Pirelli & C.

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9. Directors’ Remuneration and Pay Policy

In addition to reimbursement for expenses incurred in performing their duties, Directors receive annual fees determined by the Shareholders’ Meeting59.

The meeting of 29 April 2008 decided “to establish a maximum of 1,200,000 euros as the total annual remuneration of the Board of Directors pursuant to Art. 2389, subsection 1, of the Civil Code, said amount to be distributed among its members in accordance with the decisions taken in this regard by the Board.”

At the same meeting, on 29 April 2008, the Board of Directors established the distribution of the remuneration as follows:

  • 50,000 euros per annum for each of the 20 members of the Board of Directors;
  • 25,000 euros per annum for each of the members of the Committee for Internal Control, Risks and Corporate Governance, subsequently, after the increase in its membership determined with effect from 1 September 2009, determined at 24,000 euros per annum for each member;
  • 20,000 euros per annum for each of the members of the Remuneration Committee.

A fee of 15,000 euros per annum is also payable to the Board member called on to be a member of the Supervisory Body pursuant to legislative decree no. 231/2001 (Carlo Secchi).

The remuneration of directors given particular tasks is established by the Board of Directors upon consultation with the Board of Statutory Auditors as proposed by the Remuneration Committee. The current remuneration system provides60 for payments to comprise a fixed amount and an additional bonus linked to the performance, including the long-term performance, of the Group, and to be related to the attainment of specific objectives set by the Board.

Specifically, the Company decided, based on analyses carried out with major executive compensation consultants, to attribute a 2010 annual incentive based on a mechanism that includes a financial condition (Net Financial Position) for access (an “on/off” condition), linked to a quantitative parameter of annual profitability (PBIT) developed from an in-depth comparative analysis of market positioning in terms of compensation with respect to a comparable sample of Italian and international companies.

Also in order to contribute to achieving the long term interests of the company, in line with the initial indications that seem likely to become the best practices in this field61, the Committee proposed, and the Board approved, a three year incentive plan connected to the achievement of the aims contained in the 2009-2011 three year plan. The Three-year Incentive Plan includes an incentive mechanism that also applies for the Chairman and managers with strategic responsibilities in the business, which envisages the “investment” of 50% of the annual incentive for 2009 and 2010, with the opportunity of receiving the total sum “invested” increased by 100% in March 2012 if the results for the three years are achieved. Otherwise, the total “invested” sum will be reduced by 50%. The portion of the three year incentive supporting the industrial plan will not produce any payment until March 2012. The coinvestment mechanism described therefore also allows the company to substantially defer payment of the variable components of remuneration.

After the adoption of the new Incentive Plan, the variable portion of pay directly related to the results will exceed 40% of total management remuneration, on average, reaching 64% for top management. On the other hand, about 75% of the variable compensation will thus be linked solely to the achievement of three year objectives. The plan also envisages a mechanism correlating a portion of the incentive to Total Shareholder Return to assure even closer alignment of the work of the management with shareholder expectations.

This correlation is designed to maintain a direct link between pay and sustainable performance, in terms of medium and long term growth in value. It should be noted that the economic targets of the plan include the cost of the incentive plan.

If a mandate or management employment contract should be terminated ahead of time, the participants in the three year incentive plan will lose their entitlement to the incentive and to the share “invested” up to that time.

It should be noted that the Company has not stipulated agreements with its directors that envisage indemnities in case of resignations or the termination/cancellation of appointments without good reason or if the employment relationship ceases after a public takeover bid.

The remuneration of the directors holding specific offices (Chairman and Vice Chairman), and, in aggregate form, the remuneration of Managers with strategic responsibilities in the business paid during the 2009 financial year are reported below.

59 Article 14 of the company bylaws.

60 Also in line with the provisions of the Self Regulatory Code. Criterion of application 7.C.1. .

61 This refers to Recommendation 2009/385/EC of 30 April 2009, which supplements recommendations 2004/913/EC and 2005/162/EC relating to the regime for the remuneration of the directors of listed companies.

For more detail, including information on the remuneration of the other directors, see the table in the notes to the financial statements.

Subject Description of Office Remuneration received in 2009 (in thousands of euro) Remuneration for the 2009 financial year to be received in 2010 (in thousands of euro)
First and last name Office held Term Fees for the offices Non-monetar benefits Bonuses and other incentives Other remuneration Fees for the office Bonuses and other incentives
Tronchetti Provera Marco* Chairman 2011 2,508 - - 1,585 1 50 1,521
Pirelli Alberto Deputy Chairman 2011 590 - - 374 2 50 82 2
Puri Negri Carlo Alessandro Deputy Chairman 2011 335 - - 11,692 3 50 -
Gori Francesco* General Manager since 09/16/09 - 7 - 1,250 2 - 609
De Conto Claudio General Manager since 09/16/09 - 5 - 6,668 4 - 669
Other managers with strategic responsibilities* - - - - - 959 - 258

1 Of which 1,150 thousand euros from Pirelli Tyre S.p.A. and 435 thousand euros from Pirelli & C. Real Estate S.p.A. (PRE)

2 From Pirelli Tyre S.p.A.

3 From Pirelli RE

4 Of which 4,950 thousand euros upon termination of employment with Pirelli & C and 187 thousand euros from PRE

* The Chairman and General Manager and the other managers with strategic responsibilities are included in the LTI three year incentive plan, which, using a coinvestment mechanism, envisages the payment in the 2009 and 2010 financial years of 50% of the incentive achieved i, while the remaining 50% accrued overall will be paid in the 2012 financial year, increased by 100% if the three year objectives specified in the LTI Plan have been achieved, or reduced by 50% if these objectives have not been achieved.
For more details about the operation of the incentive plan, see the “Remuneration of the directors” section of the Corporate Governance Report.

Lastly, it should be noted that at the date of the Report there are no stock-option plans for either the executive or the non-executive directors.

During the 2010 financial year the Committee and the Board examined the general principles of the pay policy for a representative sample of senior managers. The analysis indicated that the current pay policy in the Pirelli Group is able to attract and retain talented resources with high level professional qualities for the key roles within the Group. The pay policy for senior management, like that for the Top management, is based on a well-balanced combination of fixed and variable components. In particular, the variable component of remuneration is linked to medium and long term objectives, while the short term one contains “cash deferred” mechanisms, with a deferment (in line with the described coinvestment mechanism) of 50% of the annual incentive achieved. For “staff ” positions, and control personnel in general, the variable remuneration is a lesser proportion of total remuneration than for the Top management personnel directly focussed on the business. The pay package of the Top management and senior managers is completed, as is standard, by some benefits, which are an integral part of it.