Components of remuneration

The short-term variable remuneration component is linked to the achievement of individual and Group objectives which stem directly from the Company’s strategic priorities through the adoption of the balanced scorecard model. 

Recipients

The recipients of the BSC system are, in addition to the Executive Directors, all managers (divided into the following levels: directors, A managers and B managers) and middle managers of Hera Spa and of the companies belonging to the Group. With regard to the pool of managers, for the year 2024, the scope includes [41] directors and [114] managers.

Structure of the targets

The short-term incentive system provides for the assignment of an individual balanced scorecard (BSC) to each of the recipients. As regards the Executive Directors, the individual form provides for the assignment of the Group’s operating-financial and sustainability-related objectives (Ebitda, net result, net debt and CSV Ebitda) and an indicator linked to the Group’s customer satisfaction survey (CSAT).
As regards the other recipients, each BSC includes individual objectives to which specific performance indicators are associated, divided into three areas. The relative weight of each area and its contents are illustrated in the chart below:

The individual result is subsequently weighted by a company result profile, which takes into account the performance recorded by the Group with reference, for 2024, to five parameters:

• Ebitda;
• Net result;
• Net debt;
• Shared-value EBITDA (CSV);
• Residential customer satisfaction index (CSAT).

Measuring the targets

Individual performance is determined on the basis of the achievement of the objectives actually pursued and the specific weight of the individual target, according to the following methods:
target projects: the progress of each target project is monitored quarterly. Key strategic projects are shared within the Group’s management committee (Management Review). At the end of each financial year, each assigned project is evaluated by the direct manager using 11 evaluation levels (0%, 10%, 20%, 30%, 40%, 50%, 60%, 70%, 80%, 90%, 100%) defined on the basis of the actual achievement of the indicators present in each project according to the following frame of reference:

* Relevant targets are understood as those whose achievement is a prerequisite for the full achievement of the target project;

• economic targets for individual companies: the result is automatically evaluated on the basis of the final values from the statutory financial statements of the economic indicators assigned an “achieved/not achieved” status;
• adoption of the behaviours envisaged by the leadership model: it includes a 360-degree process that can be initiated across the corporate organisation and is consolidated through the involvement of the managers of the individual teams who evaluate the skills envisaged by the model.

The evaluation relates to all eight competences envisaged by the model and is measured based on the arithmetic mean of the evaluations linked to the competences; the target for each recipient is defined within a rating scale from one to five, the latter representing excellence in the competence in question expressed throughout the reference period; the percentage of achievement of the behavioural target is distributed across ten ranges according to the following scheme:

On the basis of the performance profile achieved by the company on the five parameters, the weighted percentage to be applied to individual results is defined up to 115% of the result according to the following scheme:

Each KPI is evaluated separately. The weighting percentage is determined by calculating the weighted average of the percentage values taken from the results of each individual indicator. All the indicators in class D (high deviation) cause the weighting percentage to be reduced to zero. Only for company employees with the qualification of Manager, the percentage of weighting in class A+ is 120%.

Incentivation

The short-term variable remuneration envisaged by the BSC system on achievement of 100% of the individual targets shows an amount as a percentage of the RAL, including any gross fixed remuneration for the positions held, broken down by categories of recipients.

For executives, there are two levels of variable remuneration (executives A and executives B) distinguished based on the weighting of the executive’s position in the organisation and the strategic value of his or her duties.

The table below shows for the different levels, the percentage of variable remuneration and the maximum variable pay in case of maximum individual performance and over-performance of all company targets:

The tabel below shows the mechanism for measuring a director's maximum bonus:

The medium-long term variable remuneration component is linked to a deferred monetary plan, approved by the Board of Directors following an evaluation of a series of elements: 

• since the establishment of Hera, the Group has grown significantly in terms of corporate and regional size and final results;
• from the management’s standpoint, the Group has achieved a composition that is the result of a careful balance between the acquisition of new skills from the market and specific value skills already in place;
• today the Group currently enjoys a strong reputation and market visibility, and consequently it is appropriate to target highly selected retention actions for the executive resources who hold strategic positions, have high performance and high market risk.

Recipients 

The retention plan is applied to Executive Directors in relation to the multi-year term of the mandate as well as a reduced number of directors and managers.

The definition of the scope of recipients is determined by applying the general criteria indicated below:

• identification of a reduced number of managers based on the weight of the organisational position, the performance evaluation obtained based on the development process and age;
• periodic evaluation mechanism for access and renewal / non-renewal of the monetary plan assignment, based on the criteria set out above;
• responsibility of the Executive Directors in selecting the beneficiaries also in relation to the evaluation elements based on the actual market risk of the individual professional profile.

Structure of the targets

As for the alignment of remuneration with performance, the retention plan incentivises a commitment to the development of managerial skills, the level of individual performance and the achievement of the Group’s strategic objectives in a three-year perspective.
The system involves the assignment of an individual scorecard to each of the recipients, containing a component for evaluating individual performance and managerial skills and a component of the Group’s strategic objectives.

The evaluation component for individual performance and managerial skills considers the positioning achieved by the recipients in the three-year period within the development process matrix (see paragraph 4.02).

The component related to the achievement of the Group’s strategic objectives aims to enhance the ability to create and share value, as well as further consolidate the culture of the Group’s financial solidity in the medium-long term while further pursuing stakeholder interests. This component includes three indicators with an equal weighting:

• Economic value added (EVA) or the cumulative target value for the three-year period, equal to the difference between NOPAT (Net operating profit after taxes) and WACC (Weighted average cost of capital) for the invested capital;
• the ratio at the end of the financial year to the last year of the three-year period between net debt and Ebitda;
• the Ebitda percentage of creation shared value (CSV) at the end of the financial year in the last year of the three-year period. 

The following tables show the three-year plan currently in force and the related KPI performance targets with reference to the Executive Directors:

Measuring targets

The level of Group KPIs achieved can range from 0% up to 120% according to the following scheme:

Each indicator is evaluated separately. The overall achievement percentage will be determined by calculating the weighted average of the percentage values taken from the results of each individual indicator. Each indicator that records a final balance below class D involves the elimination of the value of the premium linked to the indicator.

The evaluation parameter of the development process is given by the average of the evaluations over the three-year period on performance and managerial skills or by the annual positioning of each recipient within the following matrix that determines the relative weighting:

The evaluation parameter of the process of developing individual managerial skills does not apply to Executive Directors, as the same evaluation elements are already considered to be expressed by the level of achievement of the Group KPIs.

Incentivation

For the Executive Chairman and CEO, the maximum three-year incentive value envisaged by the retention plan upon achievement of 100% of the objectives is 120% of the RAL.

For the rest of the Group’s Management benefitting from the plan, the maximum three-year incentive, upon achieving 100% of the objectives, is 100% of the RAL (therefore the corresponding theoretical annual rate is one third of the RAL, or 33% of the RAL) or 50% of the RAL (therefore the corresponding theoretical annual rate is one third of the gross annual fixed salary, or 16.67% of the RAL), determined on the basis of the general criteria set out above.

The maximum value of the medium-long term remuneration is determined based on the following calculation system for each three-year cycle:

The incentive is paid in May of the fourth year - i.e. the year following completion of the three-year medium-long term plan - provided that the recipient is still employed.
With regard to recipients confirmed as eligible in a subsequent long-term incentive plan, in order to limit the risk of post-payout abandonment, payout in May of the second year is envisaged as an advance (returned in the event of termination of the employment relationship) of the theoretical amount vested for the first year of the three-year period, or to the target defined ex ante (advance of the first year equal to one third of the overall three-year bonus).
The payout of the remaining portion (equal to two thirds of the bonus) is then scheduled for May of the fourth year. In the event that at the end of the period (at the end of the three-year period) the performance achieved determines a variable remuneration below the amount already paid as an advance, the differential will be deducted from the remuneration for the current year (fourth year).

Beginning in 2017, with the aim of further strengthening the retention of the Group’s Management, a social incentive plan was introduced in line with the achievement of the Group’s corporate objectives, intended for all employees with managerial qualifications, that involves paying out social incentive quotas that can be spent on the services included among those of the existing corporate social incentive programme. Payout is directly linked to the level of achievement of the Group KPIs used to weight the results of the BSC system following a scheme which, for each individual indicator, allows the bonus to be accessed if performance exceeds the target associated with that indictor.  
Each indicator is evaluated separately. The overall result is determined by calculating the weighted average of the percentage values taken from the results of each individual indicator.
The maximum value on achieving 100% of the plan objectives is 6% of the theoretical individual variable, namely:

• Executive Directors: a maximum social incentive bonus equal to 6% of 50% of the total RAL is envisaged (3.0% of the RAL);
• directors: a maximum social incentive bonus equal to 6% of 30% of the RAL is envisaged (equivalent to 1.8% of the RAL);
• managers: two distinct levels of maximum social incentive bonus are envisaged, equal respectively to 6% of 22% of the RAL (equivalent to 1.3% of the RAL) and 6% of the 17% of the total RAL (equivalent to 1% of the RAL).

Furthermore, in line with the implementation of the Group’s social incentive plan initiated in 2016, access to a Flexible Benefit plan was set out for all Group employees, involving the assignment of an individual quota of 395 euro in 2024. 
Finally, as for the entire non-managerial pool of the Group, up to 50% of the company performance bonus can be converted into goods and services included in the company social incentive programme.
In line with best practices, the plan also involves the following main forms of coverages: Directors and Officers (D&O) Liability against civil responsibility towards third parties, professional and extra-professional accidental injury, death and permanent disability due to illness. Executives who hold specific organisational positions are also to be assigned a company car for business and personal use.

Not applicable to Executive Directors

Performance bonus

The performance bonus has long been a consolidated tool in the Hera Group. It is the subject of negotiations with the National Trade Union Organisations that deal with the sectors in which the Hera Group operates (mainly the sectors relating to gas-water, electricity and environmental collective bargaining agreements). The specific indicators of the Company/Budget Unit are therefore defined with the National Trade Unions, year by year, and for every three years, as part of the supplementary Group contract (level II agreement), the amount of the “potential” target bonus is established that is due to employees, following the achievement of the pre-established results. The current Group agreement regulates the premium for the years 2022-2024. 
The amount of the Bonus is divided into three parts and takes into account the profitability of the Hera Group, i.e. Group Consolidated Ebitda and Ebitda/Employees, as well as being conditioned by the achievement of specific targets relating to increases in productivity/quality/efficiency/innovation.

It is envisaged that the employee will have the possibility, on a voluntary basis, to replace the cash-based performance bonus with company social incentive services, within the limits and under the conditions established by law, for a maximum value of 50% of the annual bonus.
The agreement benefits from decontribution, pursuant to Article 1 of Law No. 28, paragraph 189 of 28 December 2015, as amended by Legislative Decree No. 50 of 24 April 2017, as a system of equal involvement of workers in the organisation of work envisaged, with implementation starting from 2017, through the establishment of working groups aimed at improving and/or innovating production areas and/or organisational / productive models.
The agreement is also subject to the application of the preferential tax regime, pursuant to Article 1, paragraphs 182-189, of Law No. 208/2015, as amended by Law No. 232/2016, and of Ministerial Decree 03/25/2016.

Incentive systems for commercial professionals (Commercial Policy)

The commercial incentive policy has the aim of orienting the staff involved towards the achievement of pre-set objectives, ensuring a competitive economic incentive offered in line with market practices. It applies to managers and employees of business areas and companies who have internal organisational roles directly linked to commercial tasks.

The incentive model is characterised by the following issues directly related to the assigned commercial roles:

• a short-term remuneration variable related to the achievement of individual objectives and companies;
• a company car assigned for business and personal use.  

The short-term variable is assigned on an annual basis and provides for a consideration calculated as a percentage of the RAL through the assignment of a form that includes individual and Group objectives (85%) and the adoption of the leadership model behaviours (15%). The result of the evaluation is subsequently weighted by a corporate performance profile, which takes the Group’s performance into account.
Furthermore, a variable incentive model is also envisaged for the front end staff of the Group’s sales companies, which involves the assignment of a scorecard with individual (85%) and team (15%) objectives. The overall result is weighted according to the service quality index (SQI) and the average wait time (AWT) for customers at the counter.

Non-competition agreement

Given the particular value of employment businesses as well as the attractiveness of key personnel as in the case of commercial personnel, for professionalism related to waste treatment or in the energy trading and service industry - which constitute not only a source of professional knowledge and skills but also a great opportunity to acquire customers, programmes, methods, policies, etc. -  the non-competition agreement was applied in accordance with the provisions of Article 2125 of the Italian Civil Code for a term of 24 months.
The agreement, with regard to the anti-competition obligations of the employees (with relative determination of the purpose, place and time of the restriction), provides for an economic consideration paid to the former. The gross amounts identified are payable on a monthly basis. In case of violation of the agreement, the employee will have to pay the company a multiple of the amount received up to the date of termination within a predetermined limit, without prejudice to further ordinary civil remedies.

Severance pay

In line with the regulatory framework referred to in the Introduction as well as with the purposes and main principles set out in paragraph 4.01, the company reserves the right to enter into agreements, in view of or upon termination of the employment relationship and/or office, which provide for awarding payouts to Executive Directors (meaning both Executive Directors who do not have concurrent employment relationships with the Company, and Executive Directors who do), the purpose of which is to mitigate the risks associated with the termination of all employment relationships with the Executive Directors, by flat-rating in advance all the costs and risks associated with it (severance pay).
The aforementioned agreements, where stipulated, take into account – among other things – the term of the employment relationship and/or the position held, to be evaluated on the basis of the specific features of the reference market.
Severance pay is applicable in the following cases:
    (i) revocation ante tempus from the office of executive director without just cause, with necessary simultaneous termination of the employment relationship, if any;
    (ii) natural expiry of the office of executive director without renewal, also in this case with the necessary simultaneous termination of the employment relationship, if any;
    (iii) resignation from the employment relationship – if it exists – (a) within three months following the non-renewal of the office of executive director and (b) due to a change in the activity substantially affecting the overall position held;
    (iv) resignation from the employment relationship - if it exists – (a) within three months following the ante tempus revocation from the office of executive director and (b) due to a change in the activity substantially affecting the overall position held.

If none of the cases listed above apply, the provisions of law and collective agreement applicable to the termination of the position and employment relationship may apply. In any case, severance pay shall not apply if at the time of termination of the position and/or employment relationship the results achieved in at least two previous financial years in the last three financial years are objectively inadequate, meaning any results achieved, for each financial year, below class D with regard to all the indicators envisaged from time by time for short-term variable remuneration.

For the purposes of calculating severance pay, where applicable, only the total gross annual compensation is taken into consideration, including a) the gross fixed annual compensation and/or the fixed remuneration pursuant to Article 2389 of the Italian Civil Code, awarded to the interested person at the time of termination of the employment relationship and/or office, and b) the annual average of the amount actually paid as short-term variable remuneration in the 3 (three) years preceding the time of termination of the employment relationship and/or office or in the shortest term of the relationship (total gross annual compensation).
Severance pay, where applicable, is determined as follows based on the longer period of time between the employment relationship and the office:
    (i) Total gross annual compensation * 1 (one) for seniority not exceeding 12 months;
    (ii) Total gross annual compensation * 1.5 (one point five) for seniority of more than 12 months and not more than 24 months;
    (iii) Total gross annual compensation * 2 (two) for seniority exceeding 24 months.

Severance pay, as outlined above, cannot, in any case, exceed the mandatory maximum amount of the total gross annual compensation * 2 (two).
Severance pay incorporates - except as provided in the following paragraph 7.03 - Effects of the termination of the relationship and/or office on the incentive systems - any claim arising from all relationships with the company and with other companies of the Group, including notice or any replacement indemnity, the additional indemnity provided for by the collective agreement applied for the unjustified dismissal of the manager and all possible damages, pecuniary and otherwise, that come from the termination of the existing relationships, without prejudice to the right of severance pay or anything else due by law from the termination of the employment relationship (holidays, additional monthly payments, etc.).

Severance pay will be awarded only in the context of an agreement - signed pursuant to and for the purposes of Article 2113 of the Italian Civil Code - which regulates the termination of all relationships (both employment and administration) with the company and with other Group companies and which provides, among other things:
    a) the right for the Company to exercise liability and/or compensation actions for facts/behaviours involving wilful misconduct and/or gross negligence, not known at the time of termination of the employment relationship and/or office;
    b) the waiver by the interested party of the variable remuneration portions, both short (BSC) and medium-long term (MLT), vested and not yet paid, except as detailed in paragraph 7.03 - Effects of termination of employment and/or office on incentive systems;
    c) the waiver by the interested party of any future claim, action or demand against the company and possibly with other companies of the Group, also for compensation, as part of a general novation transaction pursuant to Articles 1975 and 1976 of the Italian Civil Code, both with regard to the position and in relation to the employment relationship.
Any severance pay will be subject to:
    (i) deferral mechanisms, as outlined below: 80% of the severance pay shall be paid within sixty days of the signing of the above agreement pursuant to Article 2113 of the Italian Civil Code, as for a further 10%, within six months of the signing of the above agreement pursuant to Article 2113 of the Italian Civil Code, and the remaining 10% within twelve months of the signing of the above-mentioned agreement pursuant to Article 2113 of the Italian Civil Code; 
    (ii) ex-post adjustment mechanisms, as outlined in the following paragraph 7.02 – Ex-post adjustment mechanisms.

Ex-post adjustment mechanisms

As regards the variable remuneration components (both short and medium-long term) as well as severance pay, the application is envisaged - within the limitation periods established by the current laws and regardless of the termination of the subordinate employment relationship and / or of the office - of ex post adjustment clauses which allow the company to (i) request and recover, in whole or in part, variable remuneration components (clawback) and/or (ii) not to pay them, retaining the components subject to deferral (malus). 
With regard to severance pay, these clauses are applied by the Company, following a determination by the Board of Directors towards the persons who have engaged in conduct constituting a serious infringement of company rules (with particular regard to the Code of Ethics and the Organisational Model pursuant to Legislative Decree 231/01), whether contractual or legal or who have engaged in wilful or grossly negligent behaviour to the detriment, both financial and reputational, of the company.

With regard to short and medium-long term variable remuneration, these clauses are applied by the company, following a determination by the Board of Directors:
    (i) where it is ascertained that the variable remuneration components have been determined on the basis of circumstances and/or objectives whose existence and/or achievement are attributable to wilful or grossly negligent behaviour of the person concerned or, in any case, implemented in breach of the benchmark rules (corporate, legal, contractual) or were considered to exist and/or were achieved through data which were later revealed to be manifestly incorrect, including cases in which the interested party, with intent or gross negligence, altered the data used for the existence and/or achievement of the circumstances and/or the said objectives;
    (ii) towards persons who engaged in conduct in serious infringement of company rules (specifically, with regard to the Code of Ethics and the Organisational Model pursuant to Legislative Decree 231/01), whether contractual or legal, or who carried out conduct malicious or grossly negligent acts to the detriment, both financial and reputational, of the company.

The aforementioned malus and clawback provisions shall be implemented towards the Executive Directors through specific individual agreements, without prejudice to any other action or remedy permitted by law to protect the interests of the Company and the other Group companies.

Effects of termination of employment and/or office on variable remuneration systems

General regulations

Generally speaking, in the event of termination of the employment relationship and/or of the position, the interested party shall forfeit, to all intents and purposes, any right to the payment of variable remuneration, both short and medium-long term, even where already vested.
Specifically:
    • with regard to the short-term variable remuneration system (BSC), if, on 31 December of the year of vesting, the employment relationship and/or the position of the person concerned ceased and/or is subject to notice, the interested party shall forfeit, to all intents and purposes, any right that comes from the BSC system, including both the right to the related payout (not even pro rata temporis), and the right to compensation and/or indemnity for such non-payment;
    • with regard to the LTI variable remuneration system, if, on the date of expected payout of this remuneration (i.e. after the date of approval of the financial statements relating to the last year of the three-year cycle), the employment relationship and/or the position of the interested party ceased and/or are subject to notice, the interested party shall forfeit, to all intents and purposes, any right that comes from the LTI system, including the right to the related payout (not even pro rata temporis even with reference to any advances already paid), and the right to compensation and/or compensation for such non-payment.

Specific regulations only applied in the event of severance pay actually due
Only in the event of severance pay actually due as regulated above and all the conditions referred to in paragraph 7.01 – Severance pay (including the signing of the agreement pursuant to Article 2113 of the Italian Civil Code referred to in paragraph 7.01 – Severance pay), shall the rules detailed below exclusively apply.

Specific regulations only applied in the event of severance pay actually due as per cases II or III (non-renewal)
In the event of termination of a position (and the employment relationship, if it exists), the interested party shall forfeit, to all intents and purposes, any right to payment of the variable remuneration vesting, whether short or medium-long term incentive (LTI), without prejudice to the right to payment of only the variable remuneration vested, as detailed below.
Specifically:
    (i) with regard to the short-term variable remuneration system (BSC), if, on the date of termination of the office (and the employment relationship, if it exists), the interested party’s remuneration is vested and, on the date of expected payment of such remuneration, the position (and the employment relationship, if it exists) of the interested party ceased and/or is subject to notice, the interested party shall be entitled to the payout of such remuneration, with application of all further terms, conditions and constraints envisaged for this type of remuneration pursuant to the regulations applicable from time to time;
    (ii) with regard to the medium-long term variable remuneration system (LTI), if:
    a) on the date of termination of the office (and the employment relationship if it exists), the interested party’s remuneration is fully vested (full vesting means the positive completion by the interested party of the entire three-year cycle and all the vesting requirements have been met) and, on the date of expected payment of this remuneration (i.e. after the date of approval of the financial statements relating to the last year of the three-year cycle), the position and, if it exists, the employment relationship employment of the interested party ceased and/or is subject to notice, the interested party shall be entitled to the payout of this remuneration, with application of all further terms, conditions and constraints provided for this type of remuneration pursuant to the regulations from time to time applicable, without any acceleration and, therefore, with possible payment after the date of approval of the financial statements relating to the last year of the three-year cycle;
    b) on the date of termination of the office and the employment relationship, if it exists, such remuneration is not fully vested for the interested party (full vesting means the positive completion by the interested party of the entire three-year cycle and all the vesting requirements have been met), the interested party shall forfeit, to all intents and purposes, any right that comes from the LTI system, including both the right to the related payout (not even pro rata temporis), and the right to compensation and/or indemnity for such non-payment. 

Specific regulations only applied in the event of severance pay actually due as per cases I or IV (revocation ante tempus)
In the event of termination of the office and the employment relationship, if it exists, the interested party shall forfeit, to all intents and purposes, any right to the payment of the variable remuneration vesting, whether short or medium-long term, without prejudice to the right to payment of only the variable remuneration vested, as detailed below.
Specifically:
    (i) if, on the date of termination of the office and the employment relationship, if it exists, such remunerationis already vested for the interested party and, on the date of expected payment of this remuneration, the position and the employment relationship of the interested party, if it exists, ceased and/or is under notice, the interested party shall be entitled to the payout of this remuneration, with application of all further terms, conditions and constraints envisaged for this type of remuneration pursuant to the regulations applicable from time to time;
    (ii) with regard to the LTI variable remuneration system:
    a) if the position and the employment relationship, if it exists, of the interested party are terminated and/or subject to notice before the interested party has successfully completed the first year of the three-year cycle, the interested party shall forfeit, to all intents and purposes, any right that comes from the LTI system, including both the right to the related payout (not even pro rata temporis), and the right to indemnity and/or compensation for such non-payment;
    b) if the position and the employment relationship, if it exists, of the interested party are terminated and/or subject to notice after the interested party has successfully completed at least the first year of the three-year cycle, the interested party shall be entitled to the payment of this remuneration determined pro rata temporis on an annual basis as per the entire years of the three-year cycle as well as on the level of positive completion by the interested party of the three-year cycle, with application of all further terms, conditions and constraints envisaged for this type of remuneration pursuant to the regulations applicable from time to time, without any acceleration and, therefore, with possible payment after the date of approval of the financial statements relating to the last year of the three-year cycle;
    c) on the date of termination of the office and the employment relationship, if it exists, the interested party’s remuneration is fully vested (full vesting means the positive completion by the interested party of the entire three-year cycle and all the vesting requirements have been met) and, on the date of expected payment of this remuneration (i.e. after the date of approval of the financial statements relating to the last year of the three-year cycle), the position and the employment relationship, if it exists, of the interested party are terminated and/or is under notice, the interested party shall be entitled to the provision of such remuneration, with application of all further terms, conditions and constraints provided for this type of remuneration pursuant to the regulations applicable from time to time, without any acceleration and, therefore, with possible payment after the date of approval of the financial statements for the last year of the three-year cycle.

If, at the time of occurrence of cases I to IV referred to in paragraph 7.01 – Severance pay, the person entitled to severance pay has received the payment of LTI advances, the latter shall remain acquired and the interested person shall not have to return them to the Company.