Selon la dernière étude de Frontis Governance, l’équivalent italien de Proxinvest au sein de son réseau ECGS, l’absence de mise en place de rémunération variable, surtout à long terme, est corrélée à une crétaion de valeur plus faible pour l’actionnaire et à à des résultats financiers moins élevés et plus volatiles.
The analysis covers 100 Italian listed companies’ remuneration policies approved in 2014, as well as all the remuneration components vested in the three-year period 2011-2013. Each component has been analyzed in comparison with relevant key parameters:
- The base salary has been compared with size parameters (such as the market capitalization, total revenues and average workforce), average wages and share ownership structure;
- The variable components have been compared with sector specific performance indicators (EBITDA, Tier 1 Capital Ratio and Solvency Margin) and common criteria (EBIT and Total Shareholder Return), both in the short and in the long term (3 and 5 years).
Together with the remuneration of the CEOs, the study analyses at the same level of detail the compensations of all other members of the Board, differentiating between Chairpersons and other members, executives and non-executives.
Remunerations 2011-2013: the alignment of interests
The average remuneration of Italian CEOs amounted to € 1.746.747 in 2013, down by 13.1% after the increase recorded in 2012 (+5.8% on 2011). Large part of the remuneration is represented by the base salary (56%), not depending on any performance condition, while the annual bonus represents the majority of the variable components (23% of total remuneration, versus 19% of long-term incentives).
It is not possible to identify any direct correlation of each remuneration component with the main indicators used in the analysis:
- Base salaries are mostly independent from the corporate size, in terms of market capitalization, total revenues and number of employees. However, fixed components seem to strongly depend on the ownership structure: companies with a controlling shareholder (holding more than 50% of the share capital) tend to pay average salaries to the CEO by 29% lower.
- The annual bonus is the only component that increased in 2013 (+18.5% on 2012 and +9.4% on 2011). Bonuses vested in the three-year period 2011-2013 were generally not aligned with the performances achieved in previous years. The three-year trend of the bonus is in line with the annual changes in EBIT in 10 companies, while in only 3 companies it has been possible to verify a clear alignment with main performance indicators disclosed in the Remuneration Report (Gtech, Interpump and Saipem). Only one company (Astaldi) paid a bonus constantly in line with the Total Shareholder Return (the bonus increased together with increased TSR in the previous year).
- The general independence of the variable compensation form performance indicators can be observed even with regards to the aggregate long-term incentives vested in the three-year period 2011-2013. However, the level of correlation slightly increases taking into account the incentives vested only in FY 2013, at least with regards to the EBITDA, the EBIT and the Tier 1 Capital Ratio. Incentives are still far from marking a clear alignment with the performances, but the higher correlation verified in 2013 may be considered as a result of the closer dialogue between issuers and investors caused by the introduction of the “say on pay” in Italy (in 2012).
- On the other hand, the correlation between incentives and Total Shareholder Return is close to zero, regardless the reference periods, still highlighting a lack of alignment of interests between the CEOs and the shareholders in the long term. Taking into account the companies that allowed the payment of long-term incentives, from 2011 to 2013 the CEOs received average rewards equal to 43.2% of their base salaries, while shareholders of the same companies suffered an average loss of 16.9% from 2007 to 2012, which represented the vesting period of incentives.
The impact of remuneration policies on performances
The study also tries to verify whether different remuneration structures may affect the company’s performances and the sustainability of the results. The sample of 100 Italian listed companies has been divided in three groups, depending on the CEO’s remuneration structure: (a) including variable components in the short and long term (annual bonuses and long-term incentive plans), (b) companies that reward the CEO in the short term only (no incentive plans) and (c) companies where the CEO does not receive any remuneration components depending on performances (only the base salary).
Through the analysis of long-term results, it has been possible to verify that the remuneration structure not only affects the amount of the compensation, which tends to strongly increase in companies providing for both annual and long-term incentives (on average € 6,732,470 in three years, versus € 2,715,095 in other companies), but also the quality and the volatility of results.
- Companies with short-term and long-term incentives achieved better and more stable results in terms of EBIT during the five-year performance period 2007-2012. In the same period, companies only rewarding the CEO in the short term reported average negative and much more volatile results.
- A similar result has been observed taking into account the TSR: companies with no performance-related remuneration components reported average negative and more volatile shareholder return from 2007 to 2012, compared to better and more stable results achieved by companies that reward in some way the CEO.