Remuneration Report

This Remuneration Report (“Report”) is broken down into two sections:

  • Section I: Remuneration Policy for 2012 (“2012 Policy”) and
  • Section II: Remuneration Statement for 2011 (“2011 Statement”).

The Report has been prepared pursuant to Article 123-ter of the Consolidated Finance Law and Article 84-quater of the Consob Issuers Regulation (as amended by Consob Resolution no. 18049 of December 23, 2011). It was drafted in light of the recommendations issued by the European Commission on April 30, 2009 in regard to the remuneration of directors at listed companies (2009/385/EC) and Article 6 of the Corporate Governance Code of Borsa Italiana S.p.A., as amended in December 2011, which has been adopted by Pirelli.

The Report has also been adopted pursuant to Article 14 of the Procedure for Related Party Transactions approved by the Company Board of Directors on November 3, 2010.

The 2012 Policy sets out the principles and guidelines followed by Pirelli to (i) determine and (ii) monitor the application of pay practices, as illustrated below, in regard to:

  • Directors holding special offices, the General Managers and the Key Managers of Pirelli & C.;
  • the Senior Managers and Executives of the Group.

The 2011 Statement, a disclosure submitted to the Shareholders’ Meeting, provides a comprehensive account of remuneration in 2011 that illustrates its consistency with the Remuneration Policy approved by the Company the previous year.

To facilitate comprehension and reading of this Report, a glossary of certain frequently used terms is provided as follows:

Directors holding special offices: the Directors of Pirelli & C. that hold the position of Chairman and Chief Executive Officer and Deputy Chairman of Pirelli & C.; these directors may also be delegated specific duties. The Directors holding special offices at other Pirelli companies who are also Group executives (unless otherwise resolved by the Board of Directors of Pirelli & C. qualifying them as “Key Managers”) are Executives or Senior Managers for the purposes of this Policy and according to the position held.

Non Executive Directors: these are all Directors of Pirelli & C. appointed by the Shareholders’ Meeting of Pirelli & C. The Directors at other Pirelli companies who are also Group executives (unless otherwise resolved by the Board of Directors of Pirelli & C. qualifying qualifying them as “Key Managers”) are Executives or Senior Managers for the purposes of this Policy and according to the position held.

Target-based Annual Total Direct Compensation: the sum of the following components, regardless of whether they are paid by Pirelli & C. or by other Group companies: (i) the gross annual fixed component of remuneration; (ii) the annual variable component that the beneficiary would receive if he or she achieves the targets; (iii) the medium-long term annualisation of the variable component (i.e. the LTI) that the beneficiary would receive on achievement of the annual and medium-long term targets.

Remuneration Committee: the Remuneration Committee of Pirelli & C.

Board of Directors: the Board of Directors of Pirelli & C.

General Managers: the persons appointed by the Board of Directors of Pirelli & C. and having broad authority for management of business units. The General Managers at other Pirelli companies (unless otherwise resolved by the Board of Directors of Pirelli & C. qualifying them as “Key Managers”) are Executives or Senior Managers for the purposes of this Policy and according to the position held.

Key Managers: the managers identified by the Board of Directors of Pirelli & C. who have the authority or responsibility to plan and control the Company’s activities or to take decisions which may affect the development or future prospects of the Company and, more in general, of Pirelli.

Executives: executives of the Pirelli companies in Italy or employees at the foreign companies of the Group having a position or role equivalent to that of an Italian executive.

Pirelli Group or Pirelli: all the companies included in the scope of consolidation of Pirelli & C. S.p.A.. Management: all the Directors holding special offices, the General Managers, the Key Managers, the senior managers and the executives.

MBO: the annual variable component of remuneration that is based on the achievement of pre-set business objectives, as illustrated below in section 5.

LTI Plan: the Long Term Incentive Cash Plan illustrated below in section 5.

GAS: the gross annual fixed component of remuneration of the employees of any Pirelli Group company.

Senior Managers: the managers to whom report (i) the Directors holding special offices and who are assigned specific functions and (ii) the General Managers whose activities have a significant impact on business results.

Company: Pirelli & C. S.p.A.