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Remuneration components

Overview

The structure of the remuneration package foreseen for the various offices is defined with a view to balancing its fixed and variable components, taking into account the Company’s specific risk profile.

The basic components involved in retribution for Hera executives are as follows:

ComponentObjective and characteristicsImplementation
Fixed remunerationRecompenses professional and managerial technical skillsRemunerative ranking evaluated by way of market benchmarks
Short-term variable remunerationProvides incentives to reach strategic goals and promote conduct in line with the Group's model of corporate leadershipAssignment of individual objectives calibrated according to the Group's Balanced Scorecard System (directors) and a Management by Objectives system (executives)
Deferred variable remunerationIntended to retain those executive resources that cover strategic roles, have high performances and a high level of market riskThree-year period in question 2016-2018, with payment in 2019. Annual amount defined in relation to Group results and evaluations of the process of development
Non-monetary benefitsAn integral part of the remuneration package, these benefits primarily involve insurance and social securityDefined in compliance with the company's respective policies
CompensationCompensation for termination of employment, intended to protect the company's interestsCases of early termination or revocation of the executive's mandate

 

 
 
  • The fixed component of remuneration is generally defined by the professional specialisation and responsibilities involved in each specific organisational role. It is therefore a reflection of technical, professional and managerial skills.

    Fixed remuneration


    For each manager, the reference level of remuneration is initially defined by the weight of the organisational position covered, on the basis of which a benchmark with external related markets is identified. These markets are taken from remuneration surveys in which the Group participates, carried out by companies specialised in the sector. Generally, the level of remuneration chosen as a reference lies within the medium segment for the market (first quartile/median). These market references, combined with performance level and managerial competence evaluations, form the basis of individual remuneration reviews.


    Ratio between senior management monthly salaries according to labour agreements and Hera levels (Utilitalia contract)

    Remuneration

    Highlight on  the gaps between average gross monthly salary levels in Hera (net of the accrued 13th monthly pay and variable remuneration) and those envisaged by the national collective labour agreement. The contract of reference for this qualification is the Utilitalia contract. The average salary of Hera managers is 90% higher than the minimum according to the labour agreement, while the minimum salary applied by Hera is 12% higher than the Utilitalia contract. The average salary of Hera managers is 6% lower than the average market salaries for managers, as reported in the Hay Compensation Report - Total Cash Italia 2017.

    For this position also, the differences between the salaries applied and labour agreement references are the result of the application of previous economic schemes, also with regard to age (on average 51.9 years) and of years of stay in the Group (on average 16.7 years) for the category of managers.

    The differences between the salaries applied and those defined by labour agreements are due not only to previously established economic standards but also the amount of seniority in age (with an average of 51.8 years) and time spent within the Group (with an average of 15.6 years).

  • For the entire set of managers employed by Hera Spa and the Group's subsidiaries, a short-term variable component of remuneration is calculated as a percentage of gross annual salary and defined on the basis of the results reached, compared to the objectives defined at the beginning of the year.


    This incentive program has been defined, as of 2006, by the Group's balanced scorecard system (BSC), which is a tool used to provide incentives for management by assigning "balanced" objectives, distributed over four areas: development, corporate quality and social responsibility, organizational integration and increased efficiency.


    The following map indicates the strategic objectives aimed at increasing the company's long-term value:

    2018-2021 Strategic map

    The short-term incentive system assigns an individual Balanced Scorecard (BSC) to each employee. Each BSC includes a series of objectives, pertaining to three distinct areas of evaluation:

    • objective-oriented projects, defined according to the Group's Strategic Map;
    • economic objectives of the individual budget units, evaluated with economic-financial indicators;
    • discretionary evaluation, based on the extent to which the nine types of behaviour set out in the leadership model designed by the Group are adopted.

    Each area is subdivided into a series of pre-set objectives, each with a specific performance indicator. The relative weight of each area within individual balanced scorecards is different for directors and executives, and corresponds to the total weight of the individual objectives that fall under each single area.


    The structure of an individual balanced scorecard – i.e. the weight assigned to each of the three areas – varies according to the placement of each employee and the organisational unit to which they belong.


    For every objective, an expected result (target) is defined. The amount of the reward to be paid to each recipient is determined both by verifying whether the targets set are actually reached (result) and according to the specific weight of each objective.


    The individual result of the evaluation produced by the Balanced Scorecard system, as described above, is then weighted according to a global company result profile, which takes into account the performance recorded by the Group with reference to four parameters:

    • EBITDA
    • Net profits
    • Net Financial Position (NFP)
    • Customer Satisfaction Index (CSI)

    The weighing percentage applied to each individual result is defined according to the performance profile achieved by the company, within a range between 40% and 115%.


    For the Chairman and the CEO, the variable remuneration assigned corresponds to the Group performance objectives actually reached, defined as follows:

    1. if and when 100% of the assigned objectives are reached, a variable remuneration equal to 40% of total gross fixed compensation is assigned;
    2. in the event that over 100% of the assigned objectives are reached, a maximum 15% increase of the bonus is assigned, leading to a maximum variable remuneration equal to 46% of total gross fixed compensation.

    For the General Director - Operations, a variable remuneration equal to 25% of total gross fixed compensation is assigned upon reaching 100% of the objectives. Individual results are then weighted according to the company result profile, which takes into account the performance recorded by the Group over the current year. This weighting foresees a maximum increase in individual results equal to 15%, leading to a maximum variable remuneration equal to 28.8% of the total gross fixed compensation.


    The maximum bonus, expressed as a percentage of the manager's fixed annual compensation, varies according to the results of the system of incentives and the position held by the manager, within a bracket going from 20% to 26% of the individual's gross annual salary.


    The table below illustrates the mechanism for measuring accrued bonuses:

    ComponentDescriptionExample of calculation
    AGross Annual Salary (€)€ 100,000
    BTarget Bonus (% RAL)25%
    CTarget Bonus (€) = A x B€ 25,000
    DIndividual objectives reached (%)90%
    ECompany performance weighting coefficient (%)106%
    FValue of the bonus paid out (€) = C x D x E€ 23,850


    With regard to exceptional and strategically important transactions, having significant effects on company results, the Board of Directors, following a proposal put forward by the Remuneration Committee, can award discretionary bonuses to executive directors and management with strategic responsibilities.

  • In 2016 the Board of Directors approved the application of a retention plan for a limited number of managers, taking into account the weight of the organisational position, the evaluation of the performances obtained in the area of the development process, and age.


    This decision was supported by the evaluation of a series of elements:

    • since the moment in which Hera was established, the Group has grown significantly in terms of corporate size, geographical areas served and final results;
    • as regards its executive management, the Group has reached a composition that is the result of carefully balancing the entrance of new proficiencies coming from the market and specifically valued competencies already present;
    • the Group now enjoys a strong reputation and high market visibility, and it is therefore appropriate to set into place highly selective retention policies for executive resources that cover strategic roles, have high performances and high market risk.

    The 2016 incentive matures over the years 2016 - 2017 - 2018 and is paid in 2019. The value of this incentive amounts to 50% or 100% of gross annual income over the three-year period.


    The following table represents, respectively, the method used to calculate the maturity of the annual quota and the calculation model used to define the premium to be paid after the end of the three-year period in question.

    Annual quote maturity

  • In line with best practices, so-called D&O Liability insurance coverage is also provided against civil responsibility towards third parties, as are policies covering work-related accidents, non-work-related  accidents and death.


    A company car for business and personal use is also provided for.


    In addition, beginning in 2017, an additional incentive plan was introduced in relation to the achievement of Group objectives, which provides for the payment of Welfare bonuses that can be spent on the services included in the company's welfare plan.


    Benefits are paid out according to the level of achievement of the Group KPIs, criteria already used to assess the overall results of the Bsc system following a layout that, for each individual indicator, provides for a premium only in the case that the established target is surpassed.


    The maximum value upon reaching 100% of the objectives included in the plan is equal to 6% of the individual theoretical variable and in details:

    • Directors a maximum social bonus equal to 6% of 25% of the total gross fixed fees (amounting to 1.5% of Ral);
    • Managers two different levels of maximum social bonus, respectively equal to 6% of 22% % of the total gross fixed fees (amounting to 1.3% of Ral) and 6% of 17%of the total gross fixed fees (amounting to 1% of Ral).

    In addition, consistently with the implementation of the Group welfare plan launched in 2016, all Group employees have been granted access to a Flexible Benefit plan providing for the assignment of a 360 Euros bonus in 2017.


    Finally, with reference to all the Group's employees with non-managerial positions, the plan provides for possibly converting up to 50% of the business result bonus into goods and services included in the corporate welfare plan.

  • Performance measurement
    A target is defined for each objective. The amount of the reward to be paid to each recipient is determined according to whether the set targets are actually reached (result) and the specific weight of the individual objective.


    The result of the evaluation carried out using the aforementioned individual Balanced Scorecard system is weighted through a company result profile, which takes into account the performance recorded by the Group with reference, for 2017, to four parameters:

    • EBITDA
    • Net Profit
    • Net Financial Position (PFN)
    • Customer Satisfaction Index (ICS)

    The percentage of the target bonus to be paid to each individual is defined according to the performance profile achieved by the Company, ranging from 40% to 115% of the target bonus depending on the degree to which the objectives of the year in question are achieved.

    The maximum bonus that the Chairman and the CEO can receive is 46% of fixed remuneration, which breaks down as follows:

    • 40% for on-target results, multiplied by the company results multiplier, equal to 1.15, to be applied if and when the company's targeted economic-financial results are exceeded, to the degree foreseen for each single indicator.

    The maximum bonus that the General Managers can receive is 28.8% of fixed remuneration, which breaks down as follows:

    • 25% for on-target results, multiplied by the company results multiplier, equal to 1.15, to be applied if and when the company's targeted economic-financial results are exceeded, to the degree foreseen for each single indicator.

    The maximum bonus, expressed as a percentage of the gross annual fixed remuneration of the director, varies according to the results of the incentive system and the office held by the manager, in a range between 19.6% and 28.8% of the individual gross annual remuneration.

    The table below illustrates the mechanism for measuring accrued bonuses:

    AGross Annual Remuneration (RAL)
    BTarget Bonus (% RAL)
    CIndividual objectives achieved (% Target Bonus)
    DWeighing coefficient (corporate performance)
    E% Bonus paid out = B x C x D (%)
    Value of the bonus paid out = A x E


    With regard to transactions of strategic importance having an exceptional nature, with significant effects on the results of the company, the Board of Directors, following a proposal of the Remuneration Committee, can award discretionary bonuses to executive directors and management with strategic responsibilities.

  • Resignation, dismissal or termination of employment
    On the renewal of the BoD, during the 27 April 2017 Shareholders' meeting, a clause was introduced according to which if Executive Directors are removed from office(except for cases of just cause), they will be paid an amount, as compensation for damages, comprehensive of any other claim, equal to the sum they would have received as remuneration, pursuant to art. 2389 of the civil code, In the amount of 18 monthly salaries.


    Claw-back clause
    On the renewal of the BoD, during the 27 April 2017 Shareholders' meeting, a claw-back clause was introduced providing for ex-post changes to the remuneration system for executive managers. According to this clause, executive managers are required to return variable components of the remuneration received (or to retain specific amounts subject to deferment) calculated on the basis of data that subsequently turned out to be incorrect, with effect from the date of their appointment and for the entire length of their turn; the return request can be initiated, once the associated investigations have been carried out, within three years from the payment, with reference to the year in which the case occurred.

In line with its highly conservative risk profile, Hera has chosen not to make use of volatile financial instruments such as option rights or other similar instruments.

The Group does not use benefit policies involving the distribution of stock options to its own employees.

The table below summarises the remuneration components awarded to directors and the general manager.

PositionFixed remunerationShort-term variable remunerationDeferred variable remuneration for management retentionNon-monetary benefitsCompensation
ChairmanSpuntaSpunta SpuntaSpunta
CEOSpuntaSpuntaSpuntaSpuntaSpunta
Vice ChairmanSpunta  Spunta 
Non-executive directorsSpunta  Spunta 
General Manager OperationsSpuntaSpunta Spunta 


Page updated 27 August 2018

 
 
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