Frontis Governance?s analysis of Directors remuneration ? FTSE MIB 2011

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Frontis Governance publishes its first report on Directors’ remuneration at main Italian companies, highlighting a real gap between the executives’ and the long-term shareholders’ interests:

  • Despite the average Total Shareholder Return (made of market value and dividends) was equal to -19% at FTSE MIB companies, the average remuneration of the CEO increased of more than 14% in 2011.
  • The base salaries decreased of 11%: only 5% less at banks, where the fixed remuneration is still higher than other sectors (€1.69 million at the financial sector versus €1.32 million at other companies).
  • The variable component, that is linked to performances and should aim at aligning CEO’s and shareholder’s interests, increased of 45% in 2011, +92% the cash bonuses.
  • The average CEO’s pay-mix is made of: 42.7% fixed, 38.7% cash bonuses and 18.6% equity-based incentives: the compensation structure is strongly focused on the short-term period.
  • Most of remuneration policies still provide for egregious severance payments, considerably more than the equivalent of 2  years’ base salary, as recommended by the EU on April 2009: in many cases, indemnities still represent real golden parachutes, such as the €16.65 million paid to the former Chairman of Generali Cesare Geronzi and the €9.48 million to the former CEO and Chairman of Finmeccanica Pierfrancesco Guarguaglini.

Only 5 policies provide for stock options as the only equity-based incentive. Most of the plans provide just for cash (29%) or free shares (39%). It is significant that many issuers (among which the State-owned companies) did not renew the stock option plans after the year 2008.

The analysis highlights distortions also with regards to the Non-Executives’ remuneration: in 7 cases out of 38, non-executive Directors, some of which are considered as independent by the company, received higher compensation than their executive colleagues.

Mainly due to the strong focus on the short-term period and the egregious severance payments, Frontis Governance and ECGS opposed at more than 83% of Italian remuneration reports. Such percentage is slightly lower than the European one: the ECGS partners opposed at approximately 88% of European (non Italian) executives remunerations.

Full report: