Compensation and international mobility

Pirelli compensation policies have a dual aim: on the one hand, they seek to attract, retain and motivate the best human resources; on the other hand, they seek to promote conduct that is as consistent as possible with corporate culture and values. They are consequently defined and articulated in such a way as to reward the quality of professional contribution and individual performance in view of sustainable remuneration.

The individual countries apply the Group compensation system with great leeway, except for policies and processes applicable to executives, which are managed centrally. The Job Evaluation methods were further refined in 2011. They make it possible to define a clear framework for the weight and materiality of executive positions in view of analysing internal equity and the competitiveness of the offered remuneration packages, as well as implementing a logic of “clustering” this segment of the population to which certain compensation systems can be easily tied, e.g. incentives.

The remuneration policy adopted for executives presumes that an increasingly important component of the remuneration package be variable, i.e. increasingly related to Group and/or individual performance, consistent with market best practice.

All Pirelli executives are entitled to an Annual Bonus (MBO) tied to achievement of the annual Group, Business Unit and/or corporate function targets. Most are also entitled to a three-year long-term incentive (LTI) plan, based on achievement of the targets defined in the Industrial Plan.

The long-term incentive plan aims at creating sustainable value over the medium-long term and develops a strong link between remuneration and Group performance, favouring the retention of human resources in view of aligning shareholder and management interests. The plan also envisages that the bonus paid out at the end of the three-year period (pure LTI) be complemented by coinvestment of a portion (50%) of the annual MBO bonus. The three-year bonus, including the “deferred” portion of the annual incentive with the additional amount granted by the Company on the basis of a certain predefined multiplier is paid out only when the three-year targets are met.

If the three-year targets are not met, the annual “invested” amount of the bonus is returned, less 50%.

The long-term incentive plan is entirely self-funded by the results of the business during the three-year reference period.

In 2012 most compensation programmes will target the non-executive staff, whose mapping will be updated in all countries with the support of corporate headquarters in order to assure consistency throughout the Group. This activity is connected with definition at corporate headquarters of the principal guidelines used for salary reviews.

The issue of international mobility, which has always been dear to Pirelli in view of cultural and values integration, has interested 90 new expatriate workers in 2011, 55% more than in 2010.

More than a third of these 90 new expatriates have been assigned to new industrial initiatives in Mexico and Russia. So, international mobility is confirmed as a key tool in support of the Group geographical expansion strategy, which is organised to disseminate Pirelli corporate culture worldwide and transfer precious technical know-how to the new start-ups. At December 31, 2011, the aggregate expatriate population was 220 persons, with 74% consisting of non-executive employees, 15% of them were women, representing 16 different nationalities and transferred to 29 different countries on all five continents.

In 2012 the caring policy applicable to internationally transferred employees will be enhanced by tax advice provided by a major specialized tax consultancy, in addition to that already offered by corporate headquarters functions.

Also in 2012, the metrics/KPIs used to measure the ROI of corporate investment in international mobility will be perfected to obtain management solutions improving the effectiveness of this precious tool for resource development.