PAY ON PERFORMANCE ? ANALYSIS OF 2012 REMUNERATION IN ITALIAN LISTED COMPANIES
SERGIO CARBONARA
Analysis of 2012 Remuneration in Italian Listed Companies
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
2 Analysis of 2012 Remuneration in Italian Listed Companies
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
3 Analysis of 2012 Remuneration in Italian Listed Companies
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
4 Analysis of 2012 Remuneration in Italian Listed Companies
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
5 Analysis of 2012 Remuneration in Italian Listed Companies
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.
6 Analysis of 2012 Remuneration in Italian Listed Companies
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
7 Analysis of 2012 Remuneration in Italian Listed Companies
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.
8 Analysis of 2012 Remuneration in Italian Listed Companies
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.
9 Analysis of 2012 Remuneration in Italian Listed Companies
Severances paid in 2012 by major Italian listed companies
Equivalent years of Severance Officer – Company Role non-variable paid 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
10 Analysis of 2012 Remuneration in Italian Listed Companies
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)
Non-executive Board members € 112.73
CEO € 230.41
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 27.47% 29.63%
€ 1'844'438
€ 1'043'135 € 804'697
-4.69% € 116'098 € 121'807
CEO Executive Directors Non-executive Board members (98) (167 in 2012 - 180 in 2011) (971 in 2012 - 1'011 in 2011)
2012 2011 Change
11 Analysis of 2012 Remuneration in Italian Listed Companies
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
-6.6% +150.3% € 102.23 € 95.46 € 99.37
-9.9% € 39.70 € 36.22 € 32.62 +13.3%
€ 2.61 € 2.96
Base salary Annual bonus Long-term incentives Benefits
2011 2012
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%).
12 Analysis of 2012 Remuneration in Italian Listed Companies
Average CEO’s 2012 remuneration structure
Benefits 1.3% Long-term Base salary incentives 41.4% 43.1%
Annual bonus 14.2%
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
+1899.7 % € 52.55
-27.3% +203.7 € 26.12 € 28.47 € 20.70
€ 8.60 € 2.63
Exercised stock options Shares granted Monetary incentives (including deferred bonuses)
2011 2012
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:
13 Analysis of 2012 Remuneration in Italian Listed Companies
• 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 2011 4;
• 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.
14 Analysis of 2012 Remuneration in Italian Listed Companies
Awarded vs. vested equity-based incentives in 2011 and 2012 € 59.08 € 52.55
€ 26.12 € 17.97 € 8.60 € 9.94 € 11.59 € 2.63
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 shares 5 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.
15 Analysis of 2012 Remuneration in Italian Listed Companies
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 € 27 '800 '300 YOOX - Marchetti € 24'834'060 FIAT - Marchionne € 18'700'000 LUXOTTICA - Guerra € 14'363'692 SALVATORE FERRAGAMO - Norsa € 7'471'605 ENI - Scaroni € 6'397'000 MONDADORI - Costa € 5'102'279 ENEL - Conti € 4'617'027 SAIPEM - Tali € 4'551'361 AUTOGRILL - Tondato Da Ruos € 4'337'247 GTECH - Sala € 3'222'148 PIRELLI - Tronchetti Provera € 3'083'550 INTESA SANPAOLO - Cucchiani € 3'037'000 INDESIT - Milani € 3'004'542 MEDIASET - Adreani € 2'987'190
Base salary Annual bonus Long-term incentives Benefits
Structure of 15 lowest CEO remunerations in 2012
TREVI FIN INDUSTRIALE - S. Trevisani € 453 '000 EI TOWERS - Barbieri € 407'327 ITALMOBILIARE - C. Pesenti* € 385'497 BANCO DESIO E BRIANZA - Dacci € 380'831 BUZZI UNICEM - M. Buzzi € 351'084 ASTM - Sacchi* € 345'610 MARR - Rossi** € 342'722 GEMINA - Bertazzo € 310'000 CAMFIN - Schinelli € 303'259 IGD - Albertini € 267'000 ASCOPIAVE - Zugno € 264'299 MILANO ASSICURAZIONI - Erbetta* € 142'016 BONIFICHE FERRARESI - Bolognesi € 120'086 COFIDE - R. De Benedetti* € 120'000 DEA CAPITAL - Ceretti* € 90'000
Base salary Annual bonus Long-term incentives Benefits
16 Analysis of 2012 Remuneration in Italian Listed Companies
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 1 st – December 31 st ), 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 2012 6.
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).
17 Analysis of 2012 Remuneration in Italian Listed Companies
Base salaries vs. ordinary market capitalization (as of 31 December 2012)
€ 10'000'000 € 9'000'000
€ 8'000'000 € 7'000'000 € 6'000'000
€ 5'000'000 € 4'000'000 € 3'000'000 € 2'000'000
€ 1'000'000 € 0
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 91 st , 92 nd and 93 rd 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.
18 Analysis of 2012 Remuneration in Italian Listed Companies
Base salaries exceeding € 1.5 million in 2012
Ordinary market Company – CEO Stock market index Base salary 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 21 st ), where € 18.7 million granted to the CEO represented 0.39% of the market capitalization at the end of 2012.
19 Analysis of 2012 Remuneration in Italian Listed Companies
20 highest CEO compensation/capitalization ratios
CEO compensation on market Company – CEO Stock market index 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).
20 Analysis of 2012 Remuneration in Italian Listed Companies
Average CEO’s remuneration structure in 2012: FTSE MIB vs. FTSE Italia Mid Cap
FTSE MIB FTSE Italia Mid Cap
Equity-based Benefits Equity- Benefits long-term 2% 1% based long- Base salary incentives term 35% 28% incentives 38% Base salary Monetary 51% long-term incentives Annual Monetary Annual 6% bonus long-term bonus 14% incentives 14% 11%
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
€ 55'523 € 1'395'310 € 408'842 2012 € 522'703 € 1'256'758
€ 44'380
Large Cap Large € 172'055 € 589'325 2011 € 622'598 € 1'343'124
€ 14'126 € 427'512 € 86'041 2012 € 212'685 € 795'052
€ 15'386
MidCap € 78'176 2011 € 101'244 € 209'348 € 853'155
Base salary Annual bonus Monetary long-term incentives Equity-based long-term incentives Benefits
21 Analysis of 2012 Remuneration in Italian Listed Companies
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
€ 809'531 Retail (2) € 12'588'391 € 5'541'969 Automobiles & Parts (5) € 5'134'853 € 2'809'378 Personal & Household Goods (8) € 3'849'505 € 2'102'967 Travel & Leisure (2) € 3'779'698 € 3'035'606 Oil & Gas (4) € 3'636'923 € 1'115'029 Industrial Goods and Services (16) € 2'678'769 € 2'165'728 Media (4) € 2'678'640 € 1'831'704 Healthcare (4) € 1'592'950 € 1'699'107 Insurance (8) € 1'478'888 € 1'627'447 Utilities (10) € 1'455'372 € 1'703'779 Banks (15) € 1'445'538 € 1'843'000 Telecommunications (1) € 1'322'000 € 1'304'423 Construction & Materials (7) € 1'063'719 € 968'820 Financial Services (4) € 972'640 € 1'513'382 Food & Beverage (3) € 849'504 € 907'683 Technology (3) € 776'741 € 604'500 Real Estate (2) € 553'000
Average compensation 2012 Average compensations 2011
22 Analysis of 2012 Remuneration in Italian Listed Companies
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)
Retail (2) € 12'588'391
Automobiles & Parts (5) € 5'314'853
Personal & Household Goods (8) € 3'849'505
Travel & Leisure (2) € 3'779'698
Oil & Gas (4) € 3'636'923
Industrial Goods and Services (16) € 2'678'769
Media (4) € 2'678'640
Healthcare (4) € 1'592'950
Insurance (8) € 1'478'888
Utilities (10) € 1'455'372
Banks (15) € 1'445'538
Telecommunications (1) € 1'322'000
Construction & Materials (7) € 1'063'719
Financial Services (4) € 972'640
Food & Beverage (3) €€ 849'504 849'504
Technology (3) € 776'741
Real Estate (2) € 553'000
Base salary Annual bonus Long-term incentives Benefits
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
23 Analysis of 2012 Remuneration in Italian Listed Companies
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) Automobiles & Parts (€ 2'669'205)
Benefits Base salary Benefits Base salary 0% 8% 1% 30% Annual bonus 3% Long-term Long-term incentives incentives 54% 89% Annual bonus 15%
Oil & Gas (€ 1.668.132) Personal & Household Goods (€ 1'664'720)
Benefits Benefits Long-term 0% 1% incentives Base salary Base salary 29% Long-term 40% 37% incentives 46%
Annual bonus Annual bonus 31% 16%
Travel & Leisure (€ 1'470'666) Media (€ 1'211'092)
Long-term Benefits Long-term Benefits incentives 2% incentives 1% 37% 13% Base salary Base salary 65% 30%
Annual bonus Annual bonus 21% 31%
24 Analysis of 2012 Remuneration in Italian Listed Companies
Industrial Goods and Services(€ 948'450) Healthcare (€ 856'163)
Benefits Benefits 0% Long-term 1% Long-term Base salary incentives Base salary incentives 41% 36% 44% 48%
Annual bonus Annual bonus 11% 19%
Insurance (€ 840'211) Telecommunications (€ 791'250)
Base salary Base salary 85% Benefits 70% 1% Benefits 3% Long-term incentives Long-term 2% incentives Annual bonus Annual bonus 0% 12% 27%
Utilities (€ 770'705) Banks (€ 768'212)
Benefits Benefits 1% Long-term Long-term 5% incentives Base salary incentives Base salary 20% 46% 7% 79%
Annual bonus Annual bonus 9% 33%
Food & Beverage (€ 592'971) Construction & Materials (€ 592'035)
Benefits Benefits 2% Long-term 1% Base salary incentives Long-term Base salary 38% 7% incentives 68% 39% Annual bonus Annual bonus 24% 21%
25 Analysis of 2012 Remuneration in Italian Listed Companies
Financial Services (€ 485'365) Technology (€ 421'106)
Long-term Benefits Benefits incentives 2% Long-term 0% Base salary 0% incentives 97% Base salary 1% 64% Annual bonus 2% Annual bonus 34%
Real Estate (€ 289'375)
Benefits Long-term 2% incentives 0% Base salary Annual bonus 94% 4%
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).
26 Analysis of 2012 Remuneration in Italian Listed Companies
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
200% 190%
150% 145%
100% 94% 61%
50% 46% 30% 31% 22% 14% 21% 19% 18% 4% 7% 9% 11% 6% 35% -9% 18% -14% 0% -11% 5% -15% 0% 0% -6% -6% -44% -12% Banks Retail Media -26% Utilities
-50% Gas & Oil Insurance Parts Healthcare Real Estate Real Technology Materials Services -51% Personal & Construction & Automobiles & -60% Travel & Leisure & Travel Financial Services Financial Food Beverage & Household Goods
-100% & Goods Industrial Telecommunications -100% 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%
27 Analysis of 2012 Remuneration in Italian Listed Companies
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
+10%
€ 960'500 +0% € 881'971 -10%
€ 553'305 € 588'750 € 552'875 -20% € 463'729 € 317'631 € 326'931 € 334'033 € 290'000 € 336'000 -30% € 275'071 € 279'000 € 140'981 € 122'371 -40% € 0 € 20'090 -50% Banks Retail Media Utilities Oil&Gas Insurance Healthcare Real Estate Real Technology Materials Services Personal & Personal Construction & Construction Travel &Leisure Travel Food &Beverage Food Financial Services Financial Household Goods Household Industrial Goods& Industrial Automobiles&Parts Telecommunications
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
28 Analysis of 2012 Remuneration in Italian Listed Companies
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
+143% +150% € 11'875'475
+100% +71%
+49% +39% +40% +43% +50% +32% € 5'730'768 +19% +22% +23% +12% +17% +4% +10% -8% € 3'092'563 +0% -16% € 2'157'851 -21% € 1'778'230 € 1'937'590 € 915'891 € 621'964 € 1'233'520 € 625'000 € 171'558 € 51'429 € 0 € 6'667 € 0 € 207'922 € 24'118 -50% Retail Banks Media Utilities Oil &OilGas Insurance Healthcare Real Estate Real Technology Materials Services Personal & Personal Construction & Construction Travel &Leisure Travel Food &Beverage Food Financial Services Financial Household Goods Household Industrial Goods& Industrial Automobiles&Parts Telecommunications
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.
29 Analysis of 2012 Remuneration in Italian Listed Companies
Average incentives vested in 2011 and 2012 vs. Total Shareholder Return 2009-2011
+150% +119% € 11'875'475 +100% +100% +62% +62% +65% +66% +37% +50% +8% € 5'730'768 +0% -9% -17% -16% -14% -10% -33% -28% € 3'092'563 -32% -50% -52% € 2'157'851 € 1'778'230 € 1'937'590 € 1'233'520 € 625'000 € 915'891 € 621'964 € 51'429 € 171'558 € 207'922 € 0 € 0 € 6'667 € 24'118 -100% Retail Banks Media Utilities Oil & Gas Oil& Insurance Healthcare Real Estate Real Technology Materials Services Personal & Personal Construction & Construction Travel &Leisure Travel Food &Beverage Food Financial Services Financial Household Goods Household Industrial Goods & Goods Industrial Automobiles & Parts &Automobiles Telecommunications Average incentives vested in 2011 and 2012 TSR 2009-2011
The comparison of average incentives and TSR realised over the 3-years’ vesting period 7 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.
30 Analysis of 2012 Remuneration in Italian Listed Companies
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
Vested remuneration structure 2012 Awarded remuneration structure 2012
Benefits Benefits 1% 1% Base salary Base salary Long-term Long-term 41% 43% incentives incentives 44% 41%
Annual Annual bonus bonus 14% 15%
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
31 Analysis of 2012 Remuneration in Italian Listed Companies
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 € 33'935'000 FIAT INDUSTRIAL - Marchionne € 17'669'800 SALVATORE FERRAGAMO - Norsa € 7'471'605 YOOX - Marchetti € 7'169'913 LUXOTTICA - Guerra € 6'746'317 ENI - Scaroni € 6'397'000 AUTOGRILL - Tondato da Ruos € 5'780'478 GTECH - Sala € 5'197'406 MONDADORI - Costa € 5'102'279 EXOR - Elkann € 4'710'800 ENEL - Conti € 4'617'027 INTESA SANPAOLO - Cucchiani € 3'937'000 CIR - R. De Benedetti € 3'777'000 UNICREDIT - Ghizzoni € 3'541'550 SAIPEM - Tali € 3'134'000
Base salary Annual bonus Long-term incentives Benefits
Of course, the value of base salaries and annual bonuses do not change, as both components vest on the same date of grant.
32 Analysis of 2012 Remuneration in Italian Listed Companies
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.)
Non-executive Board members CEOs € 138.29 € 57.91
Executive Directors € 111.79
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 +31.3% +26.3% € 111.79 € 105.32 € 88.51 € 65.55 € 57.91
-11.7%
CEOs Executive Directors Non-executive Board members
Aggregate 2012 remuneration Aggregate 2011 remuneration Changes
33 Analysis of 2012 Remuneration in Italian Listed Companies
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 revenues 8 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.
34 Analysis of 2012 Remuneration in Italian Listed Companies
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
+20% +18.7%
+15%
+10% +8.9%
+5% +2.9%
+0% 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% 0.050% 0.047% 15 14.88 12 0.038% 12.04 9 0.025% 6
0.013% 3
0.000% 0 2011 2012
Compensations / Revenues Compensations / Wages
35 Analysis of 2012 Remuneration in Italian Listed Companies
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%.
36 Analysis of 2012 Remuneration in Italian Listed Companies
FTSE MIB: aggregate CEOs’ remuneration components (€ mil.)
+31.3% € 138.3
€ 105.3 +137.0% -5.4% € 68.6 € 52.7 € 49.9 -16.0% € 28.9 € 23.7 € 19.9
Total Base salary and Annual bonus Long-term compensation benefits incentives
2011 2012
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.)
+716.1% € 53.4
-17.5% -30.6% € 23.7 € 22.4 € 19.5 € 15.5
€ 6.5
Monetary annual bonus Monetary long-term Equity-based long-term incentives incentives 2011 2012
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
37 Analysis of 2012 Remuneration in Italian Listed Companies
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 date 10 (€ 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.
38 Analysis of 2012 Remuneration in Italian Listed Companies
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.)
FIAT INDUSTRIAL - Marchionne 27.80 FIAT - Marchionne 18.47
LUXOTTICA - Guerra 14.34 SALVATORE FERRAGAMO - Norsa 7.46
ENI - Scaroni 6.38 ENEL - Conti 4.55 SAIPEM - Tali 4.54
AUTOGRILL - Tondato Da Ruos 4.28
GTECH - Sala 3.14
PIRELLI & C. - Tronchetti Provera 3.08
MEDIASET - Adreani 2.98 TERNA - Cattaneo 2.71 INTESA SANPAOLO - Cucchiani 2.66 MEDIOBANCA - Nagel 2.12
UNICREDIT - Ghizzoni 2.06 EXOR - Elkann 2.00 GENERALI - Greco 1.84
FINMECCANICA - Orsi 1,74
BANCO POPOLARE - Saviotti 1,70
SNAM - Malacarne 1.61 TOD'S - Diego Della Valle 1.57 PRYSMIAN - Battista 1.57 BANCA MPS - Viola 1.55 ATLANTIA - Castellucci 1.51 AZIMUT - Giuliani 1.49 ENEL GREEN POWER - Starace 1.47 CAMPARI - Kunze Concewitz 1.40 UBI BANCA - Massiah 1.39 TELECOM ITALIA - Patuano 1.28 A2A - Ravanelli 1.24 IMPREGILO - Pietro Salini 1.05 BANCA POP MILANO - Montani 0.97 PARMALAT - Guérin 0.93 MEDIOLANUM - Ennio Doris 0.8 3 BPER - Odorici 0.81 ANSALDO - De Luca 0.72 DIASORIN - Rosa 0.65 BUZZI UNICEM - Michele Buzzi 0. 34
Base salary Annual bonus Monetary long-term incentives Equity-based long-term incentives
39 Analysis of 2012 Remuneration in Italian Listed Companies
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
Fiat Industrial +988% Fiat +654% Autogrill +172% Luxottica +144% Ferragamo +126% Saipem +116% Parmalat* +68% Eni +31% A2A +22% Gtech +19% Prysmian +16% Intesa* +10% Ansaldo +10% Buzzi Unicem +7% Exor +6% Enel +4% -0% Azimut -1% Atlantia -9% UniCredit -10% Mediaset -10% UBI Banca -12% Mediolanum -12% B. Popolare -13% Diasorin -13% BPM* -16% Finmeccanica* -16% Enel GP -16% Banca MPS* -20% Snam -22% Generali* -30% Telecom Italia -33% Tod's -36% Mediobanca -44% Terna -51% Impregilo* -54% BPER* -64% Campari -86% Pirelli & C
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.
40 Analysis of 2012 Remuneration in Italian Listed Companies
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.
41 Analysis of 2012 Remuneration in Italian Listed Companies
Aggregate remuneration realised over the 2010 - 2012 period (€ mil.)11
PIRELLI & C 31.30
LUXOTTICA 26.56 FIAT 24.21 ENI 15.67
ENEL 11.85
SAIPEM 10.83
TERNA 9.87
MEDIASET 9.59
INTESA SANPAOLO 8.30
GTECH (EX-LOTTOMATICA) 7.93
AUTOGRILL 7.63 GENERALI 7.60
CAMPARI 7.07
TOD'S 6.94
MEDIOBANCA 6.72
UNICREDIT 6.66 FINMECCANICA 6.32
BANCO POPOLARE 6.10
TELECOM ITALIA 5.67 EXOR 5.64
PRYSMIAN 5.37
IMPREGILO 5. 30 SNAM 5. 04 DIASORIN 4.97 BANCA MPS 4.82
ATLANTIA 4. 53 AZIMUT 4. 47
BPER 4. 39 UBI BANCA 4. 26 A2A 3. 72 BPM 3.08 ANSALDO 2. 80 MEDIOLANUM 2. 59 PARMALAT 2.03 BUZZI UNICEM 0. 97
Base salary Monetary variable components Exercised stock options Shares granted
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.
42 Analysis of 2012 Remuneration in Italian Listed Companies
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)
Shares granted Benefits 10.5% 1.6% Exercised stock options 4.5%
Base salaries 50.8% Cash variable components 32.6%
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.
43 Analysis of 2012 Remuneration in Italian Listed Companies
Average CEO’s remuneration versus wages and salaries in the 2010-2012 period
€ 4'000'000 +46.9%
€ 3'000'000
€ 2'000'000 90.0 63.0 70.6 € 1'000'000
+2.8% € 0 2010 2011 2012
Average wages and salaries Average CEO's compensation
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.
44 Analysis of 2012 Remuneration in Italian Listed Companies
Fixed component of the CEO remuneration in 2012
PIRELLI & C. - Tronchetti Provera € 3'077'554 LUXOTTICA - Guerra € 2'509'568
MEDIASET - Adreani € 2'327'794 FIAT - Marchionne € 2'300'000 INTESA SANPAOLO - Cucchiani € 2'300'000 MEDIOBANCA - Nagel € 2'117'688
EXOR - Elkann € 2'000'000 FINMECCANICA - Orsi € 1'740'000 BANCO POPOLARE - Saviotti € 1'700'000 UNICREDIT - Ghizzoni € 1'591'338
TOD'S - Diego Della Valle € 1'570'945 AZIMUT - Giuliani € 1'490'000 TERNA - Cattaneo € 1'485'000 ENI - Scaroni € 1'430'000
ENEL - Conti € 1'423'357 BANCA MPS - Viola € 1'414'522 UBI BANCA - Massiah € 1'391'375 FIAT INDUSTRIAL - Marchionne € 1'300'300 GENERALI - Greco € 1'300'000
PRYSMIAN - Battista € 1'118'730 ATLANTIA - Castellucci € 1'008'423 TELECOM ITALIA - Patuano € 1'005'000 BANCA POP MILANO - Montani € 971'312
AUTOGRILL - Tondato Da Ruos € 930'821 GTECH - Sala € 851'679 SAIPEM - Tali € 837'000 MEDIOLANUM - Ennio Doris € 834'292
BPER - Odorici € 813'000 IMPREGILO - Pietro Salini € 800'000 ENEL GREEN POWER - Starace € 783'357 A2A - Ravanelli € 780'000
SALVATORE FERRAGAMO - Norsa € 771'000 CAMPARI - Kunze Concewitz € 736'574 SNAM - Malacarne € 710'000 PARMALAT - Guérin € 600'000
DIASORIN - Rosa € 511'291 ANSALDO - De Luca € 426'794 BUZZI UNICEM - Michele Buzzi € 301'787
45 Analysis of 2012 Remuneration in Italian Listed Companies
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
46 Analysis of 2012 Remuneration in Italian Listed Companies
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 Ansaldo 12 . 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.
47 Analysis of 2012 Remuneration in Italian Listed Companies
CEO’s fixed compensation vs average wages in 2012
Fixed compensation/average wages ratio Average wages 2012 (€ thousands)
€ 24.68 PIRELLI & C 124.7 € 25.34 LUXOTTICA 99.0 € 37.78 FIAT 60.9 € 40.00 INTESA SANPAOLO 57.5 € 28.22 TOD'S 55.7 € 37.40 UNICREDIT 42.6 € 25.32 AUTOGRILL 36.8 € 50.89 FINMECCANICA 34.2 € 68.67 MEDIASET 33.9 € 50.81 BANCO POPOLARE 33.5 FIAT INDUSTRIAL 32.8 € 39.67 PRYSMIAN 30.6 € 36.59 ENEL 30.2 € 47.06 TELECOM ITALIA 29.9€ 33.58 MEDIOBANCA 29.4 € 71.97 BANCA MPS 29.0 € 48.77 ENI 28.6 € 49.94 UBI BANCA 26.3 € 52.99 A2A 25.0 € 31.24 € 53.74 GENERALI 24.2 € 42.43 ATLANTIA 23.8 € 40.56 SAIPEM 20.6 € 72.60 TERNA 20.5 € 31.28 PARMALAT 19.2 € 42.18 IMPREGILO 19.0 € 52.65 BPM 18.4 € 46.35 GTECH 18.4 € 45.55 BPER 17.9 € 45.61 SNAM 15.6 € 48.94 CAMPARI 15.1 € 52.15 FERRAGAMO 14.8 € 53.01 ENEL GREEN POWER 14.8 € 142.95 EXOR 14.0 € 118.87 AZIMUT 12.5 € 67.30 MEDIOLANUM 12.4 € 50.49 DIASORIN 10.1 € 31.16 BUZZI UNICEM 9.7 € 62.15 ANSALDO 6.9
48 Analysis of 2012 Remuneration in Italian Listed Companies
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.
49 Analysis of 2012 Remuneration in Italian Listed Companies
Annual bonus as percentage of base salary
0% 50% 100% 150% 200%
ENEL - Conti 192%
GTECH - Sala 170%
ENI - Scaroni 148%
IMPREGILO - Pietro Salini 125%
GENERALI - Greco 100%
CAMPARI - Kunze Concewitz 89%
FIAT - Marchionne 86%
SAIPEM - Tali 81%
LUXOTTICA - Guerra 72%
ENEL GREEN POWER - Starace 66%
SNAM - Malacarne 65%
A2A - Ravanelli 59%
TERNA - Cattaneo 57%
PARMALAT - Guérin 54%
SALVATORE FERRAGAMO - Norsa 50%
ATLANTIA - Castellucci 50%
ANSALDO - De Luca 47%
AUTOGRILL - Tondato Da Ruos 34%
MEDIASET - Adreani 28%
TELECOM ITALIA - Patuano 28%
DIASORIN - Rosa 26%
UNICREDIT - Ghizzoni 21%
PRYSMIAN - Battista 17%
INTESA SANPAOLO - Cucchiani 16%
BUZZI UNICEM - Michele Buzzi 11%
BANCA MPS - Viola 10%
UBI BANCA - Massiah 0%
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.
50 Analysis of 2012 Remuneration in Italian Listed Companies
Annual bonus on total remuneration 2012
0% 15% 30% 45% 60%
ENEL - Conti 59%
IMPREGILO - Pietro Salini 55%
GENERALI - Greco 49%
CAMPARI - Kunze Concewitz 47%
GTECH - Sala 45%
A2A - Ravanelli 37%
ENEL GREEN POWER - Starace 34%
ENI - Scaroni 33%
ATLANTIA - Castellucci 33%
PARMALAT - Guérin 32%
TERNA - Cattaneo 31%
SNAM - Malacarne 28%
ANSALDO - De Luca 27%
MEDIASET - Adreani 22%
TELECOM ITALIA - Patuano 21%
DIASORIN - Rosa 20%
SAIPEM - Tali 15%
UNICREDIT - Ghizzoni 15%
LUXOTTICA - Guerra 13%
PRYSMIAN - Battista 12%
INTESA SANPAOLO - Cucchiani 12%
FIAT - Marchionne 11%
BUZZI UNICEM - Michele Buzzi 9%
BANCA MPS - Viola 9%
AUTOGRILL - Tondato Da Ruos 7%
SALVATORE FERRAGAMO - Norsa 5%
UBI BANCA - Massiah 0%
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
51 Analysis of 2012 Remuneration in Italian Listed Companies
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 analysed 13 . 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”).
52 Analysis of 2012 Remuneration in Italian Listed Companies
Annual bonus paid in 2012 vs. EBITDA change in 2011 (non-financial companies)
€ 3'000'000 +300%
+250% € 2'500'000 +200%
€ 2'000'000 +150%
+100% € 1'500'000 +50%
€ 1'000'000 +0%
-50% € 500'000 -100%
€ 0 -150% Eni Fiat A2A Enel Snam Tod's Terna Pirelli Gtech Saipem Atlantia Ansaldo Campari Diasorin Autogrill Parmalat Prysmian Luxottica Mediaset Impregilo Ferragamo Buzzi Unicem Buzzi Finmeccanica Fiat Fiat Industrial Telecom Italia Enel Green Power 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).
53 Analysis of 2012 Remuneration in Italian Listed Companies
Annual bonus paid in 2012 vs. Tier 1 (banks) or Solvency (insurers) ratios’ change in 2011
€ 1'400'000 +35%
+30% € 1'200'000 +25%
€ 1'000'000 +20%
+15% € 800'000
+10% € 600'000 +5%
€ 400'000 +0%
-5% € 200'000 -10%
€ 0 -15% BPM BPER Generali Unicredit UBI Banca Banca MPS Mediobanca Banco Popolare Intesa Sanpaolo Intesa 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 result 14 .
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.
54 Analysis of 2012 Remuneration in Italian Listed Companies
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 2011 15 . 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 chart 16 (red bars in case of negative TSR in 2011).
Annual bonus 2012 vs. TSR 2011 (top 20 bonuses)
€ 3'000'000 +40%
€ 2'500'000 +20%
€ 2'000'000 +0%
€ 1'500'000 -20%
Average TSR € 1'000'000 2011 = -21% -40%
€ 500'000 -60%
€ 0 -80% Eni Fiat A2A Enel Snam Terna Gtech Saipem Atlantia Campari Autogrill Generali Parmalat Unicredit Luxottica Mediaset Impregilo Ferragamo Intesa Sanpaolo Intesa Enel Green Power
Bonus TSR 2011
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.
55 Analysis of 2012 Remuneration in Italian Listed Companies
Annual bonus 2012 vs. TSR 2011 (others)
€ 300'000 +40%
Average TSR € 250'000 +20% 2011 = -21%
€ 200'000 +0%
€ 150'000 -20%
€ 100'000 -40%
€ 50'000 -60%
€ 0 -80% BPM BPER Tod's Pirelli Ansaldo Diasorin Prysmian UBI Banca Banca MPS Mediobanca Buzzi Unicem Buzzi Finmeccanica Fiat Industrial Telecom Italia Banco Popolare
Bonus TSR 2011
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%.
56 Analysis of 2012 Remuneration in Italian Listed Companies
Annual bonus 2012 vs. Net results change 2011
+1'800% € 2'500'000
+1'200% € 2'000'000
+600% € 1'500'000
€ 1'000'000 +0%
€ 500'000 -600%
€ 0 -1'200% Eni Fiat A2A Enel BPM BPER Snam Tod's Pirelli Terna Gtech Saipem Atlantia Ansaldo Diasorin Campari Autogrill Generali Parmalat Unicredit Prysmian Luxottica Mediaset Impregilo UBI Banca Ferragamo Banca MPS Mediobanca Buzzi Buzzi Unicem Finmeccanica Fiat Industrial Telecom Italia Banco Popolare Intesa Intesa Sanpaolo Enel Green Power 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 amounts 17 .
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”.
57 Analysis of 2012 Remuneration in Italian Listed Companies
Changes of short-term incentives rewarded in 2012 and 2011 vs. operating performances (EBITDA, Tier 1, Solvency)
€ 3'000'000
+400%
€ 2'000'000
+200% € 1'000'000
€ 0 +0% Eni A2A Enel BPM Fiat* BPER Tod's Snam Terna Pirelli -€ 1'000'000 Gtech Saipem Ansaldo Atlantia Campari Diasorin Generali -200% Autogrill Parmalat Unicredit Luxottica Prysmian Mediaset Impregilo UBI Banca UBI Ferragamo Banca MPS Mediobanca Buzzi Buzzi Unicem Finmeccanica -€ 2'000'000 Telecom Italia Fiat Industrial* Banco Popolare Intesa Sanpaolo
Enel Green Power -400%
-€ 3'000'000
-600% -€ 4'000'000
-€ 5'000'000 -800% 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
58 Analysis of 2012 Remuneration in Italian Listed Companies
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
59 Analysis of 2012 Remuneration in Italian Listed Companies
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
Definition of Vesting period: Payment of cash / vesting of Stock options exercise performance criteria performances are equity-based incentives (i.e., period / eventual share and allocation of shares achieved (EBITDA, min 0% max 150% of the target schemes’ holding period and/or stock options TSR, FOCF...) level, according to results)
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
60 Analysis of 2012 Remuneration in Italian Listed Companies
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
€ 30'000'000 +250%
+200% € 25'000'000
+150% € 20'000'000
+100% € 15'000'000 +50%
€ 10'000'000 +0%
€ 5'000'000 -50%
€ 0 -100% Eni Fiat Enel Snam Terna Pirelli Gtech Saipem Ansaldo Campari Autogrill Unicredit Prysmian Luxottica Ferragamo Banca MPS Buzzi Unicem Buzzi Finmeccanica Mediobanca* Fiat Industrial Enel Green Power
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
61 Analysis of 2012 Remuneration in Italian Listed Companies
(+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.
62 Analysis of 2012 Remuneration in Italian Listed Companies
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
143.56%
CEOs' return on € 68'557'756 base salary € 57'000'000 € 51'038'731 Shareholder's € 47'756'794 56.69% return on investment € 28'932'457
14.48%
€ 8'251'849 € 6'156'957 € 2'094'892
Initial Dividends 2009- Capital gain TSR Base salary Base salary LTI vested in LTI vested in investment 2011 2009-2011 2011 2012 2011 2012
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.
63 Analysis of 2012 Remuneration in Italian Listed Companies
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
1050% 1019%
900%
750%
600% 569%
450% 311% 300% 230% 212% 208% 201% 146% 164% 150% 102% 93% 76% 44% 36% 7% 17% 14% 8% 11% 4% 5% 0%
-150% Fiat - EBIT Eni - EBITDA Enel - EBITDA Ansaldo - EBIT Ansaldo Snam Snam - EBITDA Pirelli - EBITDA Terna - EBITDA Gtech - Gtech EBITDA Saipem - EBITDA Unicredit - TIER 1 Campari - EBITDA Autogrill - EBITDA Luxottica Luxottica - EBITDA Prysmian - EBITDA Banca MPS - TIER 1 Ferragamo - EBITDA Fiat Industrial - EBIT Finmeccanica - EBITA Mediobanca* - TIER 1 Buzzi Buzzi Unicem - EBITDA Enel Green - Power EBITDA Incentives / base salary Cumulative performance 2009-2011
64 Analysis of 2012 Remuneration in Italian Listed Companies
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, Prysmian 18 , 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.
65 Analysis of 2012 Remuneration in Italian Listed Companies
Long-term incentives vested in 2011 and 2012 vs. combined performance parameter (50% operating performances + 50% TSR)
€ 15'000'000 450%
€ 13'500'000 400% 350% € 12'000'000 300% € 10'500'000 250% € 9'000'000 200% € 7'500'000 150%
€ 6'000'000 100% 50% € 4'500'000 0% € 3'000'000 -50% € 1'500'000 -100% € 0 -150% Eni Fiat Enel A2A BPER Tod's Pirelli Terna Snam Gtech Azimut Saipem Atlantia Ansaldo Diasorin Campari Autogrill Luxottica Parmalat Unicredit Prysmian Mediaset Impregilo UBI Banca UBI Ferragamo Banca MPS Banca Mediolanum Buzzi Unicem Finmeccanica Mediobanca* Fiat Industrial Telecom Italia Telecom Intesa Sanpaolo Enel Green Power Green Enel
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, Prysmian 19 , 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.
66 Analysis of 2012 Remuneration in Italian Listed Companies
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)
+21.3 € 144.9 € 119.5
-5.4% +190.0% -23.9% € 60.0 € 52.7 € 49.9 € 46.1 € 35.1 € 20.7
Total Base salary + Monetary Equity-based benefits incentives incentives 2011 2012
67 Analysis of 2012 Remuneration in Italian Listed Companies
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
Benefits Fixed 1% component 33%
Long-term incentives 52% Annual bonus 14%
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
68 Analysis of 2012 Remuneration in Italian Listed Companies
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
FIAT € 36'385'200 PIRELLI & C € 25'360'360 FIAT INDUSTRIAL € 20'225'800 LUXOTTICA € 14'749'401 EXOR € 12'930'600 ENI € 11'281'000 SALVATORE FERRAGAMO € 10'773'105 GTECH € 10'147'669 ENEL € 8'992'717 AUTOGRILL € 8'737'894 UNICREDIT € 8'734'494 MEDIASET € 6'360'121 INTESA SANPAOLO* € 6'360'000 MEDIOBANCA € 5'907'511 PRYSMIAN € 5'657'528 ATLANTIA € 5'320'919 SAIPEM € 5'239'000 TERNA € 5'062'681 GENERALI* € 4'995'807 IMPREGILO* € 3'949'465 TOD'S € 3'902'895 TELECOM ITALIA € 3'836'000 FINMECCANICA* € 3'656'000 BANCO POPOLARE € 3'646'968 CAMPARI € 3'606'076 BANCA MPS* € 3'449'464 ENEL GREEN POWER € 3'279'533 SNAM € 3'085'000 UBI BANCA € 3'059'448 AZIMUT € 2'988'000 BPER* € 2'574'000 A2A € 2'277'674 BANCA POP MILANO* € 2'228'214 MEDIOLANUM € 1'785'525 DIASORIN € 1'606'101 PARMALAT € 1'577'083 ANSALDO € 1'463'140 BUZZI UNICEM € 644'401
Base salary Annual bonus Long-term incentives Benefits
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.
69 Analysis of 2012 Remuneration in Italian Listed Companies
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 consultative 20 , 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 parties 21 , 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 year 22 .
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.
70 Analysis of 2012 Remuneration in Italian Listed Companies
Strictly independent shareholders’ vote on Remuneration Reports (average % related to 34 FTSE MIB components)
67.6% 59.7%
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.
71 Analysis of 2012 Remuneration in Italian Listed Companies
• 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.
72 Analysis of 2012 Remuneration in Italian Listed Companies
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 LTIPs 23 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)
No annual bonus 7.9% Cash + Shares 13.2%
Cash 78.9%
23 Azimut, A2A, Buzzi Unicem and Mediaset are excluded as no long-term incentive plans were reported by 2013 remuneration policies.
73 Analysis of 2012 Remuneration in Italian Listed Companies
Long-term incentive plans (% on 38 FTSE MIB components)
Cash + Equity 23.7% Stock options Equity-based 7.9% plans 31,6%
Shares + Options Cash Shares 18.4% 5.3% 34.2%
No LTIP 10.5%
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.
74 Analysis of 2012 Remuneration in Italian Listed Companies
Quality of disclosure related to the CEO remuneration structure
100% 4 11 12 80% 7
60% 9 7
40% 24
17 20% 15
0% 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.
75 Analysis of 2012 Remuneration in Italian Listed Companies
Quality of disclosure about variable compensation’s performance criteria
100% 1 5 6 5 80% 4 13 11 60%
40% 24 19 18 20%
0% 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.
76 Analysis of 2012 Remuneration in Italian Listed Companies
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.
77 Analysis of 2012 Remuneration in Italian Listed Companies
Variable compensation’s structure at maximum performance level
Annual bonus Long-term incentives 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
* 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.
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-
78 Analysis of 2012 Remuneration in Italian Listed Companies
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
Max Annual bonus/Salary ratio Max Lon-term incentives/Salary ratio Fiat Industrial 250% 375% 625% Fiat 250% 375% 625%
Telecom Italia 150% 450% 600%
Autogrill 90% 400% 490%
Pirelli* 250% 200% 450%
Prysmian 100% 319% 419% UniCredit 77% 309% 386% Generali 150% 230% 380%
Eni 155% 168% 323%
Impregilo 140% 140% 280%
Enel 150% 96% 246% Campari 120% 120% 240% Enel Green Power 119% 96% 215%
Saipem 78% 117% 195%
Snam 65% 111% 176% Finmeccanica** 131% 44% 175%
Intesa Sanpaolo 60% 90% 150%
Banca MPS 60% 90% 150%
Terna 67% 63% 130%
Banco Popolare 51% 34% 85% A2A 80% 80% BPM 30% 20% 50%
Buzzi Unicem 40% 40%
BPER 15% 15% 30 %
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
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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.
80 Analysis of 2012 Remuneration in Italian Listed Companies
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)
Entry bonus Retention bonus 8% 8%
Extraordinary or discretionary bonus None 21% 63%
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
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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)
Malus and Claw-back 14% Claw-back 14%
None Malus 58% 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.
82 Analysis of 2012 Remuneration in Italian Listed Companies
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 Industrial 24 , Finmeccanica 25 , Pirelli and Tod’s).
• Executive Chairman (not CEO) : 14 companies (Ansaldo, Atlantia, Banca Popolare dell’Emilia Romagna 26 , Buzzi Unicem, Campari, Enel, Eni 27 , 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.
83 Analysis of 2012 Remuneration in Italian Listed Companies
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 € 2'980'000 MEDIASET - Confalonieri € 2'745'479 MEDIOBANCA - Pagliaro € 2'596'681 FIAT - Elkann € 1'463'400 ENEL - Colombo € 1'387'000 LUXOTTICA - Del Vecchio € 1'283'775 CAMPARI - Garavoglia € 1'045'000 ENI - Recchi € 1'014'000 ATLANTIA - Cerchiai € 711'280 FERRAGAMO - F. Ferragamo € 606'000 BPER - Caselli € 481'000 GTECH - Pellicioli € 440'000 BUZZI UNICEM - A. Buzzi € 360'214 ANSALDO - Pansa € 0
Base salary Annual bonus Long-term incentives Benefits
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.
84 Analysis of 2012 Remuneration in Italian Listed Companies
FTSE MIB Executive Chairmen: compensation awarded in 2012
TELECOM ITALIA - Bernabè € 2'980'000 MEDIASET - Confalonieri € 2'745'479 MEDIOBANCA - Pagliaro € 2'596'681 FIAT - Elkann € 1'463'400 ENEL - Colombo € 1'387'000 CAMPARI - Garavoglia € 1'345'200 LUXOTTICA - Del Vecchio € 1'283'775 ENI - Recchi € 1'014'000 ATLANTIA - Cerchiai € 985'030 FERRAGAMO - F. Ferragamo € 883'000 BPER - Caselli € 481'000 GTECH - Pellicioli € 440'000 BUZZI UNICEM - A. Buzzi € 360'214 ANSALDO - Pansa € 0
Base salary Annual bonus Long-term incentives Benefits
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.
85 Analysis of 2012 Remuneration in Italian Listed Companies
Executive Chairmen’s remuneration components awarded in 2012
Long-term Benefits incentives 5.7% 4.5% Fixed component Annual bonus 82.2% 7.7%
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
-19% TELECOM ITALIA - Bernabè
MEDIASET - Confalonieri -20%
MEDIOBANCA - Pagliaro +2%
FIAT - Elkann +9%
ENEL - Gnudi + Colombo -16%
LUXOTTICA - Del Vecchio +4% CAMPARI - Garavoglia -65%
ENI - Poli + Recchi -11%
ATLANTIA - Cerchiai +1%
FERRAGAMO - F. Ferragamo 0%
BPER - Caselli +5%
GTECH - Pellicioli +2%
BUZZI UNICEM - A. Buzzi -7%
ANSALDO - Pansa 0%
2012 2011
86 Analysis of 2012 Remuneration in Italian Listed Companies
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
1'540'000 +25% 1'500'000
1'250'000 +19.63% +20% 890'000 1'000'000 +15% 750'000 600'000 525'000 +10% 500'000 +6.77% 375'000 245'000 +7.31% +5% 250'000 +1.10% +2.67% +0.38% 0 +0% ENEL - Gnudi + Colombo TELECOM ITALIA - Bernabè ENI - Poli + Recchi
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.
87 Analysis of 2012 Remuneration in Italian Listed Companies
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).
88 Analysis of 2012 Remuneration in Italian Listed Companies
Non-executive Chairmen’s remuneration in 2012 and 2011
€ 1'517'555 UNICREDIT - Vita + Rampl (former) € 1'807'799 € 1'090'000 INTESA SANPAOLO - Bazoli € 1'378'000 € 969'034 GENERALI - Galateri di Genola* € 1'481'383 € 803'340 TERNA - Roth € 696'128 € 596'662 BANCO POPOLARE - Fratta Pasini € 521'383 € 582'065 UBI BANCA - Faissola** € 600'000 € 400'000 DIASORIN - Denegri € 400'000 € 399'505 A2A - Ranci Ortigosa + Tarantini (former) € 576'500 € 363'000 PARMALAT - Tatò € 300'000 € 275'000 SNAM - Bini Smaghi + Sardo (former) € 240'000 € 233'300 BPM - Annunziata € 579'385 € 200'000 SAIPEM - Meomartini € 198'000 € 113'958 IMPREGILO - Costamagna*** € 1'404'515 € 90'000 PRYSMIAN - Tononi € 70'000 € 75'000 MEDIOLANUM - Secchi + Ruozi (former) € 100'000 € 70'000 ENEL GREEN POWER - Ferraris € 70'000 € 66'518 BANCA MPS - Profumo € 712'521 € 57'800 AUTOGRILL - G. Benetton € 55'079
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.
89 Analysis of 2012 Remuneration in Italian Listed Companies
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).
90 Analysis of 2012 Remuneration in Italian Listed Companies
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
91 Analysis of 2012 Remuneration in Italian Listed Companies
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
+14.1% +331.5% € 799'936 € 700'994 € 676'043
-9.9% € 216'843 € 195'479 +249.0% € 156'689 € 12'613 € 44'025
Fixed Annual bonus Long-term Benefits components incentives
2011 2012
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.
92 Analysis of 2012 Remuneration in Italian Listed Companies
Average executives’ remuneration structure in 2012 (CEOs are excluded)
Luxottica (3) € 14'067'149 Impregilo (0,6) € 3'807'100 Generali (1,3) € 3'588'678 Fiat (2) € 3'498'700 Telecom Italia (1) € 2'968'000 Saipem (1) € 2'465'504 Mediobanca (4) € 2'018'119 Campari (3) € 1'553'254 Exor (3) € 1'517'197 Enel (1) € 1'387'000 Mediaset (6) € 1'350'180 Gtech (2) € 1'200'871 Finmeccanica (1) € 1'169'000 Prysmian (3) € 1'110'508 Eni (1) € 1'014'000 Pirelli (1) € 952'292 Mediolanum (3) € 747'686 Atlantia (1) € 711'280 Tod's (4) € 697'550 Ferragamo (1) € 606'000 Buzzi Unicem (4) € 600'186 Banco Popolare (3,8) € 563'099 Azimut (4) € 448'500 Diasorin (1) € 402.697 BPM (2) € 266.915 BPER (6,5) € 182.615 Ansaldo (1) € 0
Fixed components Annual bonus Long-term incentives Benefits
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.
93 Analysis of 2012 Remuneration in Italian Listed Companies
Average executives’ awarded remuneration components in 2012 (CEOs are excluded)
Impregilo (0,6) € 3'807'100 Generali (1,25) € 3'588'678 Fiat (2) € 3'498'700 Telecom Italia (1) € 2'968'000 Mediobanca (4) € 2'018'119 Gtech (2) € 1'791'265 Exor (3) € 1'722'709 Campari (3) € 1'542'661 Luxottica (3) € 1'465'866 Saipem (1) € 1'440'000 Enel (1) € 1'387'000 Mediaset (6) € 1'350'180 Finmeccanica (1) € 1'169'000 Mediolanum (3) € 1'018'341 Eni (1) € 1'014'000 Atlantia (1) € 985'030 Pirelli (1) € 952'292 Prysmian (3) € 940'648 Tod's (4) € 697'550 Banco Popolare (3,8) € 629'090 Ferragamo (1) € 606'000 Buzzi Unicem (4) € 600'186 Azimut (4) € 448'500 Diasorin (1) € 402.697 BPM (2) € 266.915 BPER (6,5) € 182.615 Ansaldo (1) € 0
Fixed components Annual bonus Long-term incentives Benefits
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.
94 Analysis of 2012 Remuneration in Italian Listed Companies
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).
95 Analysis of 2012 Remuneration in Italian Listed Companies
Average annual non-executive members’ remuneration Average = € 141'588 € 297'252 Intesa Sanpaolo (18.9) € 351'700 € 290'233 Generali (14.4) € 294'241 € 286'662 UniCredit (17.8) € 280'578 € 203'068 Exor (11.8) € 345'985 € 197'293 Terna (8) € 175'072 € 173'052 UBI Banca (22.8) € 168'609 € 166'669 Impregilo (13.9) € 154'815 € 162'857 Eni (7) € 159'286 € 160'949 Mediobanca (16.3) € 198'500 € 158'918 Banco Popolare (18.2) € 179'509 € 157'692 Telecom Italia (13) € 170'109 € 150'955 Banca MPS (10.3) € 220'295 € 143'143 Enel (7) € 127'728 € 140'727 BPER (7.3) € 86'300 € 133'263 Gtech (6) € 102'425 € 124'791 A2A (14.3) € 147'039 € 122'250 Azimut (4) € 108'750 € 117'402 BPM (19) € 189'235 € 114'735 Parmalat (8.8) € 108'485 € 105'808 Buzzi Unicem (7.8) € 100'238 € 104'458 Luxottica (9.3) € 93'043 € 98'750 Diasorin (8) € 98'750 € 96'700 Ferragamo (10) € 84'857 € 96'572 Mediolanum (9.1) € 76'986 € 94'307 Pirelli (17.2) € 89'378 € 92'624 Atlantia (12.9) € 69'862 € 85'750 Snam (8) € 74'375 € 84'213 Autogrill (12) € 79'044 € 79'827 Fiat (7.5) € 75'750 € 78'667 Finmeccanica (9.8) € 88'200 € 74'124 Saipem (7) € 69'286 € 72'222 Ansaldo (6.8) € 66'258 € 71'611 Prysmian (6.3) € 70'000 € 70'316 Fiat Industrial (9.5) € 74'349 € 70'130 Tod's (7) € 63'479 € 70'000 Enel Green Power (9) € 72'791 € 47'500 Campari (5) € 47'500 € 45'000 Mediaset (8) € 48'147 2012 2011
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).
96 Analysis of 2012 Remuneration in Italian Listed Companies
Average annual remuneration changes: financial sector vs. others
-9.3% € 215'007 € 195'032 -3.2%
€ 112'866 € 109'293
Banks and insurers Others
2011 2012
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.
97 Analysis of 2012 Remuneration in Italian Listed Companies
“Other remuneration” and additional fees paid by subsidiaries and affiliates vs. average non-executive members’ fees
€ 70'130 Tod's € 220'000 € 297'252 Intesa Sanpaolo € 137'125 € 96'572 Mediolanum € 136'600 € 286'662 UniCredit € 104'302 € 45'000 Mediaset € 82'500 € 122'250 Azimut € 82'500 € 157'692 Telecom Italia € 67'000 € 160'949 Mediobanca € 66'704 € 158'918 Banco Popolare € 63'351 € 92'624 Atlantia € 60'800 € 173'052 UBI Banca € 49'150 € 203'068 Exor € 49'000 € 140'727 BPER € 36'000 € 117'402 BPM € 30'075 € 105'808 Buzzi Unicem € 22'368 € 124'791 A2A € 20'981
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.
98 Analysis of 2012 Remuneration in Italian Listed Companies
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.
99 Analysis of 2012 Remuneration in Italian Listed Companies
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 2012 28 .
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
Others Fixed 12.2% components 25.1%
Long-term incentives 32.0% Annual bonus 30.7%
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.
100 Analysis of 2012 Remuneration in Italian Listed Companies
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
49.6%
34.5% 30.7% 32.0% 25.1%
14.4% 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
60.0%
45.0%
33.0% 22.1% 16.0% 17.6% 6.0% 0.4%
Monetary annual Equity-based annual Monetary long-term Equity-based long- bonus bonus incentives 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
101 Analysis of 2012 Remuneration in Italian Listed Companies
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
United Kingdom € 6'869'744
Benelux € 5'636'340
Switzerland € 4'738'137
Germany and Austria € 4'647'461
Spain and Portugal € 4'104'947
France € 4'092'522
Italy € 3'639'135
Scandinavia € 1'921'156
Fixed component Annual bonus Long-term incentives Others
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.
102 Analysis of 2012 Remuneration in Italian Listed Companies
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
United Kingdom € 6'429'606
Benelux € 5'091'852
Switzerland € 4'218'016
Germany and Austria € 4'140'136
Italy € 3'760'880
Spain and Portugal € 3'430'304
France € 3'373'135
Scandinavia € 1'560'033
Fixed component Annual bonus Long-term incentives
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
103 Analysis of 2012 Remuneration in Italian Listed Companies
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 € 1'022'159 € 989'820 € 978'131 € 974'565
Spain and Italy Germany Switzerland France Benelux Scandinavia United Portugal and Austria 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)
Variable Company – CEO Country Base salary Benefits Total components
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
104 Analysis of 2012 Remuneration in Italian Listed Companies
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.
105 Analysis of 2012 Remuneration in Italian Listed Companies
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 sample 29 . 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
€ 1'740'000
€ 1'413'735 € 1'397'154
€ 669'641
€ 147'705 € 0 € 0 € 9'000
Average European peers (3) Finmeccanica
Base salary Annual bonus Long-term incentives Benefits
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).
106 Analysis of 2012 Remuneration in Italian Listed Companies
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 sample 30 . 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
€ 6'299'605
€ 3'092'773 € 1'965'508 € 1'570'945 € 1'149'995 € 771'000 € 134'394 € 385'000 € 16'000
Average European peers Salvatore Ferragamo Tod's (6)
Base salary Annual bonus Long-term incentives Benefits
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 EBIT changes 2011 TSR 2011 +12.9% +81.2% € 1'965'508 € 1'965'508 +5.1%
+19.9% € 385'000 +21.7% € 385'000 € 0 € 0 -11.3%
Average European Salvatore Ferragamo Tod's Average European Salvatore Ferragamo Tod's peers (6) peers (6)
30 Adidas (Germany), Burberry (United Kingdom), Gerry Weber International (Germany), Hermes International (France), Kering (France) e LVMH (France).
107 Analysis of 2012 Remuneration in Italian Listed Companies
Apparel & Textile Products: vested long-term incentives vs. 3-years’ performance 31
EBIT average changes 2009-2011 TSR 2009 - 2011 +143.8% € 6'299'605 € 3'092'773 +185.4% +151.1%
€ 3'092'773 +58.5%
+16.2% € 0 € 0 Average European Salvatore Ferragamo Tod's peers (6) Average European peers (6) Tod's
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 sample 32 .
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).
108 Analysis of 2012 Remuneration in Italian Listed Companies
Asset Management: CEO remuneration structure in 2012
€ 2'447'991
€ 1'490'000
€ 726'909 € 487'644 € 93'286 € 0 € 0 € 4'000
Average European peers (3) Azimut
Base salary Annual bonus Long-term incentives Benefits
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 peers 33 , 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).
109 Analysis of 2012 Remuneration in Italian Listed Companies
Automotive: CEO remuneration structure in 2012
€ 14'200'000
€ 3'077'554 € 2'181'003 € 2'300'000 € 1'254'792 € 1'234'005 € 1'974'000 € 33'816 € 226'000 € 5'996
Average European Fiat Pirelli peers(8)
Base salary Annual bonus Long-term incentives Benefits
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 TSR 2011 +236.3% € 2'181'003 € 2'181'003 +12.0% € 1'974'000 € 1'974'000
-20.8%
+28.0% +42.7% -47.0% € 0 € 0
Average European Fiat Pirelli Average European Fiat Pirelli peers(8) peers(8)
110 Analysis of 2012 Remuneration in Italian Listed Companies
Automotives: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011
€ 14'200'000 +178.6% € 14'200'000 +150.0%
+104.6% +108.2% +86.7% +73.7%
€ 1'234'005 € 1'234'005 € 0 € 0 Average European Fiat Pirelli Average European Fiat Pirelli peers(8) peers(8)
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 group 34 , 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).
111 Analysis of 2012 Remuneration in Italian Listed Companies
Banks: CEO remuneration structure in 2012
€ 228'901 Average European peers (21) € 910'069 € 1'453'233 € 40'650 € 1'404'907 € 140'000 Banca MPS € 1'414'522 BPM € 971'312 € 9'000 BPER € 813'000 € 8'644 Banco Popolare € 1'700'000 € 377'000 Intesa Sanpaolo € 360'000 € 2'300'000 € 352'156 Mediobanca € 2'117'688 € 112'897 € 1'170 UBI Banca € 1'391'375 € 228'651 € 129'688 € 337'016 UniCredit € 1'591'338
Base salary Annual bonus Long-term incentives Benefits
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 TSR 2011 € 1'453'233 € 1'453'233 +1.8% +215.1% +4.5% -7.3% +16.2% -49.3% -62.9% -18.2% -456.4% -31.7% € 360'000 -29.4% € 337'016 -40.5% € 360'000 -47.6% € 337'016 € 140'000 -4'682.5% € 140'000 € 1'170 € 1'170 -58.5% -65.0% -63.9% -59.3% BPM BPM BPER BPER Banco Intesa Banco Intesa Peers Peers Popolare Popolare UniCredit UniCredit Sanpaolo Sanpaolo UBI UBI Banca UBI Banca Banca MPS Banca MPS europei (21) europei (21) Mediobanca Mediobanca
112 Analysis of 2012 Remuneration in Italian Listed Companies
Banks: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 € 910'069 € 910'069 +882.1% -2.5% -8.9% +89.6% +1.3% +115.0% +158.4% -39.3% -40.2% -9.1% -4.7% -27.1% -56.3% -62.6% -58.1% € 129'688 -79.5% -68.8% € 129'688 -1'595.8%
BPM BPM BPER BPER Banco Intesa Banco Intesa Peers Peers Popolare Popolare UniCredit UniCredit Sanpaolo Sanpaolo UBI Banca UBI Banca
Banca MPS Banca MPS europei (21) europei (21) Mediobanca Mediobanca
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 sample 35 , 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 € 301'787
€ 124'702 € 32'604 € 9'878 € 6'815
Average European peers (3) Buzzi Unicem
Base salary Annual bonus Long-term incentives Benefits
35 HeidelbergCement (Germany), Holcim (Switzerland) e Sika (Switzerland).
113 Analysis of 2012 Remuneration in Italian Listed Companies
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
EBIT changes 2011 TSR 2011
€ 989'129 € 989'129
-20.3% -14.9%
€ 32'604 -22.8% € 32'604 -41.5%
Average European peers (3) Buzzi Unicem Average European peers (3) Buzzi Unicem
Construction Materials: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 € 462'257 € 462'257 -1.4% +35.8%
-36.5% -32.3% € 9'878 € 9'878
Average European peers (3) Buzzi Unicem Average European peers (3) Buzzi Unicem
114 Analysis of 2012 Remuneration in Italian Listed Companies
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 sample 36 : € 5.23 billion versus € 6.96 billion of European companies.
Engineering & Construction Services: CEO remuneration structure in 2012
€ 1'184'826 € 1'009'491 € 1'008'423 € 1'000'000
€ 500'000 € 340'266
€ 88'484 € 54'628 € 15'602 € 2'512
Average European peers Atlantia Impregilo (8)
Base salary Annual bonus Long-term incentives Benefits
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).
115 Analysis of 2012 Remuneration in Italian Listed Companies
Engineering & Construction Services: annual bonus vs. 2011 performance
EBIT changes 2011 TSR 2011
+17.1% € 1'184'826 € 1'184'826 +10.0% +1.3% € 1'000'000 € 1'000'000
€ 500'000 € 500'000
-12.4% -13.9% -42.6%
Average European Atlantia Impregilo Average European peers Atlantia Impregilo peers (8) (8)
Engineering & Construction Services: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 +91.2% € 340'266 +3.2% € 340'266
-1.2% +38.4% +23.6% -3.2% € 0 € 0 € 0 € 0
Average European Atlantia Impregilo Average European Atlantia Impregilo peers (8) peers (8)
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).
116 Analysis of 2012 Remuneration in Italian Listed Companies
Financial Services: CEO remuneration structure in 2012
€ 2'000'000
€ 488'209 € 495'474 € 212'815 € 79'903 € 3'300
Average European peers (3) Exor
Base salary Annual bonus Long-term incentives Benefits
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 peers 38 .
38 Anheuser-Busch Inbev (Belgium), Aryzta (Switzerland), Carlsberg (Denmark), Heineken (Netherlands), Lindt & Spruengli (Switzerland) and Nestlé (Switzerland).
117 Analysis of 2012 Remuneration in Italian Listed Companies
Food & Beverage: CEO remuneration structure in 2012
€ 3'807'025
€ 2'472'334
€ 1'334'716 € 736'574 € 659'100 € 600'000 € 22'148 € 0 € 5'669 € 325'000 € 102'083
Average European Campari Parmalat peers(6)
Base salary Annual bonus Long-term incentives Benefits
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 TSR 2011
+7.1% € 2'472'334 +9.6% € 2'472'334 +7.0% -0.5%
€ 659'100 € 659'100 € 325'000 € 325'000 -40.3% -32.4%
Peers europei (6) Campari Parmalat Peers europei (6) Campari Parmalat
118 Analysis of 2012 Remuneration in Italian Listed Companies
Food & Beverage: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 € 3'807'025 € 3'807'025 +14.9% +124.4% +15.2% +87.6%
+42.7%
-33.3%
Peers europei (6) Campari Parmalat Peers europei (6) Campari Parmalat
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 sample 39 .
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 € 511'291
€ 131'100 € 17'807 € 3'392
Average European peers (3) Diasorin
Base salary Annual bonus Long-term incentives Benefits
39 Celesio (Germany), Getinge (Sweden) and Sonova (Switzerland).
119 Analysis of 2012 Remuneration in Italian Listed Companies
Healthcare: annual bonus vs. 2011 performance
EBIT changes 2011 TSR 2011
€ 709'720 € 709'720 +12.2% +5.9%
-11.0% € 131'100 € 131'100 -35.4%
Average European peers (3) Diasorin Average European peers (3) Diasorin
Healthcare: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 +33.1% € 530'633 € 530'633 +48.3% +39.2%
+12.2%
€ 0 € 0 Average European peers (3) Diasorin Average European peers (3) Diasorin
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,
120 Analysis of 2012 Remuneration in Italian Listed Companies
were much lower than the average paid by 9 European peers 40 : € 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
€ 29'894 Average European € 1'359'453 € 928'833 peers (9) € 989'503 € 66'699 € 39'957 Ansaldo € 200'600 € 426'794
Fiat Industrial € 26'500'000 € 1'300'300 € 9'154 € 253'158 Prysmian € 193'148 € 1'118'730
Base salary Annual bonus Long-term incentives Benefits
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
EBIT changes 2011 TSR 2011 € 928'833 € 928'833 +60.2% -6.9% +10.4% +13.3% € 200'600 € 193'148 € 200'600 € 193'148 € 0 -24.3% -23.1% -15.3% -27.8% € 0
Average Ansaldo Fiat Industrial Prysmian Average Ansaldo Fiat Industrial Prysmian European peers European peers (9) (9)
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).
121 Analysis of 2012 Remuneration in Italian Listed Companies
Industrial Goods & Services: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011
€ 1'359'453 € 1'359'453 +26.0% +119.9%
+14.4% +29.6% € 253'158 € 253'158 € 39'957 € 39'957 +4.7% -4.2% Average European Ansaldo Prysmian Average European Ansaldo Prysmian peers (9) peers (9)
Insurance
As of 31 December 2012, two insurance companies were included in the main Italian stock market’s index, Generali and Mediolanum 41 . 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 sample 42 .
Insurance: CEO remuneration structure in 2012
€ 1'300'000 € 1'133'196 € 916'918 € 863'147 € 834'292 € 541'666
€ 32'316 € 44'771
Average European peers Generali Mediolanum (7)
Base salary Annual bonus Long-term incentives Benefits
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).
122 Analysis of 2012 Remuneration in Italian Listed Companies
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 EBIT changes 2011 TSR 2011 € 1'300'000 € 1'300'000 -10.0% +0.8% € 916'918 € 916'918 -33.5% -10.7%
-18.5% -72.3% € 0 € 0
Average European Generali Mediolanum Average European Generali Mediolanum peers (7) peers (7)
Insurance: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 € 1'133'196 € 1'133'196 +12.8% +102.0% +9.0%
+13.5% -36.7% € 0+0.8% € 0 € 0 € 0
Average European Generali Mediolanum Average European Generali Mediolanum peers (7) peers (7)
123 Analysis of 2012 Remuneration in Italian Listed Companies
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 peers 43 .
Media: CEO remuneration structure in 2012
€ 2'327'794
€ 1'092'178 € 944'893 € 650'000 € 393'211 € 13'670 € 9'396
Average European peers (4) Mediaset
Base salary Annual bonus Long-term incentives Benefits
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
EBIT changes 2011 TSR 2011 € 1'092'178 € 1'092'178
€ 650'000 € 650'000 -33.9% -26.1%
-50.9% -71.3%
Average European peers (4) Mediaset Average European peers (4) Mediaset
43 ITV (United Kingdom), Lagardere (France), Prosieben Sat 1 (Germany) and Sanoma (Finland).
124 Analysis of 2012 Remuneration in Italian Listed Companies
Media: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 € 393'211 € 393'211 +227.0% +2.4%
-12.4% -28.9% € 0 € 0
Average European peers (4) Mediaset Average European peers (4) Mediaset
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 sample 44 . 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).
125 Analysis of 2012 Remuneration in Italian Listed Companies
Oil & Gas: CEO remuneration structure in 2012
€ 3'020'361 € 2'717'273 € 2'842'000 € 2'110'000
€ 1'273'687 € 1'430'000 € 1'068'696 € 682'000 € 423'143 € 15'000 € 12'000
Average European peers Eni Saipem (11)
Base salary Annual bonus Long-term incentives Benefits
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 EBIT changes 2011 TSR 2011 € 2'110'000 € 2'110'000 +97.2% +4.3%
€ 1'068'696 € 1'068'696
-9.3% +8.2% +13.2% -10.8% € 0 € 0 Peers europei (11) Eni Saipem Peers europei (11) Eni Saipem
Oil & Gas: vested long-term incentives vs. 3-years’ performance EBIT average changes 2009-2011 TSR 2009 - 2011
€ 3'020'361 € 3'020'361 +35.5% +192.1% € 2'842'000 € 2'842'000
€ 2'717'273 € 2'717'273 +11.3% +59.9% +2.3% +14.7%
Peers europei (11) Eni Saipem Peers europei (11) Eni Saipem
126 Analysis of 2012 Remuneration in Italian Listed Companies
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
€ 10'015'875
€ 2'102'111 € 2'509'568 € 1'779'200 € 1'799'161 € 1'817'000 € 60'699 € 21'249
Average European peers (3) Luxottica
Base salary Annual bonus Long-term incentives Benefits
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).
127 Analysis of 2012 Remuneration in Italian Listed Companies
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
EBIT changes 2011 TSR 2011
€ 1'817'000 € 1'817'000 +25.4% +13.3%
€ 1'799'161 € 1'799'161
-0.5% -2.7%
Average European peers (3) Luxottica Average European peers (3) Luxottica
Retail: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 +129.7% € 10'015'875 +5.9% € 10'015'875 +4.4% +79.6%
€ 2'102'111 € 2'102'111
Average European peers (3) Luxottica Average European peers (3) Luxottica
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.
128 Analysis of 2012 Remuneration in Italian Listed Companies
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 sample 46 . 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
€ 2'830'307
€ 1'352'486 € 1'320'056 € 1'005'000
€ 279'000 € 107'885 € 38'000
Average European peers (6) Telecom Italia
Base salary Annual bonus Long-term incentives Benefits
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).
129 Analysis of 2012 Remuneration in Italian Listed Companies
Telecom: annual bonus vs. 2011 performance
EBIT changes 2011 TSR 2011 -0.6% € 1'352'486 € 1'352'486 +2.5%
€ 279'000 € 279'000 -110.4% -9.6%
Average European peers (6) Telecom Italia Average European peers (6) Telecom Italia
Telecom: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 € 2'830'307 € 2'830'307
+5.3% +40.0%
-34.5% -15.3% € 0 € 0 Average European peers (6) Telecom Italia Average European peers (6) Telecom Italia
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 peers 47 : 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).
130 Analysis of 2012 Remuneration in Italian Listed Companies
Travel, Lodging & Dining: CEO remuneration structure in 2012
€ 3'029'538
€ 1'444'727 € 1'046'717 € 809'630 € 930'821 € 851'679 € 838'697 € 596'506 € 329'862 € 319'214 € 57'674 € 87'045
Average European peers Autogrill Gtech (6)
Base salary Annual bonus Long-term incentives Benefits
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 EBIT changes 2011 TSR 2011 € 1'444'727 € 1'444'727
+39.7% +32.8%
+18.7% € 596'506 € 596'506 € 319'214 € 319'214 -0.3% -26.6% -26.0%
Average European Autogrill Gtech Average European peers Autogrill Gtech peers (6) (6)
Travel, Lodging & Dining: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 +32.1% +45.6% € 3'029'538 € 3'029'538
+20.3% +16.7% € 1'046'717 € 1'046'717 € 838'697 € 838'697 +3.1% -21.9% Average European Autogrill Gtech Average European Autogrill Gtech peers (6) peers (6)
131 Analysis of 2012 Remuneration in Italian Listed Companies
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 peers 48 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
€ 124'355 Average European peers € 758'101 € 1'264'688 (13) € 1'063'202 € 19'747 A2A € 460'000 € 780'000 € 68'634 € 390'000 Enel € 2'735'036 € 1'423'357 € 53'977 € 175'000 Enel Green Power € 515'015 € 783'357 € 13'000 € 439'000 Snam € 462'000 € 710'000 € 64'148 € 375'000 Terna € 850'000 € 1'485'000
Base salary Annual bonus Long-term incentives Benefits
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).
132 Analysis of 2012 Remuneration in Italian Listed Companies
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 components 49 .
Utilities: annual bonus vs. 2011 performance
EBIT changes 2011 TSR 2011 € 2'735'036 € 2'735'036 +15.0% +3.7% +0.7% +5.2% +2.7% -2.0% -2.1% -9.0% € 1'264'688 € 1'264'688 -10.9% € 850'000 -10.8% € 850'000 € 515'015 € 460'000 € 515'015 € 460'000 € 462'000 € 462'000 -39.6% -24.9% Average A2A Enel Enel Green Snam Terna Average A2A Enel Enel Green Snam Terna European Power European Power peers (13) peers (13)
Utilities: vested long-term incentives vs. 3-years’ performance
EBIT average changes 2009-2011 TSR 2009 - 2011 € 758'101 € 758'101 +25.3% +36.3% +25.5% +8.3% +7.7% +12.2% +6.0% € 439'000 € 390'000 € 439'000 € 390'000 € 375'000 € 375'000 +1.4% -23.6% € 175'000 -23.0% € 0 -25.5%€ 0
Average A2A Enel Enel Green Snam Terna Average A2A Enel Snam Terna European Power European peers (13) peers (13)
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.
133 Analysis of 2012 Remuneration in Italian Listed Companies
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 Chairperson 50 . 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 positions 51 (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.
134 Analysis of 2012 Remuneration in Italian Listed Companies
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
135 Analysis of 2012 Remuneration in Italian Listed Companies
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
Average European peers € 1'685'916 Telecom Italia € 2'968'000 Mediaset € 2'745'479 Mediobanca € 2'596'681 Fiat € 1'463'400 Enel € 1'387'000 Luxottica € 1'283'775 Campari € 1'045'000 Eni € 1'014'000 Atlantia € 711'280 Ferragamo € 606'000 BPER € 481'000 Gtech € 440'000 Buzzi Unicem € 360.214 Ansaldo € 0
Base salary Annual bonus Long-term incentives Benefits
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.
136 Analysis of 2012 Remuneration in Italian Listed Companies
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)
Switzerland (16) € 1'938'739
United Kingdom (18) € 611'730
Spain & Portugal (5) € 530'083
Italy (19) € 439'041
Benelux (9) € 302'309
Germany & Austria (20) € 290'250
France (8) € 264'455
Scandinavia (16) € 164'649
Cash fixed Shares fixed Variable compensation Benefits
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
137 Analysis of 2012 Remuneration in Italian Listed Companies
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 € 651'267 € 573'059
€ 277'260
Europe Italy
Banks and Insurance companies Other industries
138 Analysis of 2012 Remuneration in Italian Listed Companies
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
Average European peers € 629'969 UniCredit € 1'517'555 Intesa Sanpaolo € 1'090'000 Generali € 969'034 Terna € 803'340 Banco Popolare € 596'662 UBI Banca € 582'065 Diasorin € 400'000 A2A € 399'505 Parmalat € 363'000 Snam € 275'000 BPM € 233'300 Saipem € 200'000 Impregilo € 113'958 Prysmian € 90'000 Mediolanum € 75'000 Enel Green Power € 70'000 Banca MPS € 66'518 Autogrill € 57'800
Fixed component Annual bonus Long-term incentives Benefits
139 Analysis of 2012 Remuneration in Italian Listed Companies
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
140 Analysis of 2012 Remuneration in Italian Listed Companies
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
20 th percentile
€ 700'000 € 600'000 € 500'000 € 400'000 € 300'000 € 200'000 € 100'000 € 0
Moving average of non-executive Board members’ remuneration: 38 Italian companies ordered by descending market capitalization
20 th percentile
€ 700'000
€ 600'000
€ 500'000
€ 400'000
€ 300'000
€ 200'000 € 100'000
€ 0
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.
141 Analysis of 2012 Remuneration in Italian Listed Companies
Average non-executive Board members’ remuneration by geographic area
Switzerland € 446'741
United Kingdom € 208'193
Spain & Portugal € 171'302
Benelux € 141'614
Italy € 141'588
Germany & Austria € 138'518
France € 75'010
Scandinavia € 74'351
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.
142 Analysis of 2012 Remuneration in Italian Listed Companies
Average non-executive Board members’ remuneration: financial companies vs. other industries
€ 195'032 € 199'608
€ 156'351
€ 109'293
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.
143 Analysis of 2012 Remuneration in Italian Listed Companies
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.
144 Analysis of 2012 Remuneration in Italian Listed Companies
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.
145 Analysis of 2012 Remuneration in Italian Listed Companies
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,
146 Analysis of 2012 Remuneration in Italian Listed Companies
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
147 Analysis of 2012 Remuneration in Italian Listed Companies
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.
148 Analysis of 2012 Remuneration in Italian Listed Companies
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).
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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.
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