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Remuneration policy of Senior Executives and key managers with strategic responsibilities

08/04/2017 - 02:00 PM

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Executive Directors - Chairman

The remuneration of the Chair of the Board of Directors appointed by the Shareholders' Meeting called for 4 May 2017 will in due course be established by the board in view of the powers conferred and the organisational structures actually adopted.

The compensation (if necessary broken down into a fixed component and a short-term variable component, the general architecture of which was described earlier) will be resolved on pursuant to article 2389, subsection 3 of the Italian Civil Code, as proposed by the Nomination and Remuneration Committee, after hearing the opinion of the Board of Statutory Auditors.

As is standard practice, it will be an all-inclusive compensation, renouncing participation in the division of the remuneration established by the Shareholders' Meeting for the Board as a whole pursuant to article 2389, subsection 1 of the Italian Civil Code (including for participation in the Strategy Committee), and it will be accompanied by benefits similar to those envisaged for the key managers of the Company. Like all the Company's management, the Chair will be covered by a "professional risks policy", known as a Directors & Officers policy.

Any severance pay will be subject to limits set in the company policy which provide for compensation in the case of early termination of the relationship without just cause, equal to a maximum of 24 months’ salary.  

Executive Directors - Chief Executive Officer

Similarly to that reported for the Chair of the Board of Directors, it will be the Board of Directors, as renewed by the Shareholders' Meeting, that establishes the compensation for the Chief Executive Officer, in line with the role assigned to him.

Mr Flavio Cattaneo is, in any case, part of the contract already disclosed before the Shareholders' Meeting of 25 May 2016, which governs – among other things – the office as Director for the three-year period 2017-2019, as well as the case of non-renewal of the office as Chief Executive Officer and the non-reattribution of the current powers, in the absence of just cause, at the expiry of the Board of Directors whose term of office shall come to an end with the approval of the financial statements as at 31 December 2016.

Said contract entitles Mr Cattaneo to the following compensation package:

 

  • Gross annual fixed remuneration

AAn annual gross sum of € 1,400,000 euros, gross, has been set for the management employment, with the duties of General Manager. 

 

  • Fixed remuneration (pursuant to article 2389 subsection I of the Italian Civil Code)

The Chief Executive Officer does not receive fixed compensation for the office of Director (pursuant to Art. 2389, subsection 1 of the Italian Civil Code), nor for participation in the Strategy Committee.

 

  • Short Term Variable Component (pursuant to art. 2389 subsection III of the Italian Civil Code) 

For each year of service  correlated with the achievement of the targets set annually by the Board of Directors, in the target amount (100%) of 1,400,000 euros gross; a parametrised scale will be applied that awards a bonus of 50% of the target amount if the minimum level is achieved, up to a bonus equal to 150% of the target amount if the maximum level is achieved.

Each target is measured individually, so different combinations are possible of the levels of achievement of the targets; to assess these, the linear interpolation mechanism will be adopted.

The Board of Directors on 23 March 2017 prepared – as proposed by the Nomination and Remuneration Committee and in keeping with the general architecture - the following incentive targets for the 2017 MBO:

 

Objectives

Weight Min vs Tgt Tgt

Max vs Tgt

TIM Group EBITDA (GATE)

50%   Bdg +5%

TIM Group Service Revenues

15% -2% Bdg

+2%

TIM Group Net Financial Position

10% +1% Bdg -5%

TRANSFORMING PROGRAM:

1.   Domestic UltraBB Coverage   

2.   Brazilian UltraBB Coverage   

3.   Efficiency

 

25%

2 objectives out of 3 at target              
 
3 objectives out of 3 at target

at least 2 obj. out of 3 above target and 1 at target

The mechanism of application of the TI Group EBITDA objective has changed from that of the previous year: while in 2016 the non-achievement of the minimum level of the Group EBITDA objective would have decreased by 50% the target bonus on which the remaining assigned objectives would be determined, for the 2017 MBO the achievement of the budget target level constitutes a gate condition for access to all the incentivised objectives, with the consequent that non-achievement of this means that the bonus cannot be paid. To further accentuate the challenging nature of the objective, there is no minimum level of achievement of the objective below the EBITDA budget target.

Regarding the remaining economic and financial objectives of the MBO 2017, it should be noted that the percentage parameters of reference for the Group Service Revenues objective, and for the Group Net Financial Position objective have been defined in continuity with the definition used for the 2016 MBO cycle (respectively, -2% for the minimum and +2% for the maximum for Group Service Revenues, and +1% for the minimum and -5% for the maximum for Group Net Financial Position); the interval between these minimum and maximum values is considered to be coherent with the turnaround process undertaken by the Company.

It should be noted that reaching the minimum level of the Net Financial Position target, a priority for the Group, is, in fact, challenging in itself, since the indicator is affected by both the acceleration of the investments in the new generation networks and the expenditure to acquire licences included in the 2017 budget.

The clause to claw back the sums paid out may be activated in the three years following payment of the bonus, as set out in the policy.

In case of early termination as a good leaver (namely, after revocation, dismissal or non-renewal in the absence of just cause, or resignation for just cause or for revocation or reduction of powers, or their extension to other directors or caused by changes in control, and any operation that produces the same substantial effect) the bonus for the fraction of a year will be payable.

 

  • Long term variable component

Long Term Incentive 2017-2019

Mr Cattaneo is entitled, under his contract, to participate in the 2017/2019 Stock Option Plan or another long-term incentive plan at conditions overall and substantially no less favourable than those envisaged in the 2014/2016 Stock Option Plan, under which he may accrue a bonus the target value of which is equal to 100% (and up to a maximum of 150%) of the fixed annual remuneration for each year of the three-year period 2017-2019. Considering that this plan was not approved for 2017, the aforementioned settlement will be replaced with another monetary incentive of equal financial content.

The right to participate in the 2017/2019 Stock Option Plan (or equivalent) shall be maintained in the event of Mr Cattaneo's early termination as a good leaver, before the end of the three-year term, with possible substitution with a monetary payment, of essentially equivalent financial content, if satisfaction in kind proves impossible.

Mr Cattaneo has hereby stated his intention to renounce receipt of the aforementioned form of remuneration, against devolution of the corresponding gross amount by the Company to categories of employees of the Group, proposed by Mr Cattaneo himself.

  • Special Award

Always within the total cap set at 40,000,000 euros (to be paid in equity and cash, as described above), 4% of the overperformance in the consolidated results for the 2016, 2017, 2018 and 2019 years compared to the consolidated targets of EBITDA (weight 50%), Opex reduction (weight 25%) and Net Financial Position (weight 25%), as specified in the 2016-2018 Strategic Plan, and applying the 2018 targets for 2019, will be reserved for the Chief Executive Officer.

The sum of the annual bonuses accrued over the course of the entire incentive period will be paid after the board has approved the documentation relating to the 2019 financial statements (year 2020), as better described in the paragraph “ Long-Term Variable Remuneration – Special Award”, to which reference is made.

Should Mr Cattaneo cease to hold the office of Chief Executive Officer (also after non-appointment as a member of the Board of Directors when the board is renewed), as a good leaver before payment of any bonus, he will be paid (i) the annual bonuses already accrued, and (ii) the Special Award he would have been entitled to, according to a linear projection to the end of the incentive period of the mean results already obtained (without prejudice to the limit of 40,000,000 euros).

The clawback mechanisms in force at the time shall be applicable to both the cash and equity components of the bonus actually paid.

 

  • Severance pay

In the case of termination of the employment and directorship as a good leaver, an agreed amount will be paid – distinct from and in addition to the MBO and the stock option plans (or equivalent monetary measure) and the Special Award – equal to the sum of the payment in lieu of notice, as specified in the collective employment agreement, and severance pay equal to 24 months’ salary, considering both the fixed gross annual remuneration and the mean of the amounts received or accrued as MBO in the preceding 36 months (or lesser period of duration of employment as Chief Executive Officer of the Company).

 

  • Benefits

In relation to the managerial role, the Chief Executive Officer enjoys the benefits specified for the management of the Company (health insurance cover through the Telecom Italia Group Executive supplementary healthcare assistance; supplementary pension cover through membership of the Telecom Italia Group Executive complementary pension fund; insurance cover for work-related and non-work-related accidents, life and invalidity benefit due to illness; a company car for mixed use; check-up). Like all the Company's management, the Chief Executive Officer is covered by a "professional risks policy", known as a Directors & Officers policy.

Key Managers with Strategic Responsibilities, namely those persons having authority and responsibility for planning, directing and controlling the activities of the Telecom Italia Group, directly or indirectly, including directors, are at present identified as follows:

Directors:

Giuseppe Recchi

Executive Chair of Telecom Italia S.p.A

Flavio Cattaneo

Managing Director and Chief Executive Officer di Telecom Italia S.p.A.

General Manager

Executives:

Stefano De Angelis

Diretor Presidente Tim Participações S.A.

Lorenzo Forina

Head of Business & Top Clients

Stefano Ciurli

Head of Wholesale Department

Agostino Nuzzolo

Head of Legal Affairs

Stefano Azzi

Head of Consumer & Small Enterprise  

a.i. Francesco Micheli

Head of Human Resources & Organizational Development

Cristoforo Morandini  

Head of Regulatory Affairs and Equivalence

Giovanni Ferigo

Head of  Technology

Piergiorgio Peluso

Head of Administration, Finance and Control

a.i. Piergiorgio Peluso

Head of  Business Support Office  

The structuring of the remuneration package for 2017 for Key Managers with Strategic Responsibilities, excluding the Chairman and the Chief Executive officer, is described below:

 

  • Fixed component

The strategy for 2017 is basically to maintain remuneration in line with the market, while providing for selective criteria for alignment of the fixed remuneration.

 

  • Short Term Variable Remuneration component (MBO)

The 2017 incentive plan is linked to the achievement of a combination of predefined targets:

  1. company targets generally of an economic and financial nature;
  2. departmental targets related to the specific activities of the Department;
  3. individual targets, contained in the Performance Management, in keeping with 2016.

 

The division of the corporate and departmental targets varies according to the organisational structure to which they belong, as described in the table:

Structures

Targets

Weight

COMMERCIAL + OPERATIONS Structures

GROUP/COMPANY

40%

DEPARTMENTAL 30%
PERFORMANCE MANAGEMENT 30%

STAFF structures

GROUP/COMPANY

50%

DEPARTMENTAL 20%
PERFORMANCE MANAGEMENT 30%

A gate objective is also set, consisting of the budget target for Group EBITDA, which constitutes an access condition for the entire incentive system.

For the remaining objectives, there is a parametrised scale that recognises a bonus that varies from a minimum of 70% of the assigned target to a maximum of 140% of the target.

The MBO system for Key Managers with Strategic Responsibilities provides an annual target value up to a maximum of 50 % of fixed remuneration.

The clause to claw back the sums paid out may be activated in the three years following payment, as set out in the specific company Regulations.

  •       Special Award

The Key Managers with Strategic Responsibilities may be among the beneficiaries of the Special Award – as instructed by the Chief Executive Officer. The Special Award will in any case be subject to a clawback clause. 

  •       Benefits

Benefits are granted similar to those provided for all other company managers: company car for mixed use, insurance policies (workplace accidents, life and invalidity caused by illness), complementary health insurance cover, complementary pension fund and check-up.

Benefits are granted similar to those provided for all other company managers: company car for mixed use, insurance policies (workplace accidents, life and invalidity caused by illness), complementary health insurance cover, complementary pension fund and check-up.

  •       Severance pay

Settlements applicable by virtue of legal provisions, the national collective labour agreement and supplementary company agreements, are specified (always excluding cases of dismissal with just cause).