The remuneration policies adopted by Pirelli aim to ensure fair remuneration in line with the individual’s contribution to the success of the Company, recognising the performance and quality of the individual’s professional input, in a philosophy of sustainable remuneration. The purpose is twofold: on the one hand to attract, retain and motivate critical resources, on the other reward and incentivize conduct that is as much as possible consistent with the corporate culture and values.
Remuneration policies and processes for the executive group are managed by the central HR department, while for non-executive personnel they are handled on a country basis.
Once again in 2014, and in accordance with market best practices, the impact of the variable component on the aggregate remuneration of Group management (in the short-term and medium-term) remained very high, which means that there is a strict correlation between remuneration and performance.
Most members of the Management Group are part of the Annual Incentive Plan (MBO) linked to the achievement of annual economic/financial objectives by the Group and/or Business Unit and/or Region and the qualitative assessment resulting from the Performance Management Tool, which allows greater importance to be given to organisational behaviour (“how”), and not simply the results achieved (“how much”) in a system involving sustainable pay over time.
It is recalled that in 2014 some changes and improvements were made to the annual incentive system (MBO), which over the three year period 2014-2016 will no longer be correlated to the Triennial Incentive Plan (LTI) but will include a deferred payment to the following year of a portion (25%) of the annual incentive accrued, subordinately to the accrual of the following year MBO. Payment of an additional amount equal to a variable percentage of the entire MBO accrued during the previous year will be paid according to the degree that the MBO is achieved in the following year (this mechanism is envisaged to be rolling for the entire three-year period 2014-2016). This deferral mechanism means that the variable medium-long term period payment accrued will be paid in 2018, insofar as it is related to the results achieved in the financial year 2017 (and thus two years after conclusion of the three-year period covered by the LTI 2014-2016).
Once again for 2014, the Pirelli Board of Directors approved the General Remuneration Policy that establishes general principles and Guidelines followed by Pirelli to (i) determine and (ii) monitor the application of the related remuneration practices:
- Directors with special powers/offices, General Managers and Executives with strategic responsibilities;
- the senior managers and the other executives of the Group.
The General Policy on Remuneration indicates the specific remuneration guidelines for the Top Management regarding: fixed and variable remuneration - both short and medium-long term - (it is specified in this regard that currently Pirelli does not have forms of remuneration through equity); severance pay in the event of dismissal; resignation and termination of employment; clawback clauses for Top Management.
The new LTI 2014-2016 plan, in line with the mechanisms of variable remuneration adopted internationally, as in the past is totally self-funded, since the related charges are included in the economic data of the Industrial Plan. The LTI plan involves an on/off condition, represented by the creation of value over the three year period, and the following three objectives:
- Total Shareholder Return (TSR) for the Group, with an aggregate target weight of 60% of the LTI bonus;
- Return on Sales (ROS) for the Group and the Business Unit or Region according to the organizational unit of the Executive, with a weight at target of 30% of the LTI bonus;
- position of Pirelli in selected global sustainability indicators, with an aggregate target weight of 10% of the LTI bonus.
The importance of the integration of ESG objectives in the long-term incentive plan for management lies primarily in the consistency of the company both internally and externally. Internally, as regards management figures who, as part of their responsibility, dedicate their commitment every day for the company to progress in a responsible manner. Externally, to external stakeholders, including shareholders and potential investors, who can rely on a company that has adopted instruments capable of supporting solid value creation over the long term.
A pro-rata of the long-term incentive for Management is linked to the positioning of Pirelli in two Sustainability indices: the Dow Jones Sustainability World Index ATX Auto Components sector and FTSE4Good Global Index Automobile & Parts sector, where the company has held the top position for years. In particular, in relation to each index, the amount of the pro-rata of accruable incentive increases in relation to Pirelli's position in the ranking, until reaching in case of leadership a pro-rata of maximum of twice the accruable value at performance target. The two indices mentioned are complementary to each other and cover all the major ESG issues. Pirelli has set sustainability targets that concern all the macro areas of management, which is why it would be limiting to choose to include in the long-term incentive plan only some targets rather than others. The company’s choice is instead to place maximum attention on all targets, from those in terms of CO2 emissions, water or energy consumption, to those related to the product and the sphere of human resources and the sustainable management of the supply chain.
For a detailed reporting of the Remuneration Policy, please refer to the “Remuneration Report” within the present Annual Report.