Frontis Governance has published its first study on the remuneration of leading Italian listed companies.
The main findings of the analysis highlight that there is still a clear discrepancy between what is paid to senior executives and the long-term interests of shareholders:
- Despite the Total shareholder return (share prices plus dividends) has resulted negative for more than 19% In 2011, the average remuneration of top FTSE-MIB company executives was increased by more than 14%.
- I fixed allowances some CEOs have suffered a fall of 11%: a decrease of just 5% in the banking sector, which continues to have the highest average fixed remuneration (€1.69 million)
- Incentives, which should be linked to performance and should serve to align CEO interests with shareholders, are increased by 45% in 2011, of which the monetary component was 92%.
- The pay mix On average, CEOs’ remuneration comprised 42.7% from their fixed salary, 38.7% from their cash bonus and 18.6% from financial instruments: the average remuneration structure is intensely focused on the short term.
- Remuneration policies largely continue to allow Severance pay higher than two years of fixed remuneration, contrary to the European recommendations of April 2009, often constituting veritable golden parachutes, as in the flagrant cases of the former Chairman of Generali, Geronzi (€16.65 million), and the former CEO and Chairman of Finmeccanica, Guarguaglini (€9.48 million in total for the two positions).
Only in 5 cases is the equity incentive exclusively represented by Share options, which could also represent the most valid tool for aligning interests in the long term: if the market value of shares grows, the beneficiary receives the bonus, otherwise the latter is zero. It is significant how many issuers (including companies controlled by the Government) have abandoned Share options after 2008.
The strong imbalance in favour of short-term goals in incentive plans and excessive pay-outs have led Frontis Governance to issue negative ratings on approximately 83% of the Remuneration Reports analysed. The situation in Italy is, however, no different from the rest of Europe, where the ECGS network has “rejected” over 88% of shareholders’ meeting resolutions relating to the remuneration of executive directors.
However, the analysis highlights that distortions in remuneration plans don't just affect Chief Executive Officers: in 7 out of the 38 companies analysed, non-executive directors, including some defined as independent, received higher compensation compared to Executives of the same companies.