2012 Compensation Policy

Governance of the Compensation process

Bodies and persons involved

The Compensation Policy with regard to members of the Saipem Board of Directors is defined in accordance with the applicable statutory and legal requirements, by which:

  • the Shareholders’ Meeting establishes the compensation of the members of the Board of Directors when they are appointed, for the whole of their term of office;
  • the Board of Directors establishes the compensation for Directors assigned special functions Chairman and Chief Executive Officers and for service on Board Committees, having consulted the Statutory Auditors.

In accordance with the Saipem governance model5, the Board of Directors are also responsible for:

  • the definition of performance targets and the approval of results for performance plans used to establish the variable compensation of executive Directors;
  • the approval of the general criteria for the compensation of Senior Managers with strategic responsibilities;
  • the definition of the remuneration of the Internal Audit Manager in accordance with the company’s Compensation policy and having consulted the Audit and Risk Committee and the Board of Statutory Auditors.

In accordance with the recommendations set out in the Corporate Governance Code, the Board of Directors is assisted in connection with compensation matters by a Committee with a consultative and advisory function composed of non-executive, independent Directors (the Compensation and Nomination Committee).

Saipem Compensation and Nomination Committee

Composition, appointment and powers

The Compensation Committee, which as of February 13, 2012 was renamed the ‘Compensation and Nomination Committee’, was established by the Board of Directors on May 9, 2011 and is composed, in accordance with the applicable regulations6 and the recommendations set out in the new version of the Corporate Governance Code, of three non-executive, independent Directors. At least one member of the Committee has adequate knowledge and experience on financial matters or compensation policies, as assessed by the Board at the time of appointment. In 2011, up until the re-election of the Company Bodies during the Shareholders’ Meeting of May 4, 2011, the Committee was composed of the following non-executive Directors: Salvatore Sardo, with the function of Chairman, Anna Maria Artoni and Pierantonio Nebuloni.
As a result of the resolutions carried by the Board of Directors on May 9, 2011, the new Committee is composed of the following Directors, who are non-executive independent pursuant to the applicable legal requirements and the Corporate Governance Code, which Saipem has adopted: Gabriele Galateri di Genola, with the function of Chairman, Nicola Greco and Maurizio Montagnese. The Executive Vice President of Human Resources, Organization and Systems, or, in his/her place, the Senior Vice President of Development, Organization, Communication and Compensation, acts as Secretary of the Committee.
Committee membership and appointments, its tasks and its operating procedures are regulated by a specific set of rules and regulations7, which were approved by the Board of Directors on June 16, 2011 and subsequently amended:

  • on December 13, 2011, following the implementation of the recommendations set out in the amended version of the Corporate Governance Code of March 2010 issued in December 2011;
  • on March 13, 2012, following the implementation of the recommendations set out in Article 5 of the Corporate Governance Code regarding the setting up of a Nomination Committee, through the allocation of the relevant powers to the Compensation Committee which, as a result, became the ‘Compensation and Nomination Committee’.

The Committee acts in a proposal and advisory role to the Board of Directors. Specifically, it is responsible for:

  • submitting the Compensation Report and in particular the policy regarding the compensation paid to the Directors and the other Senior Managers with strategic responsibilities to the Board of Directors for its approval prior to the report’s presentation to the Shareholders’ Meeting convened to approve the annual financial statements in accordance with the applicable legislation;
  • making proposals regarding the forms and amounts of compensation awarded to the Chairman and Executive Directors; - making proposals regarding the compensation of the Non-Executive Directors appointed to the Committees formed by the Board;
  • proposing general criteria for the compensation of Senior Managers with strategic responsibilities, for annual and long-term incentive plans, including share-based incentive plans, and for the definition of performance targets and approval of company results used as part of performance plans to establish the variable compensation of Directors assigned special functions and implement incentive schemes, taking into account the indications provided in this regard by the Deputy Chairman and CEO;
  • periodically checking the adequacy, the overall consistency and the implementation of the Policy adopted and formulating proposals in this regard;
  • monitoring the implementation of decisions taken by the Board;
  • reporting to the Board of Directors every six months on the work it has carried out.

As part of its functions, the Committee may also be asked to provide opinions regarding transactions with related parties in accordance with the relevant company procedure.
To ensure it is able to effectively fulfil its duties, the Committee is assisted by the competent Company departments and may also, through the same departments, request the assistance of external consultants in order to obtain an independent judgement.
The Chairman of the Board of Statutory Auditors, or a statutory auditor designated by the Chairman, may attend Committee meetings. Furthermore, other statutory auditors may also participate when the Board is dealing with matters for which the Board of Directors is obliged in its resolution to take account of the opinion of the Board of Statutory Auditors.
The Committee also performs the duties set out in Article 5 of the Corporate Governance Code, in accordance with the procedures described in it’s the Committee Rules and Regulations.

Activities of the Compensation and Nomination Committee

The Compensation and Nomination Committee carries out its activities according to an annual programme which consists of the following phases:

  • periodically checking the adequacy, the overall consistency and the implementation of the Policy adopted in the previous year in relation to the results achieved and the compensation/benchmarks supplied by specialized providers;
  • definition of Policy proposals for the following year and of proposals regarding the performance targets connected with short and long-term incentive plans;
  • proposals regarding the implementation of the short and long-term variable incentive plans in force, based on an analysis of the results achieved and the performance targets set under the plans;
  • preparation of the Compensation Report to be submitted to the Shareholders’ Meeting subject to the approval of the Board of Directors.

The Committee' activity cycle

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(5) For additional information on the Saipem governance structure, see the ‘Corporate Governance Report and Shareholding Structure’ published in the ‘Corporate Governance’ section of Saipem’s website.
(6) With reference to Article 37 of Consob Regulation on Markets adopted with Resolution No. 16191 of on October 29, 2007 and subsequent amendments.
(7) The Rules and Regulations of the Compensation and Nomination Committee ‘Corporate Governance’ and ‘Documentation’ sections of Saipem’s website.

Principal issues addressed in 2011

March
1.  Review of 2010 performance results and definition of 2011 performance targets in relation to variable incentive plans
  2.  Implementation of the variable incentive plans for Directors assigned special functions
June
1.  Induction regarding managerial compensation system
  2.  Proposals regarding the compensation of the Chairman
  3.  Proposals regarding the compensation of the Executive Directors
  4.  Proposals regarding the compensation of the Non-Executive Directors appointed to the Board Committees and of the external members of the Compliance Committee
  5.  Approval of Compensation Committee Rules and Regulations
  6.  Review of 2010 long-term incentive plan for critical managerial resources
July
1.  Implementation of the Deferred Monetary Incentive plan for Executive Directors and other Managerial resources and approval of Plan Rules
  2.  Compensation Committee Report for first half year of 2011
October
1.  Implementation of the Long-term Monetary Incentive plan for Executive Directors and critical Managerial resources
December
1.  Report regarding Consob consultation document (pursuant to Article 123-ter of the Consolidated Finance Act)
  2.  Implementation of the recommendations set out in the Corporate Governance Code and related update of Committee Rules and Regulations

Regulations in relation to Committee composition and duties.

The Committee plans to hold at least 4 meetings in 2012. At the date of approval of this report, the first two meetings had already been held. These focused on an assessment of the compensation policies implemented in 2011 with a view to defining a 2012 compensation policy proposal and an analysis of this Report with a view to its subsequent approval by the Board of Directors.
The agenda of the forthcoming meetings will include the implementation of the Long-term Incentive Plans, the approval of the Incentive Plan rules and the implementation of compensation policies for 2012.
The Committee reports through its Chairman to the Shareholders’ Meeting convened to approve the annual financial statements on the performance of its duties, in accordance with its own rules and regulations, the recommendations of the Corporate Governance Code and with the aim of establishing a channel for dialogue with its shareholders and investors.

2012 Compensation Policy approval process

In accordance with its remit, the Committee defined the structure and content of the Compensation Policy for the purpose of preparing this Report in its meetings of February 13, 2012 and March 6, 2012 in accordance with the recent recommendations contained in the Corporate Governance Code, including the conservation of rights acquired from contracts or regulations adopted before March 31, 2010.

In reaching its conclusions, the Committee took account of the following resolutions relating to the newly-elected Company Bodies.

  • Shareholders’ Meeting resolution of May 4, 2011 regarding the compensation of the Directors;
  • resolutions of the Board of Directors of June 16, 2011 regarding the compensation of the Chairman and Directors assigned special functions, compensation for serving on Board Committees and general criteria for the compensation of Senior Managers with strategic responsibilities. The above activities were carried out following an assessment of the legislative and regulatory framework in relation to compensation.

The Saipem 2012 compensation policy for Directors assigned special functions and other Senior Managers with strategic responsibilities was approved by the Board of Directors on March 13, 20128 at the proposal of the Compensation and Nomination Committee, together with this Report.
Implementation of the compensation policies defined in accordance with the guidelines provided by the Board of Directors is done by the competent company bodies, with the support of the relevant company functions.

(8) On December 13, 2011, when implementing the recommendations regarding compensation included in the amended Corporate Governance Code, the Board of Directors resolved to defer the approval of the Saipem 2012 compensation policy to March 2012 and the approval of this Report. The reason for the decision to defer was that the first section of the report concerns the compensation policy adopted and, at the date of the Board meeting, the Consob provisions detailing the required contents of the Report in implementation of Article 123-ter of the Consolidated Finance Act had not been definitively issued.

Aims and general principles of the Compensation Policy

Aims

The Saipem Compensation Policy is defined in accordance with the governance model adopted by the Company and the recommendations included in the Corporate Governance Code, with the aim of attracting and retaining highly skilled professional and managerial resources and aligning the interests of management with the priority objective of value creation for the shareholders in the medium-long term.
A significant element of the compensation policy adopted is the variable performance-based component of remuneration, which is linked through a system of incentives to the attainment of a series of financial/profit, business development and operating targets set with a view to achieving sustainable growth in line with the company’s Strategic Plan.
The Saipem Compensation Policy contributes to the achievement of the company mission, values and strategies by: i) promoting actions and conduct consistent with the company culture and with the principles of diversity, equal opportunities, the maximization and leveraging of knowledge and skills of personnel, fairness, and non-discrimination outlined in the ‘Our people’ policy approved by the Board on December 13, 2010; ii) recognizing and rewarding responsibilities assigned, the results achieved and the quality of the professional contribution made, taking into account the specific context and compensation benchmarks.

General principles

In line with the above aims, the compensation paid to the Directors and the other Senior Managers with strategic responsibilities is defined in accordance with the following principles and criteria:

  • application of a compensation structure designed to attract, retain and motivate highly skilled professionals;
  • compensation paid to non-executive Directors to be commensurate with their scope of duties as a member of Board Committees, differentiation of the Committee Chairman’s compensation with respect to that of Committee members in recognition of their duties of coordinating works and liaising with company bodies and functions; executive Directors are not awarded share-based incentive plans;
  • compensation structure for Directors assigned special functions and other Senior Managers with strategic responsibilities should be a balanced mix of a fixed component commensurate with powers and/or responsibilities assigned and a variable component with a maximum limit designed to link compensation to performance;
  • overall consistency of compensation compared with applicable market benchmarks for similar positions or roles of a similar level of responsibility and complexity within a panel of companies comparable with Saipem, using specific benchmarks created with the support of international compensation data providers;
  • variable compensation for executive roles consisting of a short-term component and a medium-long term component and with adequate deferral of incentives through the implementation of a vesting period of at least three years;
  • for executive roles strongly influencing the company’s results, the variable long-term component of compensation should carry significant weight, with a view to achieving sustainable growth and value creation for the shareholders in the medium/long-term;
  • targets linked to the variable component of compensation that are predetermined, measurable and specific and which can be used to reward performance in the short and medium-long term through:
    1. i. definition of short-term incentive plan objectives based on a balanced score card which measures company and individual performance in relation to the specific targets of the area of responsibility and, for the Internal Audit Manager, assigned duties;
    2. ii. definition of long-term incentive plan targets designed to enable an assessment of company performance both in absolute terms, i.e. in terms of the company’s capacity to generate growing and sustainable profits, and in relative terms with respect to a peer group, i.e. in terms of its capacity to generate levels of performance that are superior to those of its main international competitors.
  • evaluation of assigned performance targets excluding exogenous variables9 in order to measure the individual contribution made towards their achievement;
  • benefits (with a preference given to pension and insurance benefits) in line with market compensation benchmarks and compliant with local regulations to supplement and enhance the compensation package, reflecting roles and responsibilities assigned;
  • additional severance pay for termination of employment and/or expiry of term of office and non-competition agreements for executive positions which are fixed term appointments or which are subject to a high risk of competition, in line with level of compensation received and performance achieved.

(9) Exogenous variables are those phenomena which due either to their nature or to a specific choice made by the company are not under the control of the company's managers, e.g. the euro/dollar exchange rate.

2012 Compensation Policy Guidelines

The 2012 Policy Guidelines for the Compensation of the Directors reflect the resolutions taken by the Board of Directors on June 2011 following the re-election of the Company Bodies in accordance with a principle of continuity with the compensation structure applied in relation to the previous mandate. For non-executive independent Board members, the Board of Directors determined on June 16, 2011 that additional compensation would only be paid for service on Board Committees.
The 2012 Policy Guidelines for the compensation of other Senior Managers with strategic responsibilities applies the same compensation structure used in 2011 with, in particular, short and long-term incentive plans closely aligned with those awarded to top management in order to encourage their alignment with the targets defined in the annual performance plans and in the Company’s Strategic Plan.
The 2012 Compensation Policy guidelines were defined in accordance with the aims and general principles set out previously and were found by the Compensation and Nomination Committee to be in line with relevant market compensation benchmarks, taking into account the findings of the Committee’s assessment of the 2011 compensation policy.

Chairman of the Board of Directors

Remuneration for office

As a result of the resolution carried by the Board of Directors on June 16, 2011, the Chairman receives an annual remuneration for his services of €200,000, including remuneration of €40,000 for his duties as Director as approved by the Shareholders’ Meeting.
Due to the nature of the office and the absence of executive functions, the Chairman’s compensation does not include a variable component.

Payment in the event of expiry of office or termination

No specific payments are provided for in the event of expiry of term of office or early termination.

Benefits

The Chairman receives no benefits.

Non-executive Directors

Compensation for attendance of Shareholders’ Meeting

The Shareholders’ Meeting of May 4, 2011 set gross annual compensation for the current term of office for non-executive Directors at €40,000, which was unchanged from the previous term.

Additional compensation for serving on Board Committees

The Board of Directors of June 16, 2011 set additional annual compensation for non-executive Directors serving on Board Committees as follows:

  • €15,000 for the Chairman of the Audit and Risk Committee and €12,500 for other Audit and Risk Committee members, reflecting the increasingly important role played by the committee in the monitoring of the company’s risks;
  • €12,500 for the Chairman of the Compensation and Nomination Committee and €10,000 for other Compensation and Nomination Committee members.

Payment in the event of expiry of office or termination

No specific payments are provided for in the event of expiry of the term of office or early termination of non-executive Directors.

Deputy Chairman and Chief Executive Officer

The Compensation structure of the Deputy Chairman and Chief Executive Officer for the current term was approved by the Board of Directors on June 16, 2011. It reflects the powers and duties assigned and includes both basic compensation for the office of Director as approved by the Shareholders’ Meeting as well as compensation due for attendance of meetings of Boards of Directors of subsidiaries and associate companies.

Fixed compensation

The fixed compensation of the Deputy Chairman and Chief Executive Officer has been set at a total annual gross amount of €901,808. This amount was set taking into account average levels of compensation at other major Italian companies for roles of a similar level of responsibility and complexity and may be adjusted at the proposal of the Compensation and Nomination Committee on the basis of market position reviews.
Furthermore, as a Saipem Senior Manager, the Deputy Chairman and Chief Executive Officer receives indemnities for business trips in Italy and overseas that are in line with the relevant national collective labour agreement for Senior Managers and supplementary agreements reached at company level.

Short-term variable incentives

Variable annual compensation is determined in relation to a target level performance (performance = 100) and a maximum level performance (performance = 130), which correspond to 60% and 78% of total fixed compensation, respectively. Performance levels achieved are measured on the basis of the profit/financial and operating performance achieved by Saipem in the year prior to the year of payment as well as on sustainability indicators related to safety. The Compensation and Nomination Committee may also submit proposals to the Board of Directors concerning the payment to the Deputy Chairman and Chief Executive Officer of other forms of extraordinary compensation connected with the achievement of results or projects having a special strategic importance.

Long-term variable incentives

The long-term variable component consists of two separate incentive plans:

  • the deferred monetary incentive scheme, which is applied to all managerial resources on an annual basis, consisting of an annual award starting from 2012 based on company performance measured in terms of EBITDAi10, a parameter widely employed in the Oil & Gas Services sector as a general indicator of results that is consistent with Saipem’s strategy of growth and consolidation of its current position in its business areas.
    The base incentive is determined on the basis of results achieved by the Group in the year prior to the year of award, with a target level performance giving a base incentive of 40% of fixed compensation and a maximum level performance giving a base incentive of 52% of fixed compensation.
    The incentive paid out at the end of the three-year vesting period is determined in relation to the results achieved by Saipem in each of the three years following the year of award as a percentage ranging from 0 to 170% of the base incentive.
    The 2011 EBITDA results for the 2012 award and the 2012 EBITDA targets were determined by the Board of Directors on March 13, 2012 at the proposal of the Compensation and Nomination Committee, in line with the Strategic Plan.
  • The Long-term Monetary Incentive scheme provides for the award of a target level incentive of up to a maximum of 50% of fixed compensation. The incentive is paid out after a vesting period of three years as a percentage ranging from 0 to 130% of the base incentive in relation to the performance parameter Adjusted Net Profit + Depreciation & Amortization (selected as an indicator of the company’s cash generating capacity and its ability to generate a return for its shareholders), measured over a three-year period, as benchmarked against the performance achieved by a panel of six of Saipem’s largest competitors in terms of market capitalization in the Oil & Gas Services sector.
    The peer group used for this purpose consists of Technip, McDermott, JGC, Subsea7, Chiyoda, Transocean.

Both plans include clauses designed to encourage retention whereby, in the event of termination of the employment contract by mutual consent or loss of control by Saipem of the company where the beneficiary of the plan is employed during the vesting periods, the beneficiary conserves the right to the incentive, which is reduced on a pro rata basis in relation to the time elapsed between award of the base incentive and the occurrence of the event. In the event of unilateral termination of employment, no payment is made.

Indemnities for termination of office or termination of employment

The Deputy Chairman and Chief Executive Officer receives no indemnities in the event of termination of office. However, in the event of termination of employment, the Deputy Chairman and Chief Executive Officer receives the termination indemnities provided for in the national collective labour agreement applicable to Senior Managers. Supplementary indemnities may be agreed on an individual basis upon termination in cases where the company deems it necessary to enter into non-competition agreements.

Benefits

In continuity with the compensation policies implemented in 2011 and in accordance with the relevant collective labour agreement established at national level and supplementary agreements reached at company level for Saipem Senior Managers, the Deputy Chairman and Chief Executive Officer is granted membership of the supplementary pension fund FOPDIRE11 and the Supplementary Healthcare Fund FISDE12, death and disability insurance coverage and a company car for business and personal use.

Deputy CEO

Fixed compensation

In relation to the duties assigned him by the Board of Directors of June 16, 2011, the Deputy CEO receives total annual compensation of €447,500. This amount includes both basic compensation for the office of Director of €40,000 and an expatriation allowance of €97,500. The Deputy CEO also receives an annual compensation equivalent to approximately €190,000 as Chairman of Saipem Ltd.
The fixed compensation of the Deputy CEO was set taking into account average levels of compensation at other major Italian companies for roles of a similar level of responsibility and complexity and may be adjusted at the proposal of the Compensation and Nomination Committee on the basis of market position reviews.

Short-term variable incentives

Variable annual compensation is determined based on a target level performance (performance = 100) and a maximum level performance (performance = 130), which correspond to 40% and 52% of total fixed compensation13, respectively. Results are assessed are on the basis of Saipem and individual performance achieved in the year prior to the year of payment in relation to profit/financial and operating performance, and sustainability indicators related to safety.
The Compensation and Nomination Committee may also submit proposals to the Board of Directors concerning the payment to the Deputy Chairman and Chief Executive Officer of other forms of extraordinary compensation connected with the achievement of results or projects having a special strategic importance.

Long-term variable incentives

In line with the incentive plans granted to the Deputy Chairman and Chief Executive Officer, the Deputy CEO participates in longterm variable incentive plans with the following characteristics:

  • the deferred monetary incentive scheme (IMD), which is applied to all managerial resources on an annual basis, consisting of an annual awarded starting from 2012 based on company performance measured in terms of EBITDA, a parameter widely employed in the Oil & Gas Services sector as a general indicator of results that is consistent with Saipem’s strategy of growth and consolidation of its current position in its business areas.
    The base incentive is determined based on the results achieved by the Group in the year prior to the year of award, with a target level performance giving a base incentive of 25% of fixed compensation and a maximum level performance giving a base incentive of 32.5% of fixed compensation. The incentive paid out at the end of the three year-vesting period is determined in relation to results achieved by Saipem in each of the three years following the year of award as a percentage ranging from 0 to 170% of the basic incentive. The 2011 EBITDA results for the 2012 award and the 2012 EBITDA targets were determined by the Board of Directors on March 13, 2012 at the proposal of the Compensation and Nomination Committee, in line with the Strategic Plan.
  • The Long-term Monetary Incentive scheme provides for the award of a target level incentive of up to a maximum of 35% of fixed compensation. The incentive is paid out after a vesting period of three years as a percentage ranging from 0 to 130% of the base incentive in relation to the performance parameter Adjusted Net Profit + Depreciation & Amortization (D&A) (selected as an indicator of a company’s cash generating capacity and its ability to generate a return for its shareholders) measured over a three-year period, as benchmarked against the performance achieved by the same peer group used for the Deputy Chairman and Chief Executive Officer.

Both plans include clauses designed to encourage retention whereby, in the event of termination of the employment contract by mutual consent or loss of control by Saipem of the company where the beneficiary of the plan is employed during the vesting periods, the beneficiary conserves the right to the incentive, which is reduced on a pro rata basis in relation to the time elapsed between award of the base incentive and the occurrence of the event. In the event of unilateral termination of employment, no payment is made.

Indemnities for termination of office or termination of employment

No specific indemnities are provided to the Deputy Chairman and Chief Executive Officer in the event of expiry or early termination of his term of office. Supplementary indemnities may be agreed on an individual basis upon termination in cases where the company deems it necessary to enter into non-competition agreements.

Benefits

In continuity with the compensation policies implemented in 2011, the Deputy CEO is granted membership of a supplementary pension fund (1824 Clerical Medical Pension Fund), insurance policies providing supplementary healthcare cover (BUPA - British Union Provident Association and CIGNA - International Employee Healthcare Plan) and death and disability insurance coverage (Generali).

Senior Managers with strategic responsibilities

Fixed compensation

Fixed compensation of Senior Managers with strategic responsibilities is set based on roles and responsibilities assigned, taking into account average levels of compensation at other major Italian companies for roles of a similar level of managerial responsibility and complexity and may be adjusted during the annual salary review process which is carried out for all Senior Managers. The 2012 Guidelines taking into account the relevant context and current market trends will employ selective criteria designed to ensure adequate levels of competitiveness and motivation. The proposed actions will involve: (i) salary adjustments for positions whose responsibilities have increased or whose compensation is significantly below the relevant market median; (ii) extraordinary bonus payments connected with the achievement during the year of results or projects having a special strategic importance.
Furthermore, as Saipem Senior Managers, Senior Managers with strategic responsibilities receive indemnities for business trips in Italy and overseas that are in line with the relevant national collective labour agreement for Senior Managers and supplementary agreements reached at company level.

Short-term variable incentives

The annual variable incentive plan provides a payout linked to Saipem and individual performance. The target level performance (performance = 100) and maximum level performance (performance = 130) give payouts that vary in accordance with the role of the beneficiary, up to a maximum of 35% and 52% of fixed compensation, respectively. The objectives of each Senior Manager with strategic responsibilities are assigned on the basis of the objectives assigned to Top Management and in relation to the manager’s specific responsibilities, in accordance with the Company performance plan.

Long-term variable incentives

In line with the incentive plans granted to the Deputy Chairman and Chief Executive Officer and the Deputy CEO, the Senior Managers with strategic responsibilities participate in long-term variable incentive plans with the following characteristics:

  • - the deferred monetary incentive scheme (IMD), which is applied to all managerial resources, consisting of three annual awards starting from 2012, based on company performance measured in terms of EBITDA, a parameter widely employed in the Oil & Gas Services sector as a general indicator of results that is consistent with Saipem’s strategy of growth and consolidation of its current position in areas business.
    The base incentive is determined based on the results achieved by the Group in the year prior to the year of award, with a target performance level giving a base incentive of 25% of fixed compensation and a maximum performance level giving 32.5% of fixed compensation. The incentive paid out at the end of the three year vesting period is determined in relation to results achieved by Saipem in each of the three years following the year of award as a percentage ranging from 0 to 170% of the base incentive. The 2011 EBITDA results for the 2012 award and the 2012 EBITDA targets were determined by the Board of Directors on March 13, 2012 at the proposal of the Compensation and Nomination Committee, in line with the Strategic Plan.
  • The Long-term Monetary Incentive scheme provides for the award of a target level incentive of up to a maximum of 35% of fixed compensation. The incentive is paid out after a vesting period of three years as a percentage ranging from 0 to 130% of the base incentive in relation to the performance parameter Adjusted Net Profit + Depreciation & Amortization (selected as an indicator of the company’s cash generating capacity and its ability to generate a return for its shareholders), measured over a three-year period as benchmarked against the performance achieved by the same peer group used for the Deputy Chairman and Chief Executive Officer.

Both plans include clauses designed to encourage retention whereby, in the event of termination of the employment contract by mutual consent or loss of control by Saipem of the company where the beneficiary of the plan is employed during the vesting periods, the beneficiary conserves the right to the incentive, which is reduced on a pro rata basis in relation to the time elapsed between award of the base incentive and the occurrence of the event. In the event of unilateral termination of employment, no payment is made.

Indemnities for termination of office or termination of employment

Other Senior Managers with strategic responsibilities receive the termination indemnity established in the applicable national collective labour agreement as well as any supplementary indemnities that may be agreed on an individual basis upon termination in accordance with the criteria set by Saipem for voluntary redundancy, early retirement and/or cases where the company deems it necessary to enter into non-competition agreements.

Benefits

In continuity with the compensation policies implemented in 2011 and in accordance with the relevant collective labour agreement established at national level and supplementary agreements reached at company level for Saipem Senior Managers, Senior Managers with strategic responsibilities are granted membership of the supplementary pension fund FOPDIRE and the Supplementary Healthcare Fund FISDE, death and disability insurance coverage and a company car for business and personal use.

Market benchmarks and pay-mix

The market benchmarks employed are as follows:

  • Chairman and Non-executive Directors: average benchmarks for similar roles in the largest Italian listed companies by market capitalization;
  • Chief Executive Officers and Senior Managers with strategic responsibilities: average benchmarks for roles with a similar level of managerial responsibility and complexity in major Italian industrial companies.

The 2012 Compensation Policy guidelines set pay-mixes consonant with managerial roles, with a greater weight given to the variable component (in particular the long-term component) for positions that have a greater influence on company results, as shown in the pay-mix chart below, which was calculated considering a target performance level payout for short and long-term incentives.

PAY MIX

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(10) Earnings before interest, tax, depreciation and amortization.
(11) Closed pension fund operating on a defined contribution, individual account basis, www.fopdire.it.
(12) Healthcare fund providing reimbursement of medical expenses for working and retired senior managers and their family members, www.fisde-eni.it.
(13) The fixed compensation used to calculate the incentive is composed of the total annual compensation (€447,500) and compensation for the office of Chairman of Saipem Ltd (€190,000), less the expatriation allowance (€97,500).