Compensation system

The Snam Rete Gas S.p.A compensation system aims to reinforce company values, skills and behaviour so as to be coherent with its culture and strategy. This takes place through the recognition of an individual’s responsibilities, results, professional contribution and development potential with reference to benchmark pay markets.

In the context of the general Snam Rete Gas S.p.A remuneration policy, particular importance is attached to systems of variable incentives connected with reaching financial targets, developing business and operations in terms of sustained results and creating value for shareholders in the medium to long-term, in keeping with Snam Rete Gas S.p.A’s strategic plan. These systems are in place for the chairman, CEO, general manager, managers with strategic responsibilities35 and more junior managers, so as to better sustain long-term company performance.

The compensation system also features benefits by way of goods and services, relating mainly to pensions and healthcare, aimed at meeting the requirements of individual beneficiaries and their families.

Directors’ salaries are deliberated by the shareholders in their meetings; remuneration for the chairman and the CEO is determined by the board of directors on the suggestion of the compensation committee, after hearing the opinion of the board of statutory auditors.

On 26 April 2007, the shareholders' meeting approved a gross annual salary of €30,000 for each director and approved €500 gross for attending each committee meeting.

Remuneration of the chairman, who no longer has an employment relationship with the company, consists of a fixed portion and a variable component tied to attainment of company objectives. The remuneration of the CEO, the general manager and other key managers consists of a fixed part, a variable part and a long-term incentive.

The fixed pay of the chairman and the CEO is based on their mandated duties, while that of the general manager and other key managers is calculated considering their positions and responsibilities, with reference to market remuneration rates for similar positions in major national and international companies. The remuneration is adjusted annually to reflect merit (consistent individual performance) or promotion (more senior role/greater responsibilities). The variable part is paid annually in cash and is tied to attainment of specific company (financial, operating and strategic) and individual (for each business unit or function) objectives set for the previous year. The variable component for the chairman and the CEO is linked to company objectives. The variable part paid in 2009 was calculated with reference to the Snam Rete Gas S.p.A’s 2008 objectives, approved by the board of directors on the suggestion of the compensation committee and defined on the basis of the strategic plan and annual budget considering investments (50% weighting), operating efficiency (20% weighting), cash flows from operating activities (20% weighting) and sustainability (10% weighting), a parameter calculated giving equal weighting to monitoring and reducing gas emissions and to reducing the number of accidents. The company results, measured on a like-for-like basis, have been verified by the compensation committee and approved by the board of directors. They gave rise to a variable remuneration of 125% of the base level, within a range of the minimum (85%) and the maximum (130%) of the allowed amount.

In order to further support management motivation and loyalty and to establish a closer connection between objectives, performance and incentives, a system of long-term incentives has been used. On 23 March 2009, the board of directors approved the use of a deferred cash incentive plan as the sole incentive instrument for 2009, on the suggestion of the compensation committee and taking into account the economic climate. The deferred cash incentive allocated in 2009 will be paid after three years depending on attainment of annual EBITDA (actual vs. budget on a like-for-like basis) objectives defined for the three-year period 2009-2011. Upon completion of the three years in question, the result of the long-term incentive plan will be verified by the compensation committee and approved by the board of directors.

Share-based, long-term incentive plans have also been introduced to the managers’ pay structure. These are carried out by allocating either new shares or treasury shares bought on the market. The vesting period of the long-term incentive plan begun in 2006 ended in 2009. On the basis of performance for 2006-2008, the Snam Rete Gas S.p.A board of directors’ meeting of 11 March 2009 determined that: i) with reference to the deferred cash incentive plan and Snam Rete Gas S.p.A EBITDA performance, a multiplier of 143% be applied to the amount promised in 2006; ii) with reference to the stock option plan and Snam Rete Gas S.p.A TSR performance, a percentage of 65% be applied for determining exercisable options under the stock option plan assigned in 2006. In 2009, considering received fixed and variable remuneration and the allocated long-term incentive, the compensation structure was as follows:

Chairman (*)

CEO

General
manager
Other key
managers
Fixed part 53% 47% 55% 58%
Variable part (tied to results) 47% 29% 25% 23%
Long-term incentives (tied to results) (**) 24% 20% 19%
Total 100% 100% 100% 100%

(*) The chairman has had a consultancy contract with the company since 1 January 2008 under which he receives a fixed fee and a variable component, tied to attainment of company objectives.
(**) Measurement of the deferred cash incentive obtainable upon reaching target results.

Following the paid share capital increase, approved by the extraordinary shareholders’ meeting of 17 March 2009 and completed on 8 June 2009, on 29 July 2009 the board of directors, upon a proposal from the compensation committee, voted for a technical adjustment of the strike price and number of options allocated to subscribers of the 2006-2008 stock option plan, relative to the 2006 – 2007 – 2008 allocations. Information concerning the technical adjustment operation can be found in the directors’ report of Snam Rete Gas S.p.A’s separate financial statements, under the section Remuneration and other information.

In accordance with Consob provisions, the report indicates: (i) salaries paid to members of the boards of directors and statutory auditors, to the general manager and to managers with strategic responsibilities; (ii) participation in stock option plans by members of the board of directors, the general manager and managers with strategic responsibilities; (iii) equity investments held in Snam Rete Gas S.p.A by members of the boards of directors and statutory auditors, by the general manager and by managers with strategic responsibilities.

The information in points (i) and (ii) is also disclosed in the notes to the separate financial statements of Snam Rete Gas S.p.A.

(35) Managers who, together with the managing director and CEO, make up the company’s management board.

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