On January 27th, Frontis Governance, an independent Italian proxy advisory firm, and ECGS, an international network of proxy advisors, requested that the Chairman and CEO of UniCredit reclaim the excess compensation paid to Alessandro Profumo upon his resignation, estimated to be over €27 million. The €36.5 million severance package granted to the former CEO is not considered by the proxy advisors to be justified by the Bank's achieved results, nor is it in line with international best practices or the recommendations of European regulators. Furthermore, this payment contradicted UniCredit Group's own 2010 remuneration policies, which stipulated a “golden parachute” equivalent to three years of basic salary.
Applying the recommendations of the European Union and the Financial Stability Board of 2009, the overall settlement for Alessandro Profumo should have been €7,346,000 (i.e. two years' fixed salary).
The former CEO of UniCredit should therefore return to the Bank an amount equal to the difference between the €36.5 million received as an “exodus incentive” and the €7,346,000 that would have actually been due to him, net of taxes already paid on the original amount and the two million euros donated to charity upon his resignation. Obviously, the determination of the correct amount to be claimed is left to the committee appointed within the UniCredit Board of Directors.
The request to return the excess amount would represent a strong action by the Bank, allowing it to regain the confidence of its shareholders on such a sensitive issue as management remuneration.
On 16 February, ECGS partners received the formal response from the Chairman and Head of Human Resources of UniCredit: nothing was added to what had already been communicated to the shareholders' meeting in April 2011, emphasizing that the amount paid was in line with regulatory and contractual forecasts. Given that the proxy advisors' request did not contest the legal regularity of Profumo's severance pay, the response appears inadequate. It is clear that the final figure resulted from an agreement between the Board of Directors and the former CEO, and for this reason, ECGS partners believe that shareholders cannot accept a remuneration policy that permits such practices. Furthermore, point 12 of the principles on remuneration issued on 25 September 2009 by the Financial Stability Board (FSB Principles for Sound Remuneration Practicesstates: “existing contractual consideration in the event of contract termination must be re-examined […]; in the future, all consideration of this nature must be linked to realised performance and defined in such a way as to avoid any golden parachutes”. Therefore, even in the scenario where the €36.5 million severance pay was stipulated in the CEO's contract, it would have been necessary to review it based on the new principles.
The awarding of such a high severance payment to the former CEO, if not rectified, would also undermine the relevance of the remuneration policies that will be put to a vote at the upcoming Ordinary Shareholders' Meeting. Concrete action by the Board of Directors could restore confidence in this regard too, reassuring investors about the effective application of the remuneration policies that were voted on.