The definition of the European sample presented a few difficulties, mainly due to the FTSE

MIB composition in terms of industries: Banks and Utilities are the most represented industries in

terms of number of components (respectively 8 and 5, or more than 33% of the index) and Oil &

Gas is the main industry in terms of market capitalization (Eni represented more than 20% of FTSE

MIB’s market cap on 31 December 2012, with € 66.7 billion versus an average of € 6.5 billion of 37

other components).

The final sample includes 125 European large companies, of which 10 are macro-caps and

115 are more comparable with FTSE MIB components. The sample includes at least three peers per

each Italian company, operating in 18 industries: Aerospace & Defence (3 companies), Apparel &

Textile Products (6), Asset Management (3), Automotive (8), Banks (21), Biotech & Pharma (2),

Construction Materials (3), Engineering & Construction Services (8), Financial Services (3), Food &

Beverage (6), Healthcare (3), Industrial Goods & Services (9), Insurance (7), Media (4), Oil & Gas

(11), Retail (3), Telecom (6), Travel Lodging & Dining (6) and Utilities (13). The number of European

Oil & Gas companies is more than proportional respect to the Italian index composition, in order to

balance the industries’ weight in terms of market capitalization.

France is represented by 21 companies, Germany by 18 plus 2 Austrian companies, Spain

by 16 plus 3 Portuguese companies, UK by 19, Switzerland by 19, Scandinavian countries by 18 (7

Swede, 6 Finnish, 3 Norwegian and 2 Danish companies) and the Benelux area by 9 companies (5

from the Netherlands, 3 from Belgium and 1 from Luxembourg). Industry peculiarities affected also

the market composition of the European sample. In particular, some industries are not

represented in Borsa Italiana’s main index, despite being more than relevant in other markets,

such as Materials, Steel, Biotech or Chemicals.


100

All data related to non-Italian companies are taken from the ECGS proprietary database.

ECGS (“Expert Corporate Governance Service”) is the only international network of local proxy

advisers, of which Frontis Governance is the Italian partner.

All amounts are expressed in Euros using fixed exchange rates as of 31 December 201228

.

6.1. European CEOs’ remuneration in 2012

The average compensation realised by 125 European CEOs amounted to approximately

€ 4.5 million, but strong differences were observed according to the corporate size: the average

remuneration reached € 8.9 million in 25 largest companies, the average market capitalization of

which exceeded € 78 billion at the end of 2012, while the CEOs’ of remaining 100 companies (on

average capitalizing € 9.8 billion) realised “only” € 3.4 million on average. As already highlighted,

the average CEO remuneration at Italian large companies was € 3.6 million in 2012, below the

European average but almost in line with 100 peers included in the sample.

The remuneration structure was not available with regards to two Norwegian companies,

Subsea 7 and Aker Solution, while the overall compensation of other 123 European CEOs was 63%

made by variable components, 25% by the base salary and 12% by non-monetary benefits (5%)

and pension contributions (7%). Benefits and pensions are included in “Others” category in the

following chart.

European (non-Italian) CEOs remuneration structure in 2012

Annual bonus

30.7%

Long-term

incentives

32.0%

Fixed

components

25.1%

Others

12.2%

28 1 USD = 0,76 EUR; 1 GBP = 1,23 EUR; 1 CHF = 0,83 EUR; 1 DNK = 0,13 EUR; 1 NOK = 0,14 EUR; 1 SEK = 0,12 EUR.


101

The comparison with the remuneration structure of Italian CEOs highlights two main

differences: long-term incentives paid by Italian companies represent a much higher portion of

variable compensations, while benefits and pension contributions are less relevant in Italy.

CEO remuneration structure in 2012: FTSE MIB versus European peers

25.1%

34.5%30.7%

14.4%

32.0%

49.6%

12.2%

1.5%

Fixed component Annual bonus Long-term incentives Others

European peers Italian large-caps

It should be noted that equity-based incentives (free shares and stock options) are largely

used by non-Italian companies also to reward the annual bonuses. By this way, a higher alignment

of interests with shareholders is realised, even when incentives are related to short-term

performances.

Variable compensation structure: FTSE MIB components vs. European peers

33.0%

22.1%16.0%

0.4%6.0%

17.6%

45.0%

60.0%

Monetary annual

bonus

Equity-based annual

bonus

Monetary long-term

incentives

Equity-based long-

term incentives

European peers Italian large-caps

The above chart shows an opposite trend with regards to long-term incentives, that seem

to be much more utilised by Italian companies. Nevertheless, as already highlighted during this

study, almost all equity-based incentives that vested in 2012 (€ 50.7 million out of € 53 million, or


102

96%) were related to only 3 FTSE MIB components and 2 CEOs: Mr. Sergio Marchionne, who

realised € 14.2 million from Fiat and € 26.5 million from Fiat Industrial granted shares, and Mr.

Andrea Guerra, who realised € 10 million from the vesting of Luxottica’s shares plan. The picture

radically changes taking into account the number of companies that awarded equity-based

variable components, related to both short-term and long-term plans: 12 out of 38 Italian

companies (31.6%), versus 87 out of 123 European peers (70.7%, net of two non-disclosed

remuneration structures). On the other side, the variable components were exclusively paid in

cash by only 5% of European peers, versus 21% of Italian large companies.

Average remuneration structure by geographic area

Scandinavia

Italy

France

Spain and Portugal

Germany and Austria

Switzerland

Benelux

United Kingdom

Fixed component Annual bonus Long-term incentives Others

€ 6'869'744

€ 5'636'340

€ 4'647'461

€ 4'738'137

€ 4'104'947

€ 4'092'522

€ 3'639'135

€ 1'921'156

The average compensation realised by Italian CEOs seem to be at the lowest levels in

Europe, exceeding only the Scandinavian colleagues’ remuneration. Nonetheless, “other

compensations” strongly affect the ranking. More specifically, disclosure and practices related to

the of pension contributions may strongly differ according to different legislations. Moreover, in

some European cases the fair value of awarded incentives is reported, with particular regards to

the stock option plans.

A more accurate comparison of remuneration structures in different markets is realised

through the awarded components, even if not yet vested, and by excluding “other

compensations”, the definition of which may strongly differ according to specific legislations.


103

Through the different methodology, the average Italian CEOs’ remuneration was € 3'796'712 in

2012, almost in line with € 3'956'107 of their European colleagues (the average vested

remuneration was € 3'639'135 in FTSE MIB components and € 4'501'950 in 125 European peers).

Average awarded remuneration structure, net of “other compensations”, by geographic area

Scandinavia

France

Spain and Portugal

Italy

Germany and Austria

Switzerland

Benelux

United Kingdom

Fixed component Annual bonus Long-term incentives

€ 6'429'606

€ 5'091'852

€ 4'218'016

€ 4'140'136

€ 3'760'880

€ 3'430'304

€ 3'373'135

€ 1'560'033

As clearly shown in the above chart, differences among average remunerations strongly

depend also on fixed components, that are paradoxically at the lowest level in the UK (€ 974'565),

despite the highest overall remunerations paid in that market. On the other side, highest base

salaries are paid in Spain (€ 1.7 million), followed by Italian large companies (€ 1.3 million), that are

also the smallest ones, in terms of market capitalization, among 163 analysed large companies. In

confirmation of the high level of Italian CEOs’ base salaries, it should be noted that 7 out of 38

FTSE MIB listed companies (18%) pay more than € 2 million fixed components to their CEO, versus

only 10 out of 125 European peers (8%), of which 6 are Spanish (Banco Santander and Inditex,

where the base salaries exceed € 3 million, Telefonica, Iberdrola, Repsol and La Caixa), 2 are Swiss

(UBS and Credit Suisse), 1 is Swedish (Getinga) and 1 is German (Siemens).

As already verified during the analysis of major 98 Italian listed companies, the

misalignment between the fixed compensation of the CEO and the company’s size is confirmed


104

also through the analysis of other European markets, as clearly shown in the following chart,

where base salaries are compared to the average market capitalization.

Average base salaries versus market capitalization

€ 1'578'551

€ 1'256'758 € 1'249'057€ 1'110'176

€ 989'820 € 978'131 € 974'565€ 1'022'159

Spain and

Portugal

Italy Germany

and Austria

Switzerland France Benelux Scandinavia United

Kingdom

Average fixed compensation Average market capitalization (as of December 31st, 2012)

Net of pension contributions, 15 out of 163 analysed CEOs realised more than € 9 million in

2012, of which two Italian top managers: Mr. Marchionne, CEO of Fiat and executive Chairman of

Fiat Industrial, and Mr. Guerra, CEO of Luxottica.

Highest paid European CEOs in 2012 (on 163 analysed large-caps)

Company – CEO Country Base salary Variable

components Benefits Total

Fiat Industrial – Marchionne Italy € 1'300'300 € 26'500'000 € 0 € 27'800'300

Fiat – Marchionne Italy € 2'300'000 € 16'174'000 € 226'000 € 18'700'000

Barclays – Jenkins UK € 962'172 € 17'344'738 € 96'561 € 18'400'470

BP – Dudley UK € 1'726'000 € 13'995'046 € 12'428 € 15'733'474

Volkswagen – Winterkorn Germany € 1'916'276 € 12'595'000 € 0 € 14'511'276

Luxottica – Guerra Italy € 2'509'568 € 11'832'875 € 21'249 € 14'363'692

Anheuser-Busch Inbev – Brito Belgium € 1'270'000 € 12'934'966 € 0 € 14'204'966

Vodafone – Colao UK € 1'360'127 € 10'790'139 € 36'760 € 12'187'027

Novartis - Jimenez Switzerland € 1'677'435 € 9'040'136 € 106'638 € 10'824'209

Royal Dutch Shell – Voser Netherlands € 1'640'000 € 8'040'871 € 186'000 € 9'866'871

LVMH – B. Arnault France € 1'590'620 € 7'779'000 € 118'464 € 9'488'084

Telefonica – Alierta Izuel Spain € 2'500'800 € 6'468'942 € 400'816 € 9'370'558

Transocean – Newman Switzerland € 865'292 € 7'623'701 € 835'617 € 9'324'610

HSBC – Gulliver UK € 1'531'675 € 6'065'433 € 1'494'915 € 9'092'023

Hermes International – Thomas France € 808'505 € 8'274'199 € 0 € 9'082'704


105

The sample of 125 European companies has been defined in order to replicate the FTSE

MIB composition, hence it is not necessarily a representative sample of relevant market’s practices

and companies’ size. Nevertheless, reported data highlight a clear trend, at least in those

industries that are represented in the main Italian stock market index. The following section will

then be focused on each industry, in order to identify eventual differences related to the

remuneration structure and its alignment with short-term and long-term performances.

6.2. Variable compensation by industry

The overall remuneration of analysed 125 European CEOs increased by 10.9% on average in

2012, versus +31.3% realised by the Italian colleagues. As already underlined many times during

this study, the changes in CEO remuneration are mainly due to the vesting of long-term incentives,

that are generally subject to the results achieved over previous three or five years. In this

paragraph, the average compensation vested in each industry will be compared with operating and

market results realised in 2011 and over the previous three-years’ period. In order to keep all data

as much homogeneous as possible, the EBIT indicator (Earnings Before Interests and Taxes) will be

the only operating parameter taken into account. More specifically, the EBIT change in 2011 versus

2010 will be compared to the annual bonus, and the average annual changes realised in 2009,

2010 and 2011 to the long-term incentives. The Total Shareholder Return (TSR) represents the

performance indicator of stock market results, with regards to year 2011 and to 31 December

2008 – 31 December 2011 period.


106

Aerospace & Defence

The only Italian large company in the Aerospace industry is Finmeccanica, of € 2.52 billion

market capitalization at the end of 2012, versus € 14.15 billion average market capitalization of its

3 European peers included in sample29

. The overall compensation realised by the former Chairman

and CEO of Finmeccanica, Mr. Giuseppe Orsi, was € 1'749'000, by 52% lower than € 3'628'235 of

his European colleagues. The difference is exclusively due to the absence of incentives vested in

2012. On the other hand, the CEO of Finmeccanica benefited of very high fixed components, 160%

higher than the average paid by the European peers.

Aerospace & Defence: CEO remuneration structure in 2012

€ 669'641

€ 1'413'735 € 1'397'154

€ 147'705

€ 1'740'000

€ 0 € 0 € 9'000

Average European peers (3) Finmeccanica


The absence of vested incentives is justified by the negative results realised by

Finmeccanica both in 2011 (EBIT -294% versus 2010 and TSR -66.4%) and in the three-years vesting

period (the EBIT average annual changes were equal to -96.7% and TSR 2009-2011 was -66.2%). On

the opposite, other European Aerospace companies achieved positive results over the same

periods, in terms of EBIT (+16% in 2011 and +56% on average over the 2009-2011 period) and TSR

(+24% in the short-term and +64% in the long-term period).

29 Bae Systems (United Kingdom), Cobham (United Kingdom) and EADS (Netherlands).


107

Apparel & Textile Products

At the end of 2012, the average market capitalization of the two Italian companies of

Apparel & Textile Products industry, Salvatore Ferragamo and Tod’s, was € 2.9 billion, much lower

than € 21.8 billion of the 6 European peers included in the sample30

. During the year under review,

the average remuneration realised by the Italian CEOs amounted to € 4.5 million, versus € 6.3

million realised by their European colleagues.

Apprel & Textile Products: CEO remuneration structure in 2012

€ 1'149'995

€ 1'965'508

€ 3'092'773

€ 134'394€ 771'000

€ 385'000

€ 6'299'605

€ 16'000

€ 1'570'945

Average European peers

(6)

Salvatore Ferragamo Tod's


Tod’s did not award any variable component to the Chairman and CEO in 2012, while

Salvatore Ferragamo differentiated from the European peers on higher long-term incentives and

much lower annual bonus.

Apparel & Textile Products: annual bonus vs. 2011 performance

30 Adidas (Germany), Burberry (United Kingdom), Gerry Weber International (Germany), Hermes International

(France), Kering (France) e LVMH (France).

EBIT changes 2011

€ 1'965'508

€ 385'000

€ 0

+21.7%

+81.2%

+19.9%

Average European

peers (6)


TSR 2011

€ 385'000

€ 0

€ 1'965'508

-11.3%

+12.9%

+5.1%

Average European

peers (6)



108

Apparel & Textile Products: vested long-term incentives vs. 3-years’ performance31

It is not possible to verify any link between the EBIT results and the incentives paid in 2012:

the annual bonus paid by Ferragamo was lower despite better results, and vice versa with regards

to long-term incentives. Some kind of correlation can be observed only with regards to the TSR

realised in 2011.

Asset Management

The only Asset Management company listed on the main Borsa Italiana’s index is Azimut

Holding, the remuneration policy of which does not provide for any variable compensation to the

Chairman and CEO. Nonetheless, the base salary granted to Azimut’s top manager is much higher

than the one received by his European colleagues included in the sample32

.

As already verified during this study, fixed compensations seem to be totally independent

from the companies’ size: the Azimut’s market capitalization was € 1.55 billion at the end of 2012,

75.6% lower than average € 6.34 billion of its European peers, but the base salary paid by the

Italian company was 105% higher.

31 The TSR 2009-2011 is not available for Salvatore Ferragamo, that has been listed since 29 June 2011 on the Italian

stock market.

32 Aberdeen Asset Management (United Kingdom), Julius Baer (Switzerland) e Natixis (France).

EBIT average changes 2009-2011

€ 3'092'773

€ 6'299'605

€ 0

+16.2%

+58.5%

+143.8%

Average European

peers (6)


TSR 2009 - 2011

€ 0

€ 3'092'773

+185.4% +151.1%

Average European peers (6) Tod's


109

Asset Management: CEO remuneration structure in 2012

€ 726'909

€ 2'447'991

€ 487'644

€ 93'286

€ 1'490'000

€ 0 € 0 € 4'000

Average European peers (3) Azimut


Automotive

The Italian Automotive industry is represented by Fiat and Pirelli, both companies where

the main differences with average European remuneration are clearly evident: much higher fixed

components, amounting on average to € 2'688'777 in the Italian companies versus € 1'254'792 in 8

European peers33

, and variable components much more oriented on the long term period. In fact,

the CEO of Fiat realised € 14.2 million in 2012 from the vesting of free shares, while the Chairman

and CEO of Pirelli realised € 14.1 million monetary long-term incentives in 2011.

33 BMW (Germany), Continental (Germany), Michelin (France), Nokian Tyres (Finland), Peugeut (France), Renault

(France), Volkswagen (Germany) and Volvo (Sweden).


110

Automotive: CEO remuneration structure in 2012

€ 1'254'792€ 2'181'003

€ 1'234'005€ 33'816

€ 2'300'000€ 1'974'000

€ 14'200'000

€ 226'000

€ 3'077'554

€ 5'996

Average European

peers(8)

Fiat Pirelli


On 31 December 2012, the average ordinary market capitalization of Fiat and Pirelli

amounted to € 4.43 billion, almost one fifth of 8 European peers included in the sample (€ 20.23

billion).

It is not possible to verify any correlation between the results achieved and the variable

compensations awarded by the Automotive companies, with regards to both the short and the

long term.

Automotive: annual bonus vs. 2011 performance

EBIT changes 2011

€ 2'181'003€ 1'974'000

€ 0+42.7%

+236.3%

+28.0%

Average European

peers(8)

Fiat Pirelli

TSR 2011

€ 1'974'000

€ 0

€ 2'181'003 +12.0%

-20.8%

-47.0%

Average European

peers(8)

Fiat Pirelli


111

Automotives: vested long-term incentives vs. 3-years’ performance

Banks

The banking industry is the most represented in the FTSE MIB index, with 8 out of 38

components, or 21%. To balance the number of issuers with the relevant industry weight, 21

European banks have been included in the sample group34

, of € 26.82 billion average market

capitalization at the end of 2012, five times the Italian peers’ € 5.01 billion.

The remuneration structure is quite similar among Italian banking groups. Only three CEOs

received variable compensations (excluding the symbolic € 1'170 bonus paid by UBI Banca), one of

which was the entry bonus paid by Banca MPS, not linked to any performance criteria. Despite the

much lower size, the average base salary paid by Italian banks was higher than the one reported by

main European peers, but differences are less pronounced than in other industries.

34 Banco Espirito Santo (Portugal), Banco Popular Español (Spain), Banco Santander (Spain), Banque Cantonale

Vaudoise (Switzerland), Barclays (United Kingdom), BBVA (Spain), BNP Paribas (France), La Caixa (Spain),

Commerzbank (Germany), Credit Agricole (France), Credit Suisse (Switzerland), Danske Bank (Denmark), Deutsche

Bank (Germany), Erste Group Bank (Austria), HSBC (United Kingdom), Investec (United Kingdom), KBC Group

(Belgium), Pohjola Bank (Finland), Société Générale (France), Svenska Handelsbanken (Sweden) and UBS (Switzerland).


€ 1'234'005

€ 14'200'000

€ 0

+178.6%

+104.6% +108.2%

Average European

peers(8)

Fiat Pirelli

TSR 2009 - 2011

€ 14'200'000

€ 0€ 1'234'005

+150.0%

+86.7%

+73.7%

Average European

peers(8)

Fiat Pirelli


112

Banks: CEO remuneration structure in 2012

€ 1'591'338€ 337'016€ 129'688

€ 228'651€ 1'391'375

€ 1'170€ 112'897

€ 2'117'688

€ 352'156€ 2'300'000€ 360'000

€ 377'000€ 1'700'000

€ 8'644€ 813'000

€ 9'000€ 971'312

€ 1'414'522€ 140'000

€ 40'650€ 1'404'907

€ 1'453'233€ 910'069€ 228'901

Average European peers (21)

Banca MPS

BPM

BPER

Banco Popolare

Intesa Sanpaolo

Mediobanca

UBI Banca

UniCredit


The banking sector has been significantly affected by the financial crisis, but it had not the

same effect on all variable components paid to European CEOs. The misalignment between

incentives and negative results is more evident with regards to European banking groups and in

the short term. Similarly, lower long-term incentives awarded by Italian companies seem to be

caused by worse average results.

Banks: annual bonus vs. 2011 performance

EBIT changes 2011

€ 1'453'233

€ 140'000

€ 360'000

€ 1'170

€ 337'016-4'682.5%

-7.3%

-456.4%

+1.8% +215.1%

-49.3% -62.9%

+4.5%

-18.2%

Pe

ers

eu

rop

ei

(21

)

Ba

nca

MP

S

BP

M

BP

ER

Ba

nco

Po

po

lare

Inte

sa

Sa

np

ao

lo

Me

dio

ba

nca

UB

I B

an

ca

Un

iCre

dit

TSR 2011

€ 1'170

€ 337'016€ 360'000€ 140'000

€ 1'453'233

-63.9%

-40.5%

-59.3%

-29.4%

+16.2%

-47.6%

-31.7%

-65.0%-58.5%

Pe

ers

eu

rop

ei

(21

)

Ba

nca

MP

S

BP

M

BP

ER

Ba

nco

Po

po

lare

Inte

sa

Sa

np

ao

lo

Me

dio

ba

nca

UB

I B

an

ca

Un

iCre

dit


113

Banks: vested long-term incentives vs. 3-years’ performance

Construction Materials

The CEO of the only large Italian Construction Materials’ company, Buzzi Unicem, realised

the lowest overall compensation in the FTSE MIB index, with € 351'084 in 2012. The same policy is

not observed in 3 European peers included in the analysed sample35

, where the average CEO

remuneration amounted to € 2'737'316 in 2012.

Construction Materials: CEO remuneration structure in 2012

€ 1'161'228

€ 989'129

€ 462'257

€ 124'702

€ 301'787

€ 32'604€ 9'878€ 6'815

Average European peers (3) Buzzi Unicem


35 HeidelbergCement (Germany), Holcim (Switzerland) e Sika (Switzerland).


€ 910'069

€ 129'688

+1.3% +115.0%

-9.1%

+158.4%

-4.7% -27.1%

-1'595.8%

+89.6%

+882.1%

Pe

ers

eu

rop

ei

(21

)

Ba

nca

MP

S

BP

M

BP

ER

Ba

nco

Po

po

lare

Inte

sa

Sa

np

ao

lo

Me

dio

ba

nca

UB

I B

an

ca

Un

iCre

dit

TSR 2009 - 2011

€ 129'688

€ 910'069

-62.6%

-39.3%

-68.8%

-40.2%

-8.9%

-56.3%

-58.1%-79.5%

-2.5%

Pe

ers

eu

rop

ei

(21

)

Ba

nca

MP

S

BP

M

BP

ER

Ba

nco

Po

po

lare

Inte

sa

Sa

np

ao

lo

Me

dio

ba

nca

UB

I B

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114

The lower compensation realised by Buzzi Unicem’s CEO is likely due to the fact that Mr.

Michele Buzzi is also a representative of the company’s controlling family. Despite it being

commendable to save the costs related to the CEO, that is also remunerated as shareholder, such

practice is rarely observed in Italian and in European companies.

On the other hand, Buzzi Unicem is much smaller than its European peers (€ 1.7 billion

versus average € 10.2 billion market capitalization of European companies analysed) and the

negative results achieved over the vesting periods likely justified the very low variable

compensations.

Construction Materials: annual bonus vs. 2011 performance

Construction Materials: vested long-term incentives vs. 3-years’ performance

EBIT changes 2011

€ 989'129

€ 32'604

-14.9%

-41.5%


TSR 2011

€ 32'604

€ 989'129

-22.8%

-20.3%



€ 462'257

€ 9'878

-1.4%

-32.3%


TSR 2009 - 2011

€ 9'878

€ 462'257

-36.5%

+35.8%



115

Engineering & Construction Services

Atlantia and Impregilo were the Engineering & Construction companies listed on the main

Borsa Italiana’s stock market index (Impregilo has been excluded from the FTSE MIB index in April

2013, following the tender offer launched by Salini). At the end of 2012, the average Italian market

capitalization in this industry was in line with 8 European peers included in the sample36

: € 5.23

billion versus € 6.96 billion of European companies.

Engineering & Construction Services: CEO remuneration structure in 2012

€ 1'009'491

€ 1'184'826

€ 340'266

€ 88'484

€ 1'008'423

€ 500'000

€ 15'602 € 54'628

€ 1'000'000

€ 2'512


(8)

Atlantia Impregilo


As already reminded during the study, the 2012 base salary of Impregilo’s CEO is referred

to only 5 months in charge. Taking into account the annual compensation approved by Impregilo’s

Board of Directors (€ 800'000), the average fixed component paid by Italian companies is slightly

lower than the European peers’ one, showing an opposing trend respect to large part of FTSE MIB

remuneration structures.

The comparison of variable compensations is also affected by the annual bonus paid to the

newly appointed Impregilo’s CEO, that was a real “entry bonus” not linked to any performance

criteria. On the opposite, the short-term incentive awarded by Atlantia is in line with operating and

market results achieved by the company, while long-term incentives did not vest for the CEO

despite better 3-years’ average performance.

36 Abertis Infraestructuras (Spain), Acciona (Spain), ACS (Spain), Aker Solution (Norway), Balfour Beatty (United

Kingdom), Bouygues (France), Vinci (France) and Yit (Finland).


116

Engineering & Construction Services: annual bonus vs. 2011 performance

Engineering & Construction Services: vested long-term incentives vs. 3-years’ performance

Financial Services

Differently from Borsa Italiana’s industry definition, Asset Management companies have

been here separated from Financial Services, that are intended as holding companies, including

only one Italian large company: Exor. As of 31 December 2012, Exor’s ordinary market

capitalization was € 2.86 billion, much lower than 3 analysed European peers (€ 5.15 billion) 37

.

37 Investor AB (Sweden), Partners Group (Switzerland) and Ratos (Sweden).

EBIT changes 2011

€ 1'184'826

€ 500'000

€ 1'000'000+10.0% +1.3%

-42.6%

Average European

peers (8)

Atlantia Impregilo

TSR 2011

€ 500'000

€ 1'000'000

€ 1'184'826+17.1%

-12.4% -13.9%


(8)

Atlantia Impregilo


€ 340'266

€ 0 € 0-3.2%

-1.2%

+3.2%

Average European

peers (8)

Atlantia Impregilo

TSR 2009 - 2011

€ 0 € 0

€ 340'266+91.2%

+23.6%

+38.4%

Average European

peers (8)

Atlantia Impregilo


117

Financial Services: CEO remuneration structure in 2012

€ 488'209

€ 212'815

€ 495'474

€ 79'903

€ 2'000'000

€ 3'300

Average European peers (3) Exor


As already highlighted, Exor’s remuneration policy does not provide any annual bonus for

the Chairman and CEO, Mr. John Elkann, who is a representative of the controlling family. No

Exor’s long-term incentives vested in 2012, but Mr. Elkann benefited of very high fixed

components (4 times the average received by his European colleagues) and he may benefit in the

future from stock options awarded in 2011 and 2012, of € 9 million aggregate fair value.

Food & Beverage

Campari and Parmalat, the Italian large-caps operating in the Food & Beverage industry,

show an opposing trend respect to other FTSE MIB components, at least with regards to the fixed

components, that are less than half of the ones paid by 6 European peers38

.

38 Anheuser-Busch Inbev (Belgium), Aryzta (Switzerland), Carlsberg (Denmark), Heineken (Netherlands), Lindt &

Spruengli (Switzerland) and Nestlé (Switzerland).


118

Food & Beverage: CEO remuneration structure in 2012

€ 1'334'716

€ 2'472'334

€ 3'807'025

€ 22'148

€ 736'574€ 659'100

€ 0 € 5'669

€ 600'000€ 325'000€ 102'083

Average European

peers(6)

Campari Parmalat


With regards to the variable components, the Italian Food & Beverage companies followed

different policies: the annual bonus realised by Campari’s CEO in 2012 was much lower than the

average short-term incentive of European colleagues, despite better results achieved in terms of

EBIT and TSR. No long-term incentives vested in 2012 at Italian companies, but the CEO of Campari

realised € 2'747'673 in 2011, that aligned his compensation with European colleagues also in

relation with three-years’ performances.

Food & Beverage: annual bonus vs. 2011 performance

EBIT changes 2011

€ 2'472'334

€ 659'100€ 325'000

-40.3%

+9.6%

+7.0%

Peers europei (6) Campari Parmalat

TSR 2011

€ 2'472'334

€ 659'100

€ 325'000

-32.4%

+7.1%

-0.5%



119

Food & Beverage: vested long-term incentives vs. 3-years’ performance

Healthcare

Only one Healthcare company is included in the FTSE MIB index, Diasorin, the market

capitalization of which was € 1.7 billion at the end of 2012, versus average € 4.9 billion of 3

European peers included in the sample39

.

As well as the previously analysed Food & Beverage companies, also the fixed and variable

compensations in Diasorin were lower than in European peers. The amount of Diasorin CEO’s base

salary is likely due to the smaller size of the Italian company respect to European peers, while

lower incentives are not in line with the better results achieved in terms of EBIT.

Healthcare: CEO remuneration structure in 2012

€ 1'210'394

€ 709'720

€ 530'633

€ 17'807

€ 511'291

€ 131'100€ 3'392

Average European peers (3) Diasorin


39 Celesio (Germany), Getinge (Sweden) and Sonova (Switzerland).


€ 3'807'025

-33.3%

+15.2%

+14.9%


TSR 2009 - 2011

€ 3'807'025

+42.7%

+124.4%

+87.6%



120

Healthcare: annual bonus vs. 2011 performance

Healthcare: vested long-term incentives vs. 3-years’ performance

Long-term incentives awarded to Diasorin’s CEO are also much lower than the European

average: in 2011, stock options of € 217'176 fair value on the allocation date were awarded to

Diasorin’s CEO, while no incentives were awarded in 2012.

Industrial Goods & Services

Average compensations at Italian Industrial companies are strongly affected by the huge

equity-based incentive received in 2012 by the executive Chairman of Fiat Industrial

(€ 26'500'000), resulting from a retention plan not linked to any performance criteria. The

incentives realised by the CEOs of other FTSE MIB Industrial companies, Ansaldo STS and Prysmian,

EBIT changes 2011

€ 709'720

€ 131'100-11.0%

+12.2%


TSR 2011

€ 131'100

€ 709'720

+5.9%

-35.4%



€ 530'633

€ 0

+12.2%

+33.1%


TSR 2009 - 2011

€ 0

€ 530'633

+39.2%

+48.3%



121

were much lower than the average paid by 9 European peers40

: € 196'874 related to the annual

bonus (versus € 928'833 of European peers) and € 146'557 long-term incentives (versus

€ 1'359'453).

Industrial Goods & Services: CEO remuneration structure in 2012

€ 1'118'730€ 193'148€ 253'158

€ 9'154

€ 1'300'300

€ 26'500'000

€ 426'794€ 200'600

€ 39'957€ 66'699

€ 989'503€ 928'833

€ 1'359'453€ 29'894

Average European

peers (9)

Ansaldo

Fiat Industrial

Prysmian


It is not possible to verify any clear correlation between short-term results and annual

bonuses paid by Industrial companies, while some kind of correlation can be observed in the long

term period (excluding Fiat Industrial, that was established on 1 January 2011 through the partial

demerger of capital goods activities held by Fiat SpA).

Industrial Goods & Services: annual bonus vs. 2011 performance

40 Aggreko (United Kingdom), Alfa Laval (Swden), Bucher Industries (Switzerland), Gea Group (Germany), Husqvarna

(Sweden), IMI (United Kingdom), Schindler (Switzerland), Siemens (Germany) e Sulzer (Switzerland).

EBIT changes 2011

€ 928'833

€ 200'600 € 193'148

€ 0

+60.2%

+10.4%

-15.3%

+13.3%

Average

European peers

(9)

Ansaldo Fiat Industrial Prysmian

TSR 2011

€ 928'833

€ 200'600

€ 0

€ 193'148

-23.1%-24.3%

-27.8%

-6.9%

Average

European peers

(9)

Ansaldo Fiat Industrial Prysmian


122

Industrial Goods & Services: vested long-term incentives vs. 3-years’ performance

Insurance

As of 31 December 2012, two insurance companies were included in the main Italian stock

market’s index, Generali and Mediolanum41

. The average market capitalization of the two Italian

insurers was € 24.2 billion, 45% higher than € 16.7 billion of 7 European peers included in the

sample42

.

Insurance: CEO remuneration structure in 2012

€ 863'147€ 916'918

€ 1'133'196

€ 32'316

€ 541'666

€ 1'300'000

€ 44'771

€ 834'292


(7)

Generali Mediolanum


41 Fondiaria-Sai has been listed on FTSE MIB index since April 2013.

42 Aegon (Netherlands), Allianz (Germany), Axa (France), CNP Assurances (France), Legal & General (United Kingdom),

Mapfre (Spain) and Swiss Life (Switzerland).


€ 1'359'453

€ 253'158

€ 39'957 +4.7%

+26.0%

+14.4%

Average European

peers (9)

Ansaldo Prysmian

TSR 2009 - 2011

€ 253'158

€ 39'957

€ 1'359'453

-4.2%

+29.6%

+119.9%

Average European

peers (9)

Ansaldo Prysmian


123

The average 2012 remuneration realised by Italian CEOs amounted to € 1'360'365 in

insurance companies, 54% lower than their European peers. Nonetheless, € 541'666 fixed

compensation received by Generali’s CEO was referred to only 5 months in charge, while the

annual compensation approved by the Board was € 1'300'000. Taking into account the annual base

salary, Generali confirms the Italian trend of higher fixed compensations, exceeding by 50% the

European average.

The comparison between annual bonuses and results achieved in 2011 is not relevant in

this industry, as Generali’s CEO received an entry bonus not linked to any performance criteria,

while Mediolanum’s remuneration policy does not provide for any short-term incentive to the

CEO.

Both Italian insurance companies realised worse results in terms of EBIT, both in the short

and in the long term. Mediolanum created higher long-term value to its shareholders, but no

incentives vested in 2012 (€ 384'000 cash incentives vested in 2011).

Insurance: annual bonus vs. 2011 performance

Insurance: vested long-term incentives vs. 3-years’ performance

EBIT changes 2011

€ 916'918

€ 1'300'000

€ 0-72.3%

-33.5%

-10.0%

Average European

peers (7)

Generali Mediolanum

TSR 2011

€ 1'300'000

€ 0

€ 916'918+0.8%

-10.7%

-18.5%

Average European

peers (7)

Generali Mediolanum


€ 1'133'196

€ 0 € 0+0.8%

+102.0%

+13.5%

Average European

peers (7)

Generali Mediolanum

TSR 2009 - 2011

€ 0€ 0

€ 1'133'196

+12.8%

-36.7%

+9.0%

Average European

peers (7)

Generali Mediolanum


124

Media

The only Media company listed on the FTSE MIB index is Mediaset. In line with the Italian

trend, the fixed compensation awarded by the major broadcasting company strongly exceeds the

European average, despite the lower stock market capitalization, that amounted to € 1.84 billion at

the end of 2012 versus € 3.24 billion average of 4 European peers43

.

Media: CEO remuneration structure in 2012

€ 944'893€ 1'092'178

€ 393'211

€ 13'670

€ 2'327'794

€ 650'000

€ 9'396

Average European peers (4) Mediaset


Differently from the base salary, the lower level of incentives vested in Mediaset reflects

worst performances achieved in terms of both EBIT and TSR. The annual bonus paid to Mediaset

CEO in 2012 was related to mandates at subsidiaries.

Media: annual bonus vs. 2011 performance

43 ITV (United Kingdom), Lagardere (France), Prosieben Sat 1 (Germany) and Sanoma (Finland).

EBIT changes 2011

€ 1'092'178

€ 650'000

-71.3%

-33.9%


TSR 2011

€ 650'000

€ 1'092'178

-26.1%

-50.9%



125

Media: vested long-term incentives vs. 3-years’ performance

Oil & Gas

Oil & Gas is the main industry listed on FTSE MIB in terms of stock market capitalization,

despite including only two companies: Eni (€ 66.65 billion as of 31 December 2012) and its

subsidiary Saipem (€ 12.98 billion). To keep the same proportion in terms of market capitalization,

11 Oil & Gas companies have been included in the European sample44

. Nevertheless, the weight of

the industry on the European sample (17.5%) is still lower than Eni and Saipem’s relevance on FTSE

MIB (26.3% at the end of 2012). The average market capitalization of European peers is slightly

higher than the one of Italian Oil & Gas companies: € 46.7 billion versus € 39.8 billion.

Eni and Saipem adopted similar remuneration policies and both replaced the equity-based

variable components with monetary long-term incentive plans. Conversely, the overall

compensation vested in 2012 strongly differs between the two companies. The fixed component of

Eni’s CEO is more than double the one of his colleague in Saipem, likely due to different size and to

the subordination relationship. Saipem’s CEO, who resigned on December 2012 as involved in

court investigations over alleged corruption on contracts in Algeria, did not receive any annual

bonus, but he realised € 1'417'361 from the exercise of stock options awarded in 2008.

44 BP (United Kingdom), Fugro (Netherlands), Galp Energia (Portugal), Neste Oil (Finland), Repsol (Spain), Royal Dutch

Shell (Netherlands), Statoil (Norway), Subsea 7 (Norway), Total (France), Transocean (Switzerland) and Weatherford

International (Switzerland).


€ 393'211

€ 0

+2.4%

-12.4%


TSR 2009 - 2011

€ 0

€ 393'211

-28.9%

+227.0%



126

Oil & Gas: CEO remuneration structure in 2012

€ 1'273'687€ 1'068'696

€ 2'717'273

€ 423'143

€ 1'430'000

€ 2'110'000

€ 2'842'000

€ 15'000

€ 682'000

€ 3'020'361

€ 12'000


(11)

Eni Saipem


The overall remuneration of Eni’s CEO amounted to € 6'397'000 in 2012, 16.7% higher than

average € 5'482'799 of European peers, while Saipem’s CEO realised € 3'714'361, 32.3% lower.

Oil & Gas: annual bonus vs. 2011 performance

Oil & Gas: vested long-term incentives vs. 3-years’ performance

EBIT changes 2011

€ 1'068'696

€ 0

€ 2'110'000+97.2%

+8.2% +13.2%

Peers europei (11) Eni Saipem

TSR 2011

€ 0

€ 2'110'000

€ 1'068'696

-9.3%-10.8%

+4.3%



€ 3'020'361

€ 2'717'273

€ 2'842'000

+11.3%

+35.5%

+2.3%


TSR 2009 - 2011

€ 2'842'000

€ 3'020'361

€ 2'717'273

+192.1%

+14.7%

+59.9%



127

The variable compensations paid to Eni’s CEO appear as excessive from the comparison

with its peers and EBIT results achieved in 2011 and over the 2009-2011 vesting period. Some kind

of correlation is observable with regards to the TSR. The alignment is likely due to the

methodology of monetary long-term incentives’ evaluation applied by Eni, that partially replicates

the evaluation of phantom stock options.

Retail

International data providers tend to include Luxottica in Retail Discretionary industry, while

as per the Borsa Italiana’s definition the eyewear company is part of the Apparel and Textile

Products’ industry, together with Salvatore Ferragamo and Tod’s. Probably, the international

definition considers the distribution chains as main Luxottica’s activity.

As of 31 December 2012, Luxottica’s ordinary stock market capitalization was € 14.7 billion,

almost half of 3 European peers’ average (€ 27.15 billion) 45

.

Retail: CEO remuneration structure in 2012

€ 1'779'200 € 1'799'161€ 2'102'111

€ 60'699

€ 2'509'568€ 1'817'000

€ 10'015'875

€ 21'249

Average European peers (3) Luxottica


In line with most of Italian companies, the base salary of Luxottica’s CEO is higher than

average European colleagues’, despite the lower company’s size. During fiscal year 2012, Mr.

Andrea Guerra also benefited from the vesting of 375'000 free shares, awarded under a long-term

45 Inditex (Spain), Marks & Spencer (United Kingdom) and Next (United Kingdom).


128

incentive plan, so that his overall compensation was 150% higher than the European average:

€ 14'363'692 versus € 5'741'171.

Retail: annual bonus vs. 2011 performance

Retail: vested long-term incentives vs. 3-years’ performance

Despite being linked to positive results achieved over last 3 years, long-term incentives

realised by Luxottica’s CEO are definitely disproportionate to European averages, that realised

even better performances.

EBIT changes 2011

€ 1'799'161

€ 1'817'000

-0.5%

+13.3%


TSR 2011

€ 1'817'000

€ 1'799'161

+25.4%

-2.7%



€ 2'102'111

€ 10'015'875+5.9%

+4.4%


TSR 2009 - 2011

€ 10'015'875

€ 2'102'111

+129.7%

+79.6%



129

Telecom

Telecom Italia is the only large Telecommunication company listed on the FTSE MIB index.

The overall compensation of Telecom Italia’s CEO is lower than averages recorded on both the

Italian market and 6 European peers included in the sample46

. Actually, the highest paid Telecom

Italia’s executive is the Chairman, Mr. Franco Bernabè, who held combined Chairman-CEO

positions until April 2011 and realised € 2'968'000 compensation in 2012 and € 3'680'000 the

previous year (further 3'380'553 free shares were awarded to the Chairman, of € 3'058'014 fair

value on the allocation date and vesting on 2014).

Telecom: CEO remuneration structure in 2012

€ 1'320'056€ 1'352'486

€ 2'830'307

€ 107'885

€ 1'005'000

€ 279'000€ 38'000

Average European peers (6) Telecom Italia


The relatively moderate compensation of Telecom Italia’s CEO seems to be justified by the

lower company’s size (€ 9.16 billion ordinary share market capitalization at the end of 2012, versus

average € 39.6 billion of European peers), but also by worst operating and market performances

achieved in 2011 and over the 2009-2011 period.

46 Belgacom (Belgium), Deutsche Telekom (Germany), Millicom International Cellular (Luxembourg), Swisscom

(Switzerland), Telefonica (Spain) and Vodafone (United Kingdom).


130

Telecom: annual bonus vs. 2011 performance

Telecom: vested long-term incentives vs. 3-years’ performance

Travel, Lodging & Dining

The remuneration paid in 2012 by Autogrill and Gtech, the two Italian large companies of

this industry, were higher than the average of their 6 European peers47

: the CEO of Autogrill

realised € 4'337'247 and the one of Gtech € 3'222'148, while the average European colleagues’

revenues amounted to € 2'782'715. Differently from other analysed industries, higher

compensations paid by Italian companies are not due to the base salaries, which are in line with

European peers, but to the annual bonus awarded by Gtech and to the long-term incentives vested

in Autogrill.

47 Accor (France), Carnival (United Kingdom), Casino Guichard Perrachon (France), Fraport (Germany), IAG (Spain) and

Lufthansa (Germany).

EBIT changes 2011

€ 1'352'486

€ 279'000

+2.5%

-110.4%


TSR 2011

€ 279'000

€ 1'352'486

-0.6%

-9.6%



€ 2'830'307

€ 0

+5.3%

-34.5%


TSR 2009 - 2011

€ 0

€ 2'830'307

+40.0%

-15.3%



131

Travel, Lodging & Dining: CEO remuneration structure in 2012

€ 809'630€ 596'506

€ 1'046'717

€ 329'862

€ 930'821

€ 319'214

€ 3'029'538

€ 57'674

€ 851'679

€ 1'444'727

€ 838'697

€ 87'045


(6)

Autogrill Gtech


Travel, Lodging & Dining industry is also characterised by a positive correlation between

performances achieved and variable compensations paid, with the only exception of Autogrill’s

long-term incentives and EBIT results. The higher alignment is likely due to the fact that all

companies, but Autogrill and Germany-based Fraport, provide for equity-based incentive plans.

Travel, Lodging & Dining: annual bonus vs. 2011 performance

Travel, Lodging & Dining: vested long-term incentives vs. 3-years’ performance

EBIT changes 2011

€ 1'444'727

€ 596'506

€ 319'214

-0.3%

+18.7%

+39.7%

Average European

peers (6)

Autogrill Gtech

TSR 2011

€ 1'444'727

€ 319'214

€ 596'506

+32.8%

-26.6%-26.0%


(6)

Autogrill Gtech


€ 838'697€ 1'046'717

€ 3'029'538

+16.7%

+32.1%

+3.1%

Average European

peers (6)

Autogrill Gtech

TSR 2009 - 2011

€ 838'697

€ 3'029'538

€ 1'046'717

+20.3%

+45.6%

-21.9%

Average European

peers (6)

Autogrill Gtech


132

Utilities

Five Italian Utility companies are listed on main Borsa Italiana’s index, of which Enel is the

only one where the CEO’s compensation exceeded the average paid in 13 European peers48

in

2012: € 4'617'027 versus € 3'210'346. The fixed components paid by Italian utilities are generally

lower than European average, with the exception of two State-owned companies: Enel and Terna.

Lower base salaries are in line with the average stock market capitalization at the end of 2012, that

amounted to € 11.17 billion for Italian companies and to € 18.16 billion for European peers.

In 2012, annual bonuses awarded by both Italian and European utility companies were

much higher than long-term incentives. In particular, the aggregate annual bonus paid in 2011 and

2012 to Enel’s CEO (equal to € 4'808'909) was 285% higher than the long-term incentives vested

over the last two years (€ 1'248'000).

Utilities: CEO remuneration structure in 2012

€ 1'485'000€ 850'000

€ 375'000€ 64'148

€ 710'000€ 462'000

€ 439'000€ 13'000

€ 783'357€ 515'015

€ 175'000€ 53'977

€ 1'423'357€ 2'735'036

€ 390'000€ 68'634

€ 780'000€ 460'000

€ 19'747

€ 1'063'202

€ 1'264'688€ 758'101

€ 124'355Average European peers

(13)

A2A

Enel

Enel Green Power

Snam

Terna


48 Centrica (United Kingdom), E.On (Germany), EDF (France), EDP (Portugal), Enagas (Spain), Fortum (Finland), Gas

Natural (Spain), GDF Suez (France), Iberdrola (Spain), National Grid (United Kingdom), Red Electrica (Spain), RWE

(Germany) and Verbund (Austria).


133

As shown in the following charts, it is not possible to verify any clear correlation between

the variable compensations and the performances achieved in both the short and the long term:

Italian companies stand out for excessive annual bonuses, while the long-term incentives vested in

European peers are much higher despite the average performances were in line if not worst than

the ones achieved by FTSE MIB components49

.

Utilities: annual bonus vs. 2011 performance

Utilities: vested long-term incentives vs. 3-years’ performance

49 Enel Green Power has been excluded from the comparison to long-term TSR, as the company has been listed since 4

November 2010. Taking into account the IPO price, Enel Green Power’s TSR was +2.6% as of 31 December 2012.

EBIT changes 2011

€ 515'015 € 462'000

€ 850'000

€ 2'735'036

€ 1'264'688

€ 460'000

+2.7%+5.2%

+15.0%

-2.1%

-39.6%

+0.7%

Average

European

peers (13)

A2A Enel Enel Green

Power

Snam Terna

TSR 2011

€ 515'015 € 462'000

€ 850'000

€ 2'735'036

€ 460'000

€ 1'264'688 -10.9%

-2.0%

+3.7%

-9.0%

-10.8%

-24.9%

Average

European

peers (13)

A2A Enel Enel Green

Power

Snam Terna


€ 375'000€ 439'000

€ 175'000

€ 390'000

€ 758'101

€ 0

+7.7%

+25.3%

+12.2%+6.0%

+8.3%

-23.6%

Average

European

peers (13)

A2A Enel Enel Green

Power

Snam Terna

TSR 2009 - 2011

€ 390'000 € 375'000€ 439'000

€ 0

€ 758'101+36.3%

+25.5%

-23.0% -25.5%

+1.4%

Average

European

peers (13)

A2A Enel Snam Terna


134

6.3. European Chairpersons’ remuneration in 2012

As previously verified in Chapter 4 of this study, the Chairperson’s remuneration may

strongly differ according to specific definition of Chairperson’s powers in each company.

Institutional investors and proxy advisers strongly criticize the combined CEO-Chair positions,

concentrating too much power in the hands of one individual. Actually, the separation of the two

positions should naturally derive from the typical duties of a Chairperson50

. Among other tasks

defined by each company’s bylaws, the Chairperson should coordinate the Board activities, acting

as a link between the management and the Board. The Chairperson should guarantee that all

relevant documentation is promptly and fully communicated by executives to non-executive

Directors, in order to allow them to fulfil their primary role of supervision over the correctness and

transparency of company’s management, in the sole interest of the company and its stakeholders.

Serious concerns may arise when this very delicate role is performed by the main responsible of

company’s management, as affected by clear conflicts of interest.

Although largely blamed by institutional shareholders, combined CEO-Chair positions are

still very common in some European markets, such as France and Spain. Out of 125 analysed

European large-caps, 26 CEOs also chaired the Board, of which 12 in France, 10 in Spain (including

Enagas, where the two positions have been separated during fiscal year 2012), 2 in Switzerland, 1

in the UK and 1 in Norway. In 2012, such practice was adopted by 5 Italian large companies,

including Finmeccanica that recently separated the two positions51

(plus Fiat Industrial, where

there is no CEO and the executive Chairman is also the main responsible of the company’s

management).

With regards to the analysed sample of European companies, Chairmen-CEOs received

€ 4'449'321 average compensation in 2012, by 6.4% higher than the average realised by all

analysed CEOs (€ 4'180'094). Such difference was even more pronounced in Italy (€ 6'279'800

versus € 3'585'018, or +75%), but the averages are affected by the egregious equity-based

50 The combined CEO-Chairperson position is not possible in companies adopting the two-tier Board, as the

Supervisory Board cannot hold executive powers, that are exclusively exercised by the Management Board.

51 Following the resignation of last two CEO-Chairmen, as both involved in legal investigations, Finmeccanica

definitively split the two positions with the appointment of the new Chairman, Mr. Gianni De Gennaro, on 4 July 2013.


135

incentives realised by Fiat Industrial’s executive Chairman. No differences appear with regards to

base salaries paid by European companies (€ 1'350'192 to Chairmen-CEO versus overall CEO’s

average of € 1'333'932), while Italian Chairmen-CEO benefited of 48% higher fixed components

(€ 1'863'133 versus overall CEOs’ average of € 1'256'758).

As the CEO’s compensation has been deeply analysed in the previous sections of this study,

the following paragraph will be focused on executive (non-CEO) and non-executive Chairpersons.

Executive Chairpersons

There are not many executive Chairpersons in major European companies, where the

combined CEO-Chair positions are more common. Only 7 executive Chairpersons sit on 125 Boards

analysed in this study (6%), of which 4 in Spain (or 25% of Spanish companies included in the

sample), 1 in Scandinavia (6%), 1 in Switzerland (5%) and 1 in France (5%). With 14 executive

Chairmen out of 38 companies (37%), such role is much more common in Italian large companies.

Of course, the prevailing governance system adopted in each market has an impact on the number

of executive chairmanships: e.g., no executive Chairpersons sit in German and Austrian analysed

companies, all of which adopt the two-tier Board system.

As already highlighted, the executive definition of the Chairperson may also change

according to specific company’s bylaws: Eni’s Chairman is defined “non-executive” even if he is

charged of strategic powers and entitled to variable compensations (for these reasons he his

included in executive Chairmen in this study), while Banca Popolare dell’Emilia Romagna defines

the Chairman as “executive” only because he chairs the Executive Committee, but he is not

charged of any specific executive power.

Although definitely unusual, the remuneration of executive Chairmen (non-CEO) have been

separately analysed, as often entitled to variable compensations not comparable with the CEO

incentives’ structure.

Net of pension contributions, 7 European executive Chairmen received an average

compensation of € 1'685'916 in 2012, higher than average € 1'221'559 realised by 14 Italian

colleagues. The FTSE MIB average is affected by Ansaldo’s policy not to pay any compensation to


136

the Chairman Mr. Alessandro Pansa, who serves as CEO at the parent company Finmeccanica. Net

of Ansaldo, the average 2012 executive Chairmen’s remuneration reached € 1'315'525 in FTSE MIB

companies, still lower than European peers by 22%.

In line with general Italian remuneration structure, also the average executive Chairman’s

base salary exceeds the European average: € 1'050'855 (€ 1'131'691 net of Ansaldo) versus

€ 848'692. Conversely, the variable compensations vested in 2012 were much higher in European

peers: € 532'947 versus € 97'857 realised by Italian Chairmen (€ 105'385 net of Ansaldo).

Executive Chairpersons (non-CEO) 2012 remuneration structure


Telecom Italia

Mediaset

Mediobanca

Fiat

Enel

Luxottica

Campari

Eni

Atlantia

Ferragamo

BPER

Gtech

Buzzi Unicem

Ansaldo


€ 1'685'916

€ 2'968'000

€ 2'745'479

€ 1'463'400

€ 1'387'000

€ 1'283'775

€ 1'045'000

€ 1'014'000

€ 711'280

€ 606'000

€ 481'000

€ 440'000

€ 360.214

€ 0

€ 2'596'681

The above chart clearly highlights how Italian large companies tend to privilege non-

variable components to remunerate executive Chairmen, that can count on high compensations

regardless the performances achieved by the company, despite the executive powers held.


137

Non-executive Chairpersons

Similarly to their executive colleagues, Italian non-executive Chairmen realised lower

compensations than European average in 2012: net of pension contributions, the average Italian

remuneration reached € 439'041 versus € 629'969 European average. Higher European average

compensations are mainly due to the practice of partially pay non-executive Directors through free

shares, especially in Switzerland and in Scandinavian markets. In particular, the average equity-

based compensation of 16 Swiss non-executive Chairmen reached € 1'059'862 in 2012,

representing almost 55% of € 1'938'739 overall remuneration, the highest one in analysed

European markets.

Non-executive Chairpersons: 2012 average compensation by geographic area (n. of companies)

Scandinavia (16)

France (8)

Germany & Austria (20)

Benelux (9)

Italy (19)

Spain & Portugal (5)

United Kingdom (18)

Switzerland (16)

Cash fixed Shares fixed Variable compensation Benefits

€ 1'938'739

€ 611'730

€ 530'083

€ 439'041

€ 302'309

€ 290'250

€ 264'455

€ 164'649

Another difference that emerges from the above chart is related to variable compensations

linked to corporate performances, that have been awarded in Germany & Austria, Switzerland and

Benelux countries. Even if variable components are often non significant (despite the widespread

adoption, the average remuneration in Germany & Austria is much lower than in other European

markets), it would be highly recommendable to avoid linking any part of non-executive


138

remuneration to operating performances, in order to guarantee the strict independence of their

decisions from the management.

The only Italian large company that pays an annual bonus to the non-executive Chairman is

Generali, but the amount is quite symbolic (€ 554 in 2012 and € 5'036 in 2011). Also Eni’s Chairman

is entitled to variable compensations, despite the company defines his role as “non-executive”.

Nevertheless, as the Chairman of the largest Italian oil company is charged of some operating

powers, including the final decision on strategic partnerships and projects, his position is much

more similar to an executive.

Net of the excessive amounts paid in Switzerland, the average remuneration of Italian non-

executive Chairmen would rank second in Europe, preceded only by their British colleagues. Once

again, there is no correlation between emoluments and corporate size: the average ordinary

market capitalization of FTSE MIB components was € 6.8 billion at the end of 2012, versus € 23.6

billion of European peers.

Non-executive Chairpersons’ compensation may also strongly differ according to the

relevant industry. In particular, European banks and insurers tend to pay higher emoluments than

other large companies, but the largest difference is observed on the Italian market, where non-

executive Chairmen at financial companies realised more than twice than their colleagues in other

industries, versus +44% in the rest of Europe.

Average 2012 non-executive Chairpersons’ compensation: financial companies vs. others

€ 822'382

€ 573'059€ 651'267

€ 277'260

Europe Italy

Banks and Insurance companies Other industries


139

The following chart reports individual compensations paid by Italian companies, compared

with the average remuneration recorded in European peers.

Non-executive Chairpersons: individual compensation 2012 vs. average European peers


UniCredit

Intesa Sanpaolo

Generali

Terna

Banco Popolare

UBI Banca

Diasorin

A2A

Parmalat

Snam

BPM

Saipem

Impregilo

Prysmian

Mediolanum

Enel Green Power

Banca MPS

Autogrill

Fixed component Annual bonus Long-term incentives Benefits

€ 629'969

€ 1'517'555

€ 1'090'000

€ 969'034

€ 803'340

€ 596'662

€ 582'065

€ 400'000

€ 399'505

€ 363'000

€ 275'000

€ 233'300

€ 200'000

€ 113'958

€ 90'000

€ 75'000

€ 70'000

€ 66'518

€ 57'800


140

6.4. Non-executive Board members’ remuneration in 2012

As already highlighted with regards to the Chairpersons, also the composition of the Board

may significantly change according to the relevant governance system and to the prevailing

corporate culture in the specific country. In companies adopting the dual system, all Supervisory

Board members must be non-executive by definition, hence executive Directors are extremely rare

in large German and Austrian companies. Also Scandinavian Board of Directors tend not to include

executive members, with the only exception of the CEO, as the role of the Board is more focused

on monitoring and on providing for external support. On the other side, executive Directors are

much common in the Anglo-Saxon corporate culture: all analysed UK-based large companies

include more than one executive Director. Both Board structures are observed in France and in

South European markets.

Among 125 analysed European Boards, 49 include executive members other than the CEO:

19 in the United Kingdom (on average 2.7 executives per analysed Board), 14 in Spain (1.7), 5 in

France (2.2), 2 in Portugal (6.8), 2 in Switzerland (4), 2 in the Netherlands (0.7) and 1 in Sweden.

Out of 38 FTSE MIB components, 27 include executive Board members other than the CEO.

Excluding 4 Supervisory Boards, 79% of Italian Boards of Directors include more than one executive

member, confirming Italy among the countries where Boards are strongly characterized by

operating powers.

The study of executive Directors’ remuneration structure presents the same characteristics

already observed with regards to the CEOs and the executive Chairpersons. Also due to the low

representativeness of executive Directors in the analysed sample of European large companies,

the following comparison will exclusively take into account the non-executive Board members,

whose role is almost the same in all markets.

On average, 12 non-executive members sat on 125 analysed European Boards in 2012,

versus 10.8 recorded in large Italian companies. The average non-executives’ compensation was

€ 167'111 in European companies, 18% higher than € 141'588 of Italian peers.

The following charts report the moving average of the fees paid in 2012 to non-executive

Board members by European and Italian companies, in descending order by ordinary market

capitalization. As already observed with regards to Italian companies, the amount paid by


141

European peers seems not to be linked to corporate size. Nonetheless, both in Italy and in Europe

highest differences are related to 20% biggest companies, while the compensations’ trend is quite

stable in smaller companies.

Moving average of non-executive Board members’ remuneration: 125 European companies

ordered by descending market capitalization

€ 0

€ 100'000

€ 200'000

€ 300'000

€ 400'000

€ 500'000

€ 600'000

€ 700'000

20th

percentile

Moving average of non-executive Board members’ remuneration: 38 Italian companies ordered

by descending market capitalization

€ 0

€ 100'000

€ 200'000

€ 300'000

€ 400'000

€ 500'000

€ 600'000

€ 700'000

20th

percentile

The discrepancy between the emoluments paid in largest 20% companies (top 25

Europeans and top 8 Italians) is clearly shown by the above charts, but the “European trend” is

strongly affected by amounts paid in different markets: average non-executives’ compensation at

Swiss companies exceeds by six times the amount paid in Scandinavia and in France.


142

Average non-executive Board members’ remuneration by geographic area

€ 74'351

€ 75'010

€ 138'518

€ 141'588

€ 141'614

€ 171'302

€ 208'193

€ 446'741

Scandinavia

France

Germany & Austria

Italy

Benelux

Spain & Portugal

United Kingdom

Switzerland

Very high Swiss compensations are mostly due to the common practice to partially pay

non-executives’ fees through company’s shares. Although such practice contributes to align also

the non-executives’ interests with the shareholders, it should be strongly limited to a non

significant part of their remuneration, in order not to compromise their strictly independence from

executives’ decisions. That may be the case of Swiss Board members, who received € 221'025

average equity-based compensation in 2012, almost a half of total fees. Net of the equity

components, average cash fees paid by Swiss companies reached € 225'716, still very high but

more in line with their European peers. The payment of equity-based compensation to non-

executive members is a common practice in other 6 European geographic areas, where the

average equity component is limited to € 68'204, or 36% of overall non-executives’ compensations.

Financial companies (banks and insurers) confirm to be the top payers also with regards to

non-executive members. As already observed with regards to the Chairpersons’ remuneration,

discrepancies are much more evident in Italy, where non-executives’ fees at financial companies

are 80% higher than in other industries. European banks and insurers tend to pay 28% higher fees

than other companies.


143

Average non-executive Board members’ remuneration: financial companies vs. other industries

€ 195'032 € 199'608

€ 109'293

€ 156'351

Banks and insurance companies Other industries

Italy European peers

With regards to this category of Board members, Italian large companies follow an opposite

trend respect to their European peers. Highest non-executives’ average compensations have been

recorded in European Food & Beverage companies, with € 284'672 (also thanks to € 827'484

average fees paid by Nestlé), equal to more than three times the average € 90'286 fees paid in

2012 by Campari and Parmalat.


144

Conclusions

All data related to compensations paid by listed companies to CEOs and Board members

have been deeply analysed in this study. Before summarizing the main results, it is worthwhile

briefly reminding why the remuneration policy plays a key role in corporate governance, and why

it is of great significance for shareholders. The main reason lies in the different nature of listed

companies respect to privately-held ones, in terms of both ownership and size.

A public company is held by a multitude of investors, varying from professional fund

managers and large institution to inexperienced individuals, all of which having the same rights

and deserving the same level of protection. All corporate governance aspects should be defined

taking into account the responsibilities of corporate members towards all shareholders, from the

largest to the smallest ones. Furthermore, the effects caused by large corporations’ activities are

not limited to shareowners’ profits. Due to their size and economic power, listed companies may

strongly impact on economic and social conditions of communities they interact with, in terms of

job creation, economic wealth, social and environmental security etcetera.

The sustainable value creation should thereby be defined as an organic and sustainable

growth over the very long period, and not as the mere short-term monetary remuneration of the

owners. In this context, the sustainability is intended as implementing all possible actions aimed at

avoiding the exposure of company’s life to excessive risks and at avoiding the pursuit of conflicting

or external interests. Hence, the definition of remuneration policies for corporate members,

charged of both operating and monitoring powers, assumes a critical significance as substantially

defining their priorities.

The average remuneration of 98 CEOs of largest Italian companies increased by 27.5% in

2012, to € 2'351'144 from € 1'844'438 in 2011 (+25% on a three-years period, but this last figure is

affected by much lower transparency on compensations paid in 2010). The continuous increasing

trend of CEO’s compensations may be criticized from a moral standpoint, in particular during one

of the longest financial crisis ever. Nevertheless, the mere indication of the overall annual amount

paid to corporate members says nothing about the effectiveness of the remuneration policy in

rewarding good performances and in stimulating the long-term value creation.


145

The remuneration policy at every listed company is a very complex system of economic

tools, each one depending on several variables and potentially impacting on specific aspects of

corporate life. Starting from this essential consideration, the study deeply analysed all

remuneration components paid by Italian listed companies to the CEOs and all executive and non-

executive Board members, comparing each amount to the most appropriate parameters, over the

short-term and the long period and compared with relevant European peers.

Utilising single indicators to summarize in-depth analysis is a widespread practice on

financial markets, as it simplify the understanding of complex systems. Nevertheless, quick

indicators may lead to incomplete and misleading conclusions. A so complex issue, such as the

remuneration policy at listed companies, should be evaluated by each individual according to their

priorities. In order to facilitate the individual analysis, some of the main results of this study are

reported below, leaving the final conclusions to the sensibility of each reader.

• The annual increase of Italian CEOs’ compensations (+27.5% taking into account 98

listed companies, +31.3% with regards to 38 largest Italian issuers) is exclusively due to

long-term incentives vested in 2012 (+150% respect to previous year), while all other

remuneration components decreased: base salaries by 6.6% and annual bonuses by

9.9%. Furthermore, the increasing trend was driven by only 4 companies and related to

only 3 officers: the CEO of Fiat and executive Chairman of Fiat Industrial, who realised

aggregate € 40.7 million from the vesting of stock grants, Luxottica’s CEO, who received

free shares of € 10 million value on the vesting date, and the mid-cap Yoox’ CEO, who

realised € 23.55 million from the exercise of stock options. In 2011, the highest

compensation was received by Pirelli’s Chairman and CEO, Mr. Tronchetti Provera, who

realised € 18.7 million from the vesting of incentives.

Net of five highest paid executives, the average compensation of other 93 Italian CEOs

slightly decreased in 2012, to € 1'522'908 from € 1'581'442 in 2011 (-3.7%).

• Base salaries still represent the main remuneration component at mid-caps (51%),

while fixed compensations represented 35% of large-caps’ CEO remuneration in 2012.

Also in this case, the higher weight of incentives is mostly due to only two groups: Fiat

and Luxottica.


146

With regards to both Italian and European large companies, the amount of non-variable

compensations seems to be completely independent of company’s parameters, such as

the market capitalization, the complexity of corporate structure or the international

competition. Highest base salaries were recorded in Spain, followed by Italy, although

the average market capitalization of companies listed in those countries is much lower

than in the UK, where base salaries are at the lowest level. The average market cap of

Italian FTSE MIB components was € 8 billion at the end of 2012, versus € 23 billion of

125 analysed European peers.

Base salaries are strongly affected by the prevailing culture in each market and by

specific corporate policies. In some cases, the remuneration policy tends to limit the

costs related to the CEO, when the role is held by a major shareholder’s representative

(such as Buzzi Unicem), while other companies prefer to highly remunerate the

concentration of powers in the hands of one executive (such as Pirelli).

• Annual bonuses paid in 2012 seem to be independent from any performance criteria,

in terms of operating results (EBITDA, Tier 1 Ratio, Solvency Ratio, Net income or

Dividends paid) and shareholders’ value (TSR 2011). Such outcome is also due to

discretionary bonuses (entry bonus, extraordinary bonus or retention bonus), that are

still provided by 37% of remuneration policies. In some cases, short-term incentives are

likely used to integrate partial fixed components, when the beneficiary is newly

appointed or when operating performance targets are not met. Anyway, discretionary

bonuses do not represent a widespread practice in Italy, where many companies clearly

reduced short-term incentives over the last years. On aggregate, annual bonuses paid

to Italian CEOs represented 14.4% of their compensation, versus 30.7% recorded in 125

European peers.

Almost all Italian companies paid the short-term incentives entirely in cash, while the

bonus awarded by 71% of analysed European peers also included financial components

(shares and stock options), that tend to enhance the alignment of interests between

management and shareholders.

Additional efforts would be required to Italian listed companies to fill the gap between

annual rewards and performances: the elimination of all discretionary components,


147

higher transparency on short-term performance criteria, that are duly disclosed only by

half of analysed 2013 Remuneration Reports, and a wider use of deferred and equity-

based incentives.

• It is not possible to verify a clear correlation also between vested long-term incentives

and the value created over the vesting period (usually previous 3 or 5 fiscal years). The

Total Shareholder Return realised by Italian large companies in the 2009-2011 period

was +14.5%, while 2012 long-term incentives, mostly based on the same vesting period,

represented 143.6% of CEOs’ base salaries. Nonetheless, a direct correlation between

long-term incentives and TSR is observable with regards to extreme levels: higher

incentives vested in top performers, while no long-term variable compensations tend to

vest in companies that achieved worst results in terms of TSR.

On the other hand, long-term incentives are much more aligned with operating

performances realised over the last three-years period. The correlation is absolutely

clear at high level of operating results, while it is less evident at worst performers.

The different level of incentives’ correlation with stock market or operating

performances is mainly due to two key factors: (i) the excessive use of monetary

incentives, that represent the sole variable component in 21% Italian large companies

versus only 5% of European peers, and (ii) the definition of inadequate or not enough

challenging performance conditions.

• The introduction of the shareholders’ vote on remuneration policies in 2012, even if not

binding (except for banks and insurance companies), strongly enhanced the level of

transparency on executives’ compensation. More than 70% of 2013 Remuneration

Reports duly disclosed the long-term incentives’ performance criteria, while the

transparency is still quite poor on annual bonuses. Furthermore, several companies

substantially modified their policies, thanks to a closer dialogue with institutional

investors.

• The deep gap between shareholders’ interests and officers’ compensation has not been

filled yet, but it seems that things are moving in the right direction. The analysis of 2013

Italian AGMs confirms the positive effects of the introduction of the say-on-pay: the


148

independent shareholders’ dissent on Remuneration Reports decreased by 17.3% in

2013, to 30.2% from 36.5% in 2012, first year of implementation of the new rules.


149

Frontis Governance was born on September 2011 as the first proxy advisor completely focused on the Italian market.

The mission of Frontis Governance is to provide a professional and independent support to all minority shareholders in

exercising their shareholder rights and in analyzing the corporate governance in investee companies.

Since its birth, Frontis Governance joined ECGS (Expert Corporate Governance Service), the only international

partnership of local governance experts, in order to provide the most accurate and specialized local market expertise

also on foreign markets. The other members of the ECGS’ network are: Proxinvest – Managing Partner (France), DSW

(Germany), Ethos (Switzerland), Shareholder Support (Netherlands) and Group Investissement Responsable (GIR –

Canada).

[email protected]

www.frontisgovernance.com

Via Gela, 73

00182 Roma - Italy

T +39 (0)6 64 85 08 04

Disclaimer

All analyses rely on information gathered from sources available to investors and the general public, e.g. the

companies' reports, websites and direct contacts with company officers. Despite multiple verification, the information

provided cannot be guaranteed accurate. The voting positions are prepared by Frontis Governance according to

general best practice standards in corporate governance. They also take into consideration local market practice. The

analyses are intended to help investors (clients of Frontis Governance or any other potential users) make informed

decisions at companies' general meetings but cannot, in any way, be considered as a portfolio investment tool or

advice for investing in securities.

Copyright 2013 Frontis Governance di Sergio Carbonara. All rights reserved.

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