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Remuneration policy of Senior Executives and key managers with strategic responsibilities

06/07/2016 - 02:00 PM

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Executive Directors - Chairman

The structuring of the remuneration package of the Chairman, determined in 2014 and as reviewed by the Board of Directors on 27 April 2016, at the proposal and with the approval of the Nomination and Remuneration Committee, envisages:

 

  • Fixed component

The remuneration for the functions of Chairman is set at the gross sum of 700,000.00 euros per annum. The Chairman does not receive fixed remuneration for the position of Director (pursuant to Art. 2389, subsection I of the Italian Civil Code).

 

  • Short term variable component (MBO)

This is correlated with the achievement in the year of the objectives set annually by the Board of Directors. By resolution of the Board of Directors on 27 April 2016, to apply to the 2016 financial year, the target measure (100%) is set at 700,000.000 euros, gross (200,000.00 euros, gross for the 2015 financial year). A parametrised scale is adopted which awards a bonus of 50% of the target if the minimum level is achieved, up to a bonus of 150% of the target if the maximum level is achieved.

Target

Weight

Min vs Tgt Tgt: Max vs Tgt

TIM Group Ebitda (GATE)

20%

-5% budget +10%

TIM Group Net Financial Position

20%

+1% budget -5%

TIM Group Service Revenues

20%

-2% budget +2%

Total TI Group Organic Revenue

Tracking EIKON

20%

-8%
Values target +8%
Tracking IPSOS -4% +3%

Assessment of efficiency of the Board in managing BoD activities

20%

Role partially fulfilled Role fully fulfilled Role  fulfilled beyond

Failure to achieve the minimum level of the gate target will result in the curtailment, by 50%, of the target bonus on which the evaluation of the remaining targets is calculated.

The pay-out scale is shown below, assuming that all objectives respectively reach the level below minimum, the minimum level, the target level and the maximum level.

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.

Performance Levels

Parametrised scale

Value of the incentive in amount

Target below minimum level

0%

0

Target at minimum level

50%

€ 350,000

Target at target level

100%

€ 700,000

Target at maximum level

150%

€ 1,050,000

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

  • Benefits

In relation to the office as director, the Chairman has been allocated the following benefits: supplementary pension cover, through payment into a supplementary pension fund of an amount equal to 10% of the fixed fee; work-related and non-work-related accident cover, life insurance, permanent invalidity benefit due to illness; health insurance cover through taking out a specific policy; use of a company car for mixed use in accordance with current company policies; annual check-up. Like all the Company's management, the Chairman is covered by a "professional risks policy", known as a Directors & Officers policy.

 

  • Severance pay

In the event of early termination of the Directorship at the initiative of the Company and/or if asked to resign by the Board of Directors in the absence of just cause, the Chairman shall have the right to receive the fixed remuneration established for the office (pursuant to Art. 2389, subsection 3 of the Italian Civil Code) otherwise due until the end of the term of office (at the time of approval of the 2016 financial statements: one year’s salary). Moreover, unless otherwise resolved by the Board of Directors, the Chairman shall also have the right to receive an additional amount, calculated on the remaining value in annual amounts (or fractions of annual amounts) equal to the average of the amounts actually received, as variable short term fee, until the actual date of cessation of the office of director.

A similar settlement will be made in case of resignation due to revocation, reduction or modification substantially worsening the powers granted.

Executive Directors - Chief Executive Officer

Remuneration package decided by the Board of Directors (at the proposal and with the approval of the Nomination and Remuneration Committee, after specific negotiations) on 30 march 2016, when conferring the role of Chief Executive Officer on Flavio Cattaneo, one of the Directors. 

In relation to the loss of opportunity caused to him due to the early cessation of his previous employment,  it was agreed that Mr Cattaneo would also be paid a sign-up bonus of 2,500,000 euros, gross, in line with corporate practice in such situations.  Said sum would be repayable if Mr Cattaneo should resign before 30 April 2017, unless the resignation is for just cause (including resignation caused by revocation or reduction of powers, extension of powers to other directors, or change of control).

 

The compensation package of the serving Chief Executive Office is substantially the same as his predecessor, and is made up as follows:

 

  • Gross annual fixed remuneration

An 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).

 

  • 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.

Below is the pay-out scale, assuming that all targets respectively reach the level below minimum, the minimum level, the target level and the maximum level. 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.

 

Performance Levels

Parametrised scale

Value of the incentive in amount

All targets below the minimum level

0%

0

All targets at the minimum level

50%

€ 700,000

All targets at the target level

100%

€ 1,400,000

All targets at the maximum level

150%

€ 2,100,000

The 2016 MBO cycle is linked to the achievement of the following targets:

Objective

Weight

Min vs Tgt Tgt: Max vs Tgt

TIM Group Ebitda (GATE)

20%

-5% Budget +10%

TIM Group Net Financial Position

20%

+1% Budget -5%

TIM Group Service Revenues

30%

-2% Budget* +2%

2016 Key Initiatives:

                         

A) New domestic turnaround plan

 

B) Updated turnaround plan for Brazil

 

C) Updated plan for broadband

 

D) Pricing schemes and the Regulator

30%

Approval and start of execution of key initiatives by 30/09/16 Approval and start of execution of key initiatives by 31/07/2016 Over-performance assessed by the Board

*Restated, based on the Q1 results

For 2016, the “gate” mechanism for payment of the bonus used for 2015 for the Chief Executive Office in post at that time, has been amended: failure to achieve the minimum level of the gate objective will result in the curtailment of the target bonus by 50% on which achievement of the remaining targets will be calculated.

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

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

Upon appointment, the Chief Executive Officer was allocated options under the 2014-2016 Stock Options Plan, described above, payable on the third bonus year, for a target value of 100% of fixed remuneration up to a maximum of 150% of the target, with a strike price of 0.99 euros per share, as specified in the Regulations of the initiative. The plan assigns the Chief Executive Officer 4,468,085 options (if targets are achieved at target level) which can be increased up to a maximum of 6,702,127 options (if targets are achieved at maximum level).

His participation in the Stock Option Plan for the 2017-2019 three year period (or other long term incentive plan, at conditions no less favourable than those envisaged in the current plan), or other monetary incentive of equal economic content.

In case of early termination as a good leaver, the Chief Executive Officer will maintain the stock options in place at the moment of termination (or will benefit from a substantially equivalent monetary payment).

 

  • Special Award

Always within the maximum total value of the initiative, set at 55,000,000 euros (including the component destined to reward the managers identified by the Chief Executive Officer), 4% of the over-performance 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 Business Plan, and applying the 2018 targets for 2019 will be reserved for the Chief Executive Officer.

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, or, in the first year of his mandate  and in the absence of historical data, taking as reference the results attested in the latest approved quarterly report.

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

 

  • Severance pay

In 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  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 identified as follows:

Directors:

Giuseppe Recchi

Executive Chairman of Telecom Italia S.p.A

Marco Patuano
 

Managing Director and Chief Executive Officer di Telecom Italia S.p.A. (1)

Flavio Cattaneo

Managing Director and Chief Executive Officer di Telecom Italia S.p.A. (2)

General Manager (3)

Executives:

Rodrigo Modesto de Abreu

Diretor Presidente Tim Participações S.A.

Simone Battiferri

Head of ICT Solutions & Service Platforms

Stefano Ciurli

Head of Wholesale Department

Antonino Cusimano

Head of Legal Affairs

Stefano De Angelis

Head of Consumer & Small Enterprise  Market

Mario Di Loreto

Head of People Value Department

Cristoforo Morandini (4)

Head of Regulatory Affairs and Equivalence

Giuseppe Roberto Opilio

Head of Technology Department

Piergiorgio Peluso

Head of  Administration, Finance and Control

Paolo Vantellini (5)

Head of Business Support Office Department

(1)    until 21 March 2016;

(2)    from 30 March 2016

(3)    from 12 April 2016

(4)    from 17 March 2016

(5) until 15 April 2016 (the same date from which responsibility for the department was assigned temporarily to the Chief Financial Officer of the Company, Piergiorgio Peluso).

The structuring of the remuneration package for 2016 for Key Managers with Strategic Responsibilities, excluding the Chairman and the Chief Executive officer, is described below:

 

  • Fixed component

The strategy for 2016 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 2016 incentive plan is linked to the achievement of a combination of predefined targets:

 

a)    company targets generally of an economic and financial nature;

b)    departmental targets related to the specific activities of the Department;

c)    the Performance Management target, the weight of which is increased to 30% from 20% in 2015, based in any event on the overall result of the assessment from the new Performance Management system. More specifically, the new system will consider in equal measure both individual targets and conduct in relation to the new leadership model, assessed in multi-rater mode, i.e. by the direct manager, colleagues and collaborators.

 

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%

Structures reporting to the BoD

GROUP/COMPANY

30%

DEPARTMENTAL 40%
PERFORMANCE MANAGEMENT 30%

The achievement of the "gate" target constitutes, in continuity with 2015, an absolute access condition for the accrual of the incentive on the rest of the assigned company targets.

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

The scale for pay-outs (subject to claw-back) is shown below, assuming that all targets respectively reach the level below minimum, the minimum level, the target level and the maximum level. 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.

Performance Level

Parametrised scale

All targets below the minimum level

0%

All targets at the minimum level

70%

All targets at the target level

100%

All targets at the maximum level

140%

  •       Long Term Variable Component

As already specified, the 2014-2016 Stock Option Plan is the long-term incentive instrument connected to the achievement of the Performance targets for the three year period 2014-2016; the target value of the options is 50% of the fixed remuneration for each year of the incentive. The premium can reach a maximum of 150% of the target assigned.

 

  •       Special Award

Managers with Strategic Responsibilities may be among the beneficiaries of the previously described Special Award (subject to claw-back).

 

  •       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.

Like all the Company's management, the Key Managers with Strategic Responsibilities are covered by a "professional risks policy", known as a Directors & Officers policy, covering the civil liability of the Directors and the Directors of companies controlled by Telecom Italia as well as the Directors & Officers of companies not controlled by Telecom Italia who are appointed by the latter or by its subsidiaries.

 

  •       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).