Principles and examination of risks

The Policy 2015 has been prepared based on the Policy of previous years, and also takes into account the regulatory requirements adopted by Consob, including resolution no. 18049 of 23 December 2011, as well as the adoption of a new Long Term Incentive Cash Long Term Incentive Cash Plan for the period 2014-2016 “launched” in 2014, after approval at the Shareholders’ Meeting, in “support” of the objectives for the period 2014-2016 contained in the Business Plan 2013-2017 (see paragraph 5 of Policy 2014).

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The Policy aims to attract, motivate and retain resources that have the professional skills necessary to successfully pursue Pirelli’s company objectives. In fact, Pirelli defines and enforces a Policy characterised by:

  • Top Management and Senior Managers, with outstandingly attractive characteristics, achieving the third quartile in market comparisons (using commonly used benchmarks);
  • Executives up to speed with market comparison practices.

The Annual Total Direct Compensation at Target constitutes the reference comparison.

The Policy is defined so as to align the interests of Management with those of Shareholders, pursuing the priority objective of creating sustainable value, in the medium to long term period, by creating an effective and verifiable link, via compensation, between, on the one hand, individual performance and, on the other hand, Pirelli.

The remuneration structure of Management, which is also defined based on the national and international benchmarks implemented by the Company, used for Executive Compensation, are composed of three principal elements:

  • a fixed component;
  • a variable annual component (MBO);
  • a variable medium/long term (LTI) component aimed at rewarding performance for the period 2014-2016 at the Pirelli Group.

The variable MBO and LTI components are established - taking into account the benchmarks for each figure - as a percentage of the fixed component, increasing in relation to the position held by the beneficiary.

Management’s variable remuneration is founded on the short, medium, and long term objectives set out in the annual and multi-year Plans communicated to the market.

Please refer to paragraph no. 5 "MBO and the LTI Plan" for a more detailed description of how the variable components work.

In this regard, it should be emphasised that the risk management process is fully integrated into the strategic planning process: this ensures that the objectives set for attaining the variable incentive do not expose Pirelli to managerial behaviour that is not consistent with acceptable level of risk (risk appetite) defined by the Board of Directors when approving the Plans.

Management remuneration is therefore structured in order to ensure a balance between its components.

Part of the variable remuneration accrued as MBO is deferred, supported by continuity of results over time (and therefore its disbursement is "at risk") with a possible "reward” mechanism for its increase (for a detailed description, see paragraph 5).

The definition of a mix of objectives, among which there are also objectives of a non-financial type, for the medium/long term part, avoids one single performance objective assuming too much importance. Furthermore, the existence of LTI incentivisation objectives to be achieved based on cumulative three-year economic/financial parameters (and without, therefore, any finalisation of numbers in the meantime) avoids the adoption of behaviours aimed solely at achieving short-term objectives in order to obtain the annual incentive.

For the other possible remuneration components (Severance Indemnities, non-competition agreements, non-monetary benefits) attributed to the various Management figures, please refer to the paragraphs describing the compensation structure for each category.