Principels and Guidelines for Remuneration Policies 2018
The policies and their implementation are based on the principles of fairness and ethics, strategic coherence linked to the objectives of the business plan and adjusting to a safe and prudent management of risks in compliance with the regulations in force.
The above is stated in the belief that, through the definition and application of Remuneration Policies coherent with the aforementioned principles, it is possible to:
- help to create long-term value for all stakeholders;
- encourage the creation of long-term business strategies in the shape of strategic/industrial plans;
- protect the image and reputation of the company, in line with the provisions of its Code of Conduct;
- motivate directors, managers and employees to respond with adequate professionalism to the objectives that the company has set itself, so that they may be fully achieved.
The relevance of such principles is assessed each year by the Internal Control Functions in relation to the implementation of the policies themselves.
Remuneration of Directors
Directors are separated into executives (holders of management positions) and non-executives; at Cattolica, only the CEO is qualified as an executive.
The remuneration of directors complies with the provisions of Art. 45 of the Company Charter.
It should be noted that for all non-executive directors, there are no:
- incentive plans based on financial or monetary instruments;
- agreements providing for the assignment or maintenance of non-monetary benefits for directors who have ceased their duties or the provision of consultancy contracts for any period following the termination of their employment;
- Agreements providing for compensation for commitment to non-compete agreements.
The basic remuneration of non-executive directors, independent or not, is determined by the Assembly as a predetermined overall fixed amount, which is then portioned out individually by resolution of the Board of Directors. An allowance for individual attendance is also provided for each session, and this is also set by the Board of Directors.
This remuneration takes into account the extensive commitment and responsibilities taken on with the position and is not explicitly linked to the future economic results of the company and/or the achievement of specific objectives announced by the Council or by the executive bodies, respectively.
In addition, for directors who perform special duties in the Council – President, Vice-Presidents and Secretary of the Board – there is an additional compensation, which is also established as a fixed amount. Should the office be terminated early, no payment will be due.
The Chief Executive Officer
For the CEO, the Remuneration Policies provide for the division of the remuneration into a fixed component and a variable one of equal amount. The structure of the variable remuneration component consists of one component linked to achieving short-term annual results (MbO) and the remaining component, linked to the results of the three-year Business Plan (LTI) under the terms detailed below:
- the short-term variable component MbO corresponds to 40% of the fixed annual compensation paid;
- the long-term component (LTI) corresponds to 60% of the fixed compensation paid for each year of the Plan.
The components of the Remuneration
Staff remuneration is made of a fixed component and a variable component, designed to orient the performance of employees towards the objectives of the company and the Group.
The two components (also known as the ‘pay mix’) have been properly rebalanced, particularly for higher positions, so as to reward performance and merit, according to the strategic objectives and the risk management policy of the company and the Group.
The chart below explains how the population clusters are defined:
Cluster 1: Chief Executive Officer (CEO)
Cluster 2: Members of the Direction Committee, except the CEO
Cluster 3: Other directors of the parent company who report directly to the CEO, Director General or Vice-Director Generals.
The fixed component is sufficient to reward performance in the event that the variable component of the remuneration is not paid due to failure to achieve the objectives.
The New MBO Plan
The variable component is structured in a short-term monetary incentivisation system based on the traditional MbO model (management by Objectives), with percentages calculated according to the level of responsibility covered with a target level ranging between a minimum of 25% to a maximum of 40% of the RAL/individual remuneration.
For the Positions of Control which, as per current regulations, cannot be incentivised on the basis of economic and financial results, this percentage is 30% of the RAL.
In line with best market practices, the MbO system assigns performance indicators including:
- gate of the Group’s financial stability - soft limit of the Solvency II Ratio as defined by the B of D calculated after having taken into consideration the value relative to the profits distributed;
- gate on the presence of profits distributable to shareholders;
- solidarity objectives linked to the actual achievement of operative profits, which excludes the most volatile components (e.g. implementations, depreciation, other one-offs) from the consolidated income statement according to the IAS/IFRS principles with a view to further highlighting how the business is progressing, as provided for by the budget, as well as the level of Rorac provided for annually;
- performance, risk management, efficiency improvement and project development objectives, depending on the position held in the company by the individuals and in any case predetermined, measurable and still connected to the Business Plan;
- individual goals of regulatory compliance.
The process determines, for each position involved in the system, a sheet in which each type of objective is assigned an indicator (KPI), the unit of measure for this indicator, the weight of the indicator, the target value, and – if necessary – the respective thresholds, the evaluation curve. The actual percentage payable will depend not only upon passing the previously defined gates, but also on the level of actual achievement of the objectives.
Moreover, in compliance with the regulations on the subject, there are ex-post malus and clawback corrections applicable on the amount paid or payable by way of variable remuneration.
The incentive system adopted involves:
- clauses (Gates) of the Group’s financial stability - soft limit of the Solvency II Ratio as defined by the B of D calculated after having taken into consideration the value relative to the profits distributed - and the presence of profits distributable to shareholders, as basic conditions for the payment of the bonus;
- four performance scenarios:
- an insufficient overall performance and consequently a bonus level of zero;
- an acceptable overall performance at the threshold (minimum acceptable – for most indicators equal to 90% of the target) and a bonus level equal to 50% of target value;
- an overall performance equal to the full completion of the targets with a bonus level equal to 100% of the target value;
- an overall performance that exceeds the targets set (overperformance) with a bonus level of up to a maximum of 150% of the target value.
The New LTI 2018 – 2020 Plan
The 2018-2020 Business Plan sets out a series of objectives and is based on the following pillars:
- profitable growth;
- innovation and data management;
- technical excellence;
- cultural simplification and transformation.
In order to support the achievement of these goals and to respond to the demands of investors, requiring an alignment of the strategic managers’ risk with that of the shareholders, and to make Cattolica competitive on the job market, a new incentive plan has been designed for key members of staff who have the responsibility and necessary skills: the CEO, members of the Direction Committee and the front line of Senior Management. This plan consists of a long-term incentivisation system provided in terms of shares, known as LTI (Long Term Incentive), and linked to performance targets for a period of multiple years, in line with the duration of the Business Plan, with the highest variable allocation percentages ranging from 30% to 60% of the RAL/individual remuneration.
In addition, in order to enhance the human capital of the company from a prospective viewpoint as well, part of the LTI incentivisation plan is reserved for employees who possess advanced organisational and digital skills and who have demonstrated consistently high performance levels.
These people will be given a variable incentive of between 10% and 25% of the RAL.
Therefore, the Board of Directors, with the approval of the Remuneration Committee, has developed the Plan, which is based on financial instruments (shares in the company), payable in accordance with the degree of achievement of the objectives laid out in the 2018-2020 Business Plan, to be presented to the Shareholders’ Assembly for approval. The design and operation of the share-based Incentivisation Plan strictly follow the rules of the IVASS regulations on the subject.
For more information, please refer to the 2017 Remuneration Report.