European Remuneration Policies

First Question: Remuneration Policies

Remuneration policy defines a compensation plan that a group of individuals receives in exchange of services performed. Generally it consists of monetary rewards, such as wages or salaries, but depending on role and responsibilities assigned it will include also a number of benefits that along the years have been refined and expanded into different areas including non tangible benefits. In order to guarantee fairness and unbiased decisions, usually, within the company, remuneration guidelines and policies for the board of directors are established by a specific committee called “remuneration committee” that is composed by the independent directors. In general terms the remuneration of C-level management and directors shall be established in a way to attract, retain and motivate people with the professional skills necessary to successfully manage the company. Unfortunately there are many ways in which managers can encounter conflicts of interest while meaning to benefit shareholders, thus creating a manager-shareholder conflict, for example, a manager might be tempted to engage in self-dealing, hence entering into transactions only benefitting themselves over shareholders. Managers might also privilege short-term objectives over long-term, in order to consolidate their position and to receive an economic benefit, with a possible risk for the company, and consequently for the shareholders as well. In order to avoid such risks remuneration policies are critical tools used to mitigate the possible risk of conflicting objectives. To this extent a common provision used among major corporations is to build the compensation package also commonly called MBO using a multiple set of objectives thus creating the right balance within for example short- and long-term objectives and focusing on other needs for the company such as for instance free cash flow, EVA, stock value and so on.

Incentive compensation is mainly constructed on the...