24 Provisions for employee benefits

Provisions for employee benefits of €108 million (€107 million at 31 December 2011) break down as follows:

The provision for employee severance pay of €80 million is governed by Article 2120 of the Italian Civil Code and represents the estimated liability, determined on the basis of actuarial procedures, for the amount to be paid to employees at the time that the employment relationship is terminated. The principal amount of the benefit is equal to the sum of portions of the allocation calculated on compensation items paid during the employment and revalued until the time such relationship is terminated. In accordance with changes to the law introduced on 1 January 2007, severance pay to be accrued is earmarked for pension funds or the fund set up at the INPS (National Social Security Institute) or, for businesses with fewer than 50 employees, may be kept within the business. This means that a significant part of severance pay to be accrued is classified as a defined-contribution plan since the Company’s only obligation is to pay the contributions to the pension fund or to the INPS. Liabilities related to severance pay pre-dating 1 January 2007 remain a defined-benefit plan to be valued using actuarial methods.

The supplemental healthcare provision for Company executives of eni (FISDE) of €6 million includes estimated expenses relating to contributions to be paid to the supplemental healthcare provision for current and retired executives. The amount of the liability and the cost of care related to the supplemental healthcare provision for Company executives of eni are determined with reference to the contribution that the Company pays to retired executives.

Other employee benefit provisions of €22 million mainly concern long-term benefits connected with deferred cash incentive plans, long-term cash incentive plans (€13 million in total) and seniority bonuses (€9 million).

Deferred cash incentive plans involve the allocation of a basic incentive that will be paid out after three years in an amount depending on the Company’s performance.

The long-term incentive plans, which replaced the preceding stock option allocations, involve the payment, three years after being assigned, of a variable cash bonus tied to a measure of Company performance.

Seniority bonuses are benefits paid upon reaching a minimum service period at the Company, and are paid in kind. Employee benefit provisions, which are determined by applying actuarial methods, can be broken down as follows²⁵ :

Costs related to employee benefit liabilities, which are recorded in the income statement (€11 million), break down as follows:

The main actuarial assumptions used to determine liabilities at the end of the year and to calculate the cost for the following year are indicated below:

Demographic tables prepared by the General State Accounting Department (RG48) were used for the actuarial assumptions.

The discount rate used was calculated taking into consideration the bond yields of leading companies in the eurozone with AA ratings.

With respect to FISDE, the impact of a 1% change in the actuarial assumptions for costs related to medical care is not significant.

The amount of contributions expected to be paid to the defined-benefit plans established in the following year total €10 million.