The Italian government has recently introduced several measures aimed at attracting international executives to Italy. These new measures include, in particular, a 50 per cent tax break on employment income for executives moving to Italy and a new rule clarifying (favourably for taxpayers) the tax regime applicable to carried interest.

These new measures, together with other recent actions aimed, in general, at promoting business opportunities and attracting foreign investments in Italy,2 and the Italian extremely favourable estate tax regime (whereas transfers to a spouse or direct descendants or ancestors are currently subject to estate tax at a 4 per cent rate, on the value in excess of €1 million), have definitely increased the appeal of Italy as an attractive place to work (and live, taking into account the obvious considerations of the country's quality of life).

At the same time, not unlike other European countries, executives in the financial services sector remain subject to strict regulations. Following the most recent financial crisis, and the various European and international regulations issued to address executives' compensation, the Italian parliament and the competent supervisory authorities have since implemented a set of regulations intended to reduce incentives for risk-taking activities and to effectively promote compensation arrangements that can contribute to creating value for corporations and their shareholders in the long term.

As an example of these regulations, the implementation in Italy of CRD IV has resulted in the approval of a fixed cap for variable components of remuneration. Banks, investment firms and, more generally, large and medium-sized companies, have since been hard-pressed to reform their remuneration policies to adjust to these rules and principles.

In this respect, Italian companies, including public companies, tend to provide their executives with one (or a combination) of the following awards:

a cash bonuses (cash-settled awards), which include all incentives and bonuses regulated in cash, as well as incentives providing payments on the basis of the issuer's stock value; and

b company shares or other financial instruments (equity-settled awards), granted either directly (such as stock or restricted stock grants) or indirectly (through options, restricted stock units or any other right to purchase such financial instruments).

A recent trend, mostly in the private equity sector, is to offer top executives the option to purchase financial instruments at market value (the 'direct investment option').3 The recently enacted rule on carried interest, mentioned above, is clearly expected to further increase this trend.


i Income tax for employees

Italian-resident executives

Any type of compensation, including fringe benefits, cash-settled awards and equity-settled awards, earned by Italian tax-resident workers is generally characterised as employment income4 subject to Italian personal income tax (IRPEF)5 and to social security charges (see Section II.ii), at ordinary rates, as follows:

a awards granted to Italian tax-resident employees pursuant to cash-settled awards are generally subject to IRPEF upon payment, on the entire amount received; and

b awards granted to Italian tax-resident employees pursuant to equity-settled awards are generally subject to IRPEF at ordinary rates on the amount equal to the difference between the award's fair market value6 and the purchase price, if any;7 equity-settled awards are generally subject to tax upon the actual delivery of the relevant financial instruments.8

With respect to the direct investment option, as anticipated, Article 60 of Law Decree No. 50 of 24 April 2017 has recently addressed the tax regime applicable to carried interest-type of incentives awarded to executives. The new rule provides that income derived by executives and directors of companies and investment funds from carried interest or sweet equity-like financial instruments will be taxed as financial income (i.e., dividends or capital gains, as the case may be) and not as employment income, resulting in the reduction of the applicable tax rate from roughly 46 per cent to generally 26 per cent, which is the rate generally applicable to investments in securities generating passive income.

For this tax treatment to apply, the beneficiaries (1) must be executives or directors (consultants appear to be excluded) of companies and investment funds (or entities directly or indirectly controlled by these companies and funds) that are resident for tax purposes either in Italy or in white-listed countries, (2) must invest, in the aggregate, at least 1 per cent of the investment made by the investment fund or of the company's net equity value, (3) must invest in financial instruments providing a pay-out more than proportional to the investment and subject to the relevant investors or stakeholders realising a minimum return on their investment (equal to their invested capital plus the hurdle rate agreed upon in the relevant by-laws or regulations), and (4) must hold the financial instruments for at least five years (unless an exit occurs).

The new provision does not clarify the tax treatment of investments made by executives that do not meet the above conditions. However, executives opting for the direct investment option may still be entitled to benefit from the more favourable tax regime provided for investments in securities generating passive income if, based on the actual terms and conditions of their investments, the investment can be assimilated to that of any other third-party investor.9

Mobile executives

Non-resident executives are not subject to tax in Italy, unless they perform their services hereto. Non-resident executives who perform their services in Italy are subject to tax in Italy on the portion of their compensation remunerating their Italian services.

In particular, in the case of services performed in Italy by an executive during an award's vesting period, Italy would seek to tax the portion of the award's value that is deemed to remunerate the work activity performed in Italy. The applicable tax treaty regime (if any) may override the domestic rules and entail an exemption from Italian taxation.10

Because employment income is generally taxed on a cash basis, an executive who is delivered stock, or receives a cash bonus, while resident in Italy for tax purposes, pursuant to an equity-settled award or a cash-settled award that was granted or vested abroad (or both), would still be subject to tax in Italy on the award's entire fair market value or cash amount (as the case may be). In these events, executives would generally be eligible in Italy for a foreign tax credit for any taxes levied abroad.

ii Social security charges for employees

As a general rule, the chargeable income for social security charges in Italy is equal to the corresponding base for income tax purposes. Hence, any compensation that is subject to tax as employment income would generally also be subject to social security charges.

Italian social security charges vary depending on the industry in which the employer operates and the employee qualification for labour law purposes.11 Executives generally benefit from a social security exemption on any annual compensation exceeding a set threshold, which, for 2018, amounts to €101,427.12

In addition, a special social security exemption applies, subject to certain conditions being met, with respect to employment income deriving from certain equity-settled awards extended to selected executives.13 Based on black letter law and in the absence of any official clarification on this point by the competent authorities, this exemption should apply only to employees and not to quasi-employees such as certain directors.

iii Tax deductibility for employers

Generally, any payment made by an Italian employer pursuant to a cash-settled award is fully deductible from the employer's overall taxable business income as an employment expense.

The tax allowance for costs relating to the implementation of equity-settled awards may vary, depending on the award attributed.

Except for IAS adopters, awards entailing delivery of newly issued stock should not generate a tax-deductible expense, as they do not trigger an actual expense or disbursement for the issuer.14 On the other hand, a tax allowance would generally be available for the expense incurred in connection with the purchase of treasury stock underlying equity-settled awards,15 provided that the relevant stock is attributed by the issuer to its own employees and not to the employees of its group affiliates.16

As anticipated, a tax allowance for the costs accounted for in relation to equity-settled awards, including awards attributing newly issued shares, should always be available for companies adopting IAS or IFRS accounting standards.

iv Other special rules

Tax incentives for qualified executives17

Qualifying executives transferring their tax residency to Italy are entitled to a 50 per cent exemption from IRPEF with respect to their employment income earned in Italy.

Potential beneficiaries are top executives (employees or self-employed workers) who: (1) have not been resident in Italy in the five tax years preceding the transfer; (2) will be employed by an Italian entity (under an employment contract entered into with this entity or a related party); and (3) will carry out their working activity in Italy for more than 183 days in each tax period.18

The beneficial regime applies for the tax period in which the executive transfers his tax residence to Italy and for the following four tax periods. Beneficiaries are required to maintain the Italian tax residence for at least two years.19

Additional tax in the financial services sector

Certain executives employed in the financial services sector are currently subject to an additional 10 per cent tax levied on the portion of their variable remuneration (including compensation paid out in the form of equity-settled awards or cash-settled awards) exceeding their fixed compensation.20

Exemption for equity-based awards of start-ups

Article 27 of Law Decree No. 179 of 18 October 2012 provides a full exemption from tax and social security charges for income derived from equity-settled awards by executives, directors and consultants (treated as quasi-employees for tax purposes) of certain non-listed start-up companies. This exemption applies provided that the relevant awards are issued by a start-up company qualifying for the special regime provided for under Decree No. 179, or a company directly controlled by the start-up company, and are not purchased back by the start-up, the issuer or any entity or person directly related to it.21

Beneficial regimes for fringe benefits

Certain fringe benefits (including loans, insurance policies, housing facilities, company cars and scholarships) enjoy a beneficial regime whereby part of their value may not be subject to IRPEF or social security contributions.

Reporting obligations

With respect to equity-settled awards, if the relevant financial instruments are held abroad, the beneficiaries must report on their annual tax return the value of such financial instruments (together with any other overall offshore investments, such as financial and real estate assets).22

Stamp duties on financial assets

A proportional stamp duty applies on the periodic reporting communications sent by financial intermediaries to their clients with respect to any financial instruments deposited therewith, including any financial instruments that are received by executives in relation to incentive awards.23 Stamp duty is generally computed on the nominal or purchase cost of the financial instruments at a rate of 0.2 per cent.

A similar duty applies on the nominal or purchase cost of any financial asset held abroad by Italian-resident individuals, at a rate of 0.2 per cent.24

Italian financial transaction tax

Under certain circumstances, the purchase by the executives of financial instruments under equity-settled awards may also be subject to the Italian financial transaction tax,25 which generally applies, inter alia, on the transfer of shares and certain equity-like financial instruments (as well as securities representing such shares and instruments, such as ADRs). The financial transaction tax applies on the transfer of the above-mentioned shares and financial instruments, irrespective of the residence of the parties involved or the place of execution of the relevant transaction, at a rate of 0.2 per cent (reduced to 0.1 per cent for transactions executed on regulated markets and on multilateral trading facilities). Hence, the application of this financial transaction tax may be relevant, in particular, in the context of the direct investment option in a private equity investment scenario.

However, the financial transaction tax does not apply with respect to the allocation to executives of shares or financial instruments in respect of profits or reserves distributions, or to newly issued shares in the context of 'stock option plans'.26


As anticipated, the new tax break for executives transferring to Italy and the new rule on the taxation regime of carried interest provide extremely interesting possibilities for tax-planning opportunities, as they ensure access to a very competitive tax reduction in the personal tax rates generally applicable to employment income.

In particular, given the new rules on carried interest, it is expected that Italian-resident executives and their employers will increase exploring ways to have executives invest in financial instruments, which, while requiring an immediate financial outlay by the executives, might entail the possibility to benefit from the more favourable tax regime provided for investments in securities generating passive income.

In addition, other available planning opportunities relate to the possible structuring of equity-settled awards to ensure access to the above-mentioned social security exemption provided for equity-settled awards or – for start-up companies only – to the tax and social security exemption described above for start-ups.

However, executives and companies in the financial services sector, as well as industrial holding companies, must still give careful consideration to the impact of the 10 per cent additional tax described in Section II.iv.

Moreover, moving employees transferring into or out of Italy, who are beneficiaries of incentive awards accrued abroad or in Italy and to be delivered in a country other than the one where they were accrued, must pay attention to the applicable domestic or treaty regime before their transfer to ensure mitigation of the overall tax due in connection thereto.


i Termination provisions

Executives can be dismissed for cause by their employers without any advance notice. An executive's dismissal may be deemed for cause in cases of particularly serious misconduct (i.e., violations of the employment contract or non-employment related behaviours that result in a material breach of the executive's duties), which irreparably undermine the fiduciary relationship with the employer.

Unless the termination is for cause, executives are entitled to be notified in advance of the termination or to an indemnity in lieu of the advance notice.27 In these cases, the termination has to be justified (i.e., based on objective reasons relating to the employer's economic, organisational and production-related needs or on certain subjective reasons relating to the executive's performance or conduct).28 Executives are entitled to damages29 (but, generally, not to their reinstatement)30 if they are found to be terminated without such 'justification' or without cause.

ii Severance payments

Italian executives are entitled to a statutory severance payment, which is due to all employees upon termination of their employment relationship, regardless of the reason for termination.31

In addition to the statutory severance payment, Italian companies sometimes provide their top executives with additional severance payouts (e.g., golden parachutes), generally in cases of termination without cause (e.g., in cases of a 'good leaver' termination). Such additional severance payouts are subject to the limitations provided for listed companies and banks (see Sections VII.ii and VIII).

iii Non-competition covenants and non-solicitation agreements

Pursuant to Article 2125 of the Civil Code (CC), non-competition covenants must provide, inter alia, a specific remuneration, can only cover specific fields of activities and a well-specified geographical area, and cannot last longer than five years.

Non-solicitation agreements are usually included in top executives' agreements (or the settlement agreements following an executive's termination) and are generally enforceable under Italian rules.

iv Clawback provisions

Clawback provisions would be enforceable if agreed upon at the time of the award's grant or included in the award's terms and conditions. Their enforceability would be uncertain, however, if the clawback provisions were included into existing arrangements.


Several regulatory obligations or requirements may apply with respect to financial instruments awarded to executives under incentive plans.

i Public offers of securities

Article 94 of Legislative Decree No. 58 of 24 February 1998 (Consolidated Financial Act) provides for an obligation to publish a prospectus in compliance with the Prospectus Directive (2003/71/EC), in relation to all offerings to the public of financial products, unless a specific exemption applies. In this respect, the offering of financial products to directors or employees may benefit from several of such exemptions, including the following exemptions for:

a the offering of financial instruments to existing or former directors, employees or financial promoters by their employer,32 provided that the issuing company has its head office or registered office in the European Union, and a document is made available to the public containing information on the number and nature of the securities and the reasons for and details of the offer;33

b financial instruments that are offered to fewer than 150 people in Italy, other than qualified investors;34

c the offering of securities35 to existing or former directors or employees,36 provided that the securities cannot be traded on capital markets;

d offerings extended to qualified investors;37 and

e offerings whose total value amounts to less than €5 million.38

ii Internal dealing transactions

With respect to Italian public companies, certain directors and executives, being 'significant parties' of the issuer, are treated as insiders39 and must disclose any purchase, sale, subscription of and exchanges of shares or other financial instruments of their employer in excess of €20,000.40 However, these market abuse and insider trading rules should not apply to buy-back programmes implemented by a public company to meet obligations arising from stock option plans or stock grants extended to executives or directors of the issuing company, its subsidiaries or affiliated companies.41

iii Reporting obligations

Pursuant to Article 120 of the Consolidated Financial Act, executives working for public companies listed in Italy have to notify their employer or issuer and CONSOB of any transactions that result in their shareholdings in the employer or issuer exceeding or falling below 3 per cent of the capital, or reaching, exceeding or falling below certain subsequent thresholds.42, 43

iv Placement requirements

Financial intermediaries

As a general rule, any public offering of securities must be carried out through financial intermediaries duly authorised to perform placement activities. Hence, the initial offering of equity-settled awards to executives in Italy, the delivery of the underlying shares and any payments made by the grantees in connection thereto, if subject to these placement requirements, should be made through an authorised financial intermediary.

However, these placement requirements do not apply to offers extended to directors, employees and consultants of the issuer, its parent company or its subsidiaries, that are carried out at their premises.44

Financial advisers

In addition, unless the offer of securities pursuant to an equity-settled award is carried out by an authorised financial intermediary at its own premises, duly authorised financial advisers must be used to conduct the offer.45

The requirement to use financial advisers does not apply to offers to professional clients.46


i Ongoing disclosure

As a general principle, Article 2427(1), No. 16 of the CC provides that Italian companies must disclose the aggregate compensation earned in any relevant year by directors and members of the statutory auditors' committee in the notes to the financial statements.

ii Ad hoc disclosure

Both the Issuers' Regulation and the Consolidated Financial Act set out specific disclosure obligations for public companies in relation to compensation plans based on financial instruments that are issued in favour of members of the board of directors, employees or consultants of the issuer, its parent company or its subsidiaries.

In particular, according to Article 114 bis of the Consolidated Financial Act, an information document must be made available upon publication of the call for the general shareholders' meeting approving these compensation plans.47

In addition, pursuant to Article 123 bis(i) of the Consolidated Financial Act, listed companies should also disclose in the report of the directors on the financial statements, or in their annual corporate governance report, any agreements between the company and its directors establishing severance payments in the cases of resignation, dismissal without just cause or termination following a tender offer on the company's shares.48

Finally, following the approval of Legislative Decree No. 259 of 30 December 2010,49 Article 123 ter was included in the Consolidated Financial Act (on which see also Section VII), requiring the board of directors (or the supervisory board) of listed companies to approve and publicly disclose an annual report on the remuneration of directors, auditors and executives with strategic responsibilities (the Remuneration Report).50 The Remuneration Report must comprise two sections, illustrating, respectively, the remuneration policy and the procedures set out to implement that policy; and the remuneration paid to the senior management (including any severance pay), specifying the remuneration paid to each director, auditor or top executive, as well as any compensation paid to a company's executive by its controlled or affiliated companies during the fiscal year, and the expected remuneration to be received in the future by those individuals for services rendered during the relevant fiscal year.51

iii Related-party transactions

Further disclosure requirements aimed at ensuring the transparency and fairness of related-party transactions apply to both private and listed companies. As far as Italian-listed or otherwise widely held companies are concerned, the rules issued by CONSOB on 12 March 2010 (CONSOB Regulation)52 set out both specific periodic disclosure and corporate governance requirements for related-party transactions, which specifically include resolutions regarding compensation of directors and key management personnel, with some exceptions.53

iv Price-sensitive information

Article 114(1) of the Consolidated Financial Act provides that listed companies (and the persons controlling them) must promptly disclose to the public any inside information referred to in Article 181 of Consolidated Financial Act that directly concerns such issuers and their subsidiaries. Information on the remuneration of directors, auditors and managers with strategic responsibilities may fall, under certain circumstances, within this definition.

CONSOB's communication of 19 June 2014 has provided additional specific disclosure obligations for certain companies listed in Italy (generally, medium to highly capitalised companies) in relation to severance arrangements requiring:

a the disclosure of any severance payment or other similar benefit, awards remaining outstanding following termination, non-compete arrangements and any other amount awarded in connection with termination, including their amount; and the moment of payment and the existence of clawback arrangements, if any;

b an indication of these severance benefits' consistency with the remuneration policy and, in the case of inconsistency, the provision of information on the voting procedure adopted in application of the CONSOB Regulation;

c the required company to disclose the decision process made in connection with the implementation of adjustment mechanisms and, to the extent applied, the result of such implementation, providing the adjustment of the severance in cases of inadequate performance by the executives; and

d disclosure of any succession planning.

These disclosure obligations are provided in the form of recommendations to the issuers and remained in force until 31 December 2014. After that date, CONSOB was supposed to assess whether and in what form the introduction of new disclosure requirements on the above-mentioned topics is required, but as of the date of writing no additional regulation was issued in this respect.


Italian corporate governance rules, including rules on executives' remuneration, are established primarily by the CC, the Consolidated Financial Act and the Issuers' Regulation.

In addition, Italian-listed companies may voluntarily decide to comply with the Corporate Governance Code issued by the Corporate Governance Committee of the Italian Stock Exchange, which sets out certain corporate governance guidelines for companies listed on the Italian Stock Exchange.54

i Procedural requirements

Statutory requirements

Compensation paid to a company's senior managers, other than its directors, is generally determined by the board of directors or other officers so empowered.

The overall compensation paid to all directors, including cash and equity-based incentive awards, must be approved at the company's ordinary shareholders' meeting; however, generally it is the board of directors that determines the compensation of directors entrusted with certain powers (e.g., the chief executive officer), having taken into account the opinion of the board of statutory auditors.55

Additional requirements may apply with respect to incentive plans. In particular, while cash-settled awards are generally implemented with the approval of the board of directors only (except in cases when they are extended to non-executive directors, for which the approval of the shareholders is required), equity-settled awards require a shareholders' resolution (usually in addition to a board of directors' resolution) to fund the plan and impose further procedural requirements, depending on whether they are implemented through the issuance of new shares or the assignment of treasury shares.

Corporate Governance Code requirements

Pursuant to Article 6 of the Corporate Governance Code, the board of directors, upon proposal of the remuneration committee, is required to establish a policy outlining the guidelines for the determination of the remuneration of directors and key management personnel.

Moreover, the board of directors must appoint a remuneration committee composed of either independent directors or non-executive directors, the majority of whom (including the president of the committee) are independent, and at least one of whom must be an expert in financial or remuneration matters.

ii Substantive requirements under the Corporate Governance Code

Remuneration level and structure

Article 6 of the Corporate Governance Code includes a series of principles directly addressing the structure of top executives' compensation, to ensure that the executives' interests are aligned with those of the company's shareholders and that they are remunerated based on performance and results.

As to the structure of top executives' remuneration, the Corporate Governance Code provides, inter alia, that:

a top executives' remuneration should guarantee an appropriate balance between fixed and variable remuneration components, taking into account the specifics of the company's business, including its risk profile; and companies should set limits on the variable components of remuneration paid to top executives;

b a significant part of any variable remuneration accrued in the hands of the top executives should be deferred;

c share-based incentive plans, if properly structured, can improve the alignment of the top executives' interests with those of the shareholders and, as a result, it is recommended that such awards should provide for a minimum vesting period of at least three years; and that, following vesting, beneficiaries should be required to retain a minimum number of shares for a predetermined period; and

d remuneration of non-executive directors should not – if not for an insignificant portion – be linked to the economic results of the issuer. In this respect, non-executive directors should not be allocated share-based awards unless it is so determined with a motivated shareholders' resolution.

Provisions on golden parachutes

Article 6 of the Corporate Governance Code requires that payments made in connection with the early termination of top executives (other than the statutory severance pay, such as golden parachutes) should not exceed a fixed amount to be predetermined by the company and should not be paid in the case of termination owing to the inadequate performance of the executive.

iii Additional requirements for listed companies

As indicated above, listed companies are subject to additional requirements when it comes to the approval and disclosure of their remuneration policy (see Section VI, on the disclosure requirements concerning the Remuneration Report).

In this respect, under Article 123-ter of the Consolidated Financial Act the say-on-pay on remuneration policies applies: the Remuneration Report is subject to the say-on-pay of the shareholders' meeting, although its negative resolution would not be binding on the board of directors or the supervisory board.


i Executive remuneration in the financial services sector

On 30 March 2011, the Bank of Italy published a set of regulations that addressed the regulation of executives' compensation in the financial services sector (the BI Regulations), substantially reflecting the final Guidelines on Remuneration Policies and Practices issued by the Committee of European Banking Supervisors (now the Italian Banking Authority (EBA)) on 10 December 2010 to implement Directive 2010/76/EU (CRD III).56

CRD III has been replaced by Directive 2013/36/EU (CRD IV, on which see also the EU Overview chapter of this publication) approved on 26 June 2013 and implemented in Italy by Legislative Decree No. 72 of 12 May 2015. To ensure compliance with CRD IV, the BI Regulations were repealed with the Bank of Italy Circular No. 285/2013 of 18 November 2014 (Circular 285). Circular 285 largely confirmed the set of rules provided for under the BI Regulations, while increasing certain substantive and disclosure requirements, and also introducing a fixed ratio for variable compensation.

Circular 285 applies to all Italian banks and investment companies (SIMs) and banking and SIM groups, including foreign branches of Italian banks and SIMs and Italian branches of foreign banks and SIMs (covered entities). However, a proportionality principle applies, allowing a certain level of flexibility in applying Circular 285 provisions, depending on the covered entities' dimension and internal organisation, and risk level. In particular, banks are divided into three categories and the entire set of rules set out under the BI Regulations would apply only to major banks.57

Circular 285 applies to all forms of payment or benefit made directly by – or indirectly by, but on behalf of – the covered entities, including all variable compensation, equity-based awards and certain discretionary pension benefits. In addition, Circular 285 is intended to apply to all personnel of the covered entities. However, certain more specific requirements (e.g., rules on golden parachutes) would apply only to the more relevant staff, namely those executives whose professional activities may have a material impact on the entity's risk profile.

Circular 285 provides various guidelines on the implementation of sound remuneration practices. In particular, it provides rules on compensation structure, governance and disclosure practices.

On 14 March 2018, the Bank of Italy published a consultation paper for the amendment of Circular 285, to take into consideration the guidelines on sound remuneration policies issued by the EBA following the approval of CRD IV.58 The amendments proposed in the consultation paper, if approved, would affect some of the regulations described below, especially expanding their scope.

Compensation structure

Circular 285 provides a series of ex ante and ex post adjustments to the executives' compensation structure to ensure the long-term alignment of the executives' interests with those of the shareholders.

Ex ante adjustment measures include the requirement for covered entities to implement predetermined performance criteria based not only on financial criteria but also on non-financial parameters (such as customer satisfaction), which should take into account the overall results of the covered entities, of the business unit concerned as well as the single executive's performance results. In determining the performance criteria (and their achievement), covered entities should consider all types of current and future risks relating to the executives' performance, also taking into account the costs of capital and liquidity required. Performance should be assessed in a multi-year framework. In addition, the total variable remuneration paid to executives should not limit the ability of these entities to strengthen their capital base.59

Most importantly, Circular 285 provides a mandatory ratio for variable components of remuneration paid to executives, which cannot exceed their fixed compensation (hence set at a ratio of 1:1, which can increase to 1:2 only with shareholders' approval). This cap on variable compensation should also apply to the staff of subsidiaries operating outside the European Economic Area (EEA) of parent companies established in the EEA.

Ex post adjustments provide, inter alia, that:

a variable remuneration (including deferred compensation) should be paid only if sustainable and justified in accordance with the (preferably, multi-annual) performance of the firm, the business unit and the individual concerned (in particular, the overall amount of variable compensation due should not affect the covered entities' capital ratio), based on well-identified, objective and immediately estimable parameters;

b variable compensation should remunerate the results effectively attained by the managers and should be reduced, or not paid at all, in the case of negative performances (malus and clawback arrangements are recommended);

c severance pay should be consistent with the executive's actual performance and the risks taken;

d guaranteed variable remuneration is prohibited, except for first-year hirings;

e a substantial portion of the variable remuneration component (at least 40 per cent or at least 60 per cent in the case of material amounts) should be deferred over a period of at least three to five years; and

f at least 50 per cent of the variable remuneration, including the deferred portion, should consist of shares or share-linked instruments (or equivalent non-cash instruments, in the case of non-listed firms).60

Governance and disclosure requirements

A covered entity's by-laws should require at least annually the approval at the ordinary shareholders' meeting of a remuneration policy for directors, auditors and members of the supervisory boards, and any equity-based incentive plan.

In major or listed banks, the board of directors is required to appoint a remuneration committee composed solely of non-executive directors, the majority of whom are independent, which should advise the board in connection with the implementation of the remuneration policy.


While the implementation of CRD IV in Italy, as in Europe overall, resulted in the approval of strict criteria for the compensation of executives in the financial sector, the new tax measures recently introduced in Italy provide an effective and extremely competitive instrument to attract top level talent in Italy.

Hence, while the regulatory framework may present a challenge for financial companies, the current overall scenario presents the unique opportunity to take advantage of the new tax rules, while establishing new remuneration policies that are in line with the long-term interests of the companies and their shareholders.


1 Gianluca Russo is an associate at Cleary Gottlieb Steen & Hamilton LLP. The author would like to thank his colleagues Caterina Marchionni, Danilo Santoboni, Andrea Sollecito and Fabio Gassino for their invaluable help in the preparation of this chapter.

2 These new measures include new tax rules promoting private financing transactions in Italy (such as the new 'mini-bonds' regime), the new patent box regime, and other tax breaks for businesses and individuals.

3 Generally, under the direct investment option, executives are entitled to invest in a company's shares, financial instruments, or in new categories of such shares or financial instruments created ad hoc, as well as in carried interest-type of equity, usually providing no voting rights and special economic rights or a more than proportional return on the original investment made by the executives, to take into consideration the executives' and the company's performance. The executives subscribe for, or purchase, these financial instruments at fair market value (based on an evaluation provided by a third-party appraiser, which is paramount for taxation reasons). An ad hoc investment vehicle of which the executives would be the shareholders (sometimes together with their employers) may also be used.

4 Directors not treated as employees under Italian labour law rules are generally treated as quasi-employees for Italian tax purposes. Income realised by quasi-employees is generally subject to the same rules applicable to employment income, but social security charges may vary.

5 IRPEF is levied at progressive rates, currently up to 43 per cent on any income in excess of €75,000, plus local surcharges up to 4.23 per cent (the local surcharges vary depending on the municipality of residence).

6 The stock's fair market value is generally calculated on the basis of (1) for listed stock, its average trading price in the rolling month preceding the delivery date, and (2) for non-listed stock, the pro rata value of the issuer's net equity at the delivery date. According to one position of the Italian tax authorities, limitations on dividends rights should not impact the valuation of the stock per the methods above.

7 An equity-settled award granted to all employees, or to categories of employees, may benefit from a tax exemption for an amount not exceeding €2,065.83 of the stock's fair market value in each relevant tax period, provided that the shares are not transferred back to the beneficiary's employer or the issuer, or in any event sold within three years of the grant date (see Article 51(2)(g) of Presidential Decree No. 917 of 22 December 1986). This exemption does not apply to incentive plans extended to certain workers only (e.g., incentive plans in which only specific executives are invited to participate).

8 For instance, options are not deemed taxable upon grant, unless they are transferable.

9 Hence, in these structures, particular emphasis must be given to the actual terms and conditions of the investment, which carry an important weight in assessing the applicable tax regime. The Italian tax authorities expressly clarified that income derived by executives from carried interest-type of awards that do not meet the requirements of Article 60 of Law Decree No. 60/2017 is not automatically treated as employment income, provided that the executives' investment resembles that of a third-party investor. In that respect, while the inclusion of the usual leaver provisions would be considered a sign of the employment-related nature of such award, the executives' exposure to the risk of losing their investment would be a clear indication that the executives are treated as any other shareholder or investor and that the award's payout is not related to their performance.

10 According to most conventions against double taxation entered into by Italy, non-resident employees and quasi-employees are subject to tax in Italy for services rendered in Italy only if they have been present in Italy for a period or periods exceeding in the aggregate 183 days in any relevant calendar year, or their remuneration is paid by, or on behalf of, an employer who is a resident of Italy, or the remuneration is borne by a permanent establishment that the foreign employer has in Italy.

11 Generally, social security charges for executives amount to approximately 38 per cent, approximately one-third of which is borne by the employee, while the remainder is borne by the employer. Different rules may apply to workers who are not treated as employees for labour law purposes. For example, directors who are treated as quasi-employees may be subject to a different social security regime.

12 The exemption applies to employees enrolled in the Italian social security system after 1996, or who expressly opted for the calculation of their social security benefits on the basis of the contributory system enacted in 1996.

13 According to the Italian Social Security Agency, the application of this exemption is conditional upon the awards not being extended to all employees (i.e., only awards granted to specific categories of employee, or to specific employees only, are exempted); including retaining conditions such as a minimum vesting period, performance-based vesting criteria, minimum lock-up period or the continued employment until grant; and providing the grant of equity instruments only, without contemplating a cash-settlement option (see INPS Communication No. 25602 of 12 October 2010).

14 The analysis may differ if the expense is borne by the employer on the basis of a charge-back arrangement.

15 However, it could be argued that the difference between the tax basis held in the stock (i.e., the book value increased by the expenses incurred to purchase the stock, other than interest expense) and the strike price, if any, for the issuer, should be treated as a capital loss or gain resulting from the disposal of the related shares and not as an employment expense; as such, it should be subject to the participation exemption rules, pursuant to which capital losses realised on the disposal of treasury stock recorded as financial fixed assets are disallowed for tax purposes if the relevant shareholding has been held, without interruption, from the first day of the 12-month period preceding the month in which the transfer occurs.

16 See Tax Circular No. 98/E of 17 May 2000, paragraph 5.1.1: according to the Italian tax authorities, expenses borne by an Italian parent company in connection with the grant of equity-settled awards to the employees of its group affiliates are not deductible by the parent company, as the shares are considered as being disposed of, therefore triggering a taxable event. Alternatively, should such an expense be charged back by the parent company to the relevant affiliates, the parent would be subject to tax on that amount but the affiliate would be able to take a tax allowance for the amount charged back, to be treated as a deductible employment expense.

17 The 2017 Budget Law has recently introduced a favourable tax regime (usually referred to as the Italian resident non-domiciled regime) enabling eligible taxpayers who have not resided in Italy for at least nine of the 10 years preceding the year of the transfer to opt to be taxed in Italy on their foreign-source income by paying a flat annual charge of €100,000 (and to cherry pick the foreign state or states falling within its scope). Accompanying relatives can access the same regime by paying a flat annual charge of €25,000. This regime cannot be coupled with the tax incentives for qualified executives described above (nor with the different tax breaks available to researchers and professors transferring their tax residence to Italy) and, while very favourable, would likely not be very enticing for executives deriving most of their income from employment income (which, by definition, would be subject to personal income tax at ordinary rates).

18 This regime was approved with Article 16 of Legislative Decree No. 147 of 14 September 2015, and subsequently amended with the Italian 2017 Budget Law (Law No. 232 of 11 December 2016). Requirement under point (2) does not apply to self-employed workers. The regime also applies to EU or white-listed countries' citizens provided that they have a university degree and have worked or carried out a business outside of Italy for at least the 24 months preceding the transfer.

19 These tax allowances cannot be coupled with those available to researchers and professors pursuant to Article 44 of Law Decree No. 78 of 31 May 2010, which provides for a 90 per cent exemption from IRPEF (and a total exemption from the Italian regional quasi-income tax – IRAP) with respect to employment or self-employment income.

20 The 10 per cent additional tax was approved, effective as of 31 May 2010, with Article 33 of Law Decree No. 78 of 31 May 2010 (converted into law with Law No. 122 of 30 July 2010). Article 33 of Law Decree No. 78 was subsequently amended by Article 23(50 bis) of Law Decree No. 98 of 6 July 2011 (as amended by Law No. 111 of 15 July 2011), which provided that the 10 per cent additional tax would apply on the entire portion of variable compensation exceeding the fixed component of remuneration and not, as contemplated before, on the portion exceeding three times the fixed component (see also Paragraph 15 of Tax Circular No. 41/E of 5 August 2011). The revised rules apply to variable compensation paid as of 17 July 2011. The 10 per cent additional tax applies only to executives, including top consultants and directors. Moreover, while the statutory rules provide for the application of the 10 per cent additional tax only to executives employed in the financial services sector (e.g., banks and investment companies), the Italian tax administration is seeking to extend the application of the 10 per cent additional tax also to executives employed by industrial holdings (see Paragraph 13.1 of Tax Circular No. 4/E of 15 February 2011).

21 This exemption has been recently extended to employees and executives of certain small-mid cap 'innovative' companies, that is small-mid cap non-listed companies investing in R&D activities or employing qualified personnel, or both (see Article 4(9) of Law Decree No. 3 of 24 January 2015, converted into law by Law No. 33 of 24 March 2015).

22 See Article 4 of Law Decree No. 167 of 28 June 1990, as amended with Law No. 97 of 6 August 2013, effective as of 4 September 2013.

23 The stamp duty is generally levied by the financial intermediaries with which the financial instruments are deposited, on an annual basis. In the case of reporting periods of less than 12 months, the stamp duty is prorated. If the fair market value cannot be determined, the stamp duty is computed on the basis of the financial instrument's face or redemption value.

24 As indicated above, if the financial instruments' fair market value cannot be determined, this levy is applied on their face or redemption value. A tax credit is granted for any foreign property tax levied abroad on such financial assets.

25 The Italian financial transaction tax was approved with Article 1(491-500) of Law of 24 December 2012, No. 228, as implemented by Ministerial Decree of 21 February 2013 (as amended and supplemented by Ministerial Decree of 16 September 2013).

26 This exemption is expressly provided for in the technical explanations accompanying Law No. 228 of 2012. Although reference is made to stock option plans only, it is reasonable to believe that the exempted transfers should include any equity-settled awards. Moreover, the financial transaction tax does not apply to the transfers of shares of small-mid public companies (i.e., companies with an average market capitalisation lower than €500 million, as recorded in November of the year preceding the year in which the shares are transferred).

27 The advance notice period (and the related indemnity in lieu of the advance notice) is set out in the applicable collective bargaining agreements and usually ranges from a minimum of six months up to a maximum of 12 months, depending on the executive's seniority.

28 Note that executives are also taken into account regarding the calculation of the thresholds relevant for the application of the rules applicable to collective redundancies (e.g., the company's size threshold – such rules apply only to companies employing more than 15 employees – and the number of relevant terminated employees – at least five, within a 120-day span in the given territory).

29 The amount of such damages varies depending on the applicable collective bargaining agreements and the executives' seniority, generally up to 24 months' salary.

30 According to Article 18(1) of Law No. 300 of 20 May 1970, as recently amended, in certain cases only (including the case of a discriminatory or arbitrarily inflicted dismissal), the termination is deemed null and void and the executive is entitled to be reinstated into his or her position or to opt for an indemnity in lieu of the reinstatement (equal to 15 months' salary), as well as to damages for an amount corresponding to his or her compensation from the date of the unfair dismissal until the reinstatement.

31 This statutory severance payment accrues annually on the employer's books, for an amount roughly equal to one month of remuneration for each year of employment, and is calculated on the basis of the employee's salary, including any type of compensation or benefit regularly paid to him or her, with the exception of any extraordinary item of compensation. The inclusion of cash-settled awards or equity-settled awards in the computation of the statutory severance pay would depend on the actual terms and conditions of such awards. The statutory severance pay is not due for directors.

32 Or by the parent company, a subsidiary, a company on which the employer exerts a significant influence or a company subject to the control of the same company as the employer.

33 See Article 34 ter(m) of Regulation No. 11971 of 14 May 1999 (Issuers' Regulation) issued by the Italian exchange commission (CONSOB), as amended by CONSOB Resolution No. 18079 of 20 January 2012 and by CONSOB Resolution No. 19548 of 17 March 2016.

34 See Article 34 ter(a) of the Issuers' Regulation. This threshold has been amended by EU Directive 2010/73 and CONSOB Resolution No. 18079 of 20 January 2012.

35 See Article 34 ter(n) of the Issuers' Regulation. The definition of securities, as reported in Article 1(1.1 bis) of the Consolidated Financial Act, includes all classes of securities that are negotiable on the capital market, including shares, bonds and other similar equity or debt securities, as well as rights to acquire such securities.

36 By their employer or by the parent company, a subsidiary, a company on which the employer exerts a significant influence or a company subject to the control of the same company as the employer.

37 See Article 34 ter(b) of the Issuers' Regulation as amended by CONSOB Resolutions No. 18079 of 20 January 2012 and No. 18612 of 17 July 2013.

38 See Article 34 ter(c) of the Issuers' Regulation. This threshold has been amended by CONSOB Resolutions No. 18079 of 20 January 2012 and No. 18214 of 9 May 2012.

39 See Articles 152 quinquies.1. and sexies(1)(c) and 1(d) of the Issuers' Regulation for a list of significant parties, which include the issuer's directors, general managers and executives having regular access to inside information. Pursuant to Article 18 of Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse, a company's insiders include all persons who have access to inside information and who are working for them under a contract of employment, or otherwise performing tasks through which they have access to inside information such as advisers, accountants or credit rating agencies.

40 See Articles 114(7) of the Consolidated Financial Act and 152 quinquies.1. of the Issuers' Regulation. In particular, unless an exemption applies, a significant party must timely notify CONSOB (possibly through the issuer) and the issuer itself (and – when applicable – the public) of any internal dealing transactions (with the exceptions provided under Article 152 septies(3) of the Issuers' Regulation) carried out by such party (or its connected persons, such as his or her family members as defined in Article 152 sexies 1(d) of the Issuers' Regulation).

41 This exemption (provided for under Article 183(1)(b) of the Consolidated Financial Act) applies if the relevant transactions are carried out in accordance with Article 5 of Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse.

42 Currently set, under Article 117 of the Issuers' Regulation, at 5, 10, 15, 20, 25, 30, 50, 66.6 and 90 per cent of the issuer's capital, and at 3 per cent if the company is not an SME, as amended by CONSOB Resolution No. 19614 of 26 May 2016. Note that Article 120(2 bis) of the Consolidated Financial Act authorises CONSOB – under specific circumstances and for a limited period of time – to lower the 2 per cent threshold in order to protect investors and market integrity.

43 According to the previous instructions for the supervision of banks, set out in Bank of Italy's Circular No. 229 of 21 April 1999, any actual delivery of shares during any month should be notified by the issuer to the Bank of Italy if shares with a value exceeding €500,000 have been delivered in Italy during the past 12 months, including the month in question. However, by means of a communication dated 17 August 2011, the Bank of Italy temporarily suspended the obligation for issuers and financial intermediaries to file the relevant notification form, considering a more efficient regime for this ex post notification. On October 2013, the Bank of Italy conducted a consultation on the topic; which led to the approval of new rules on reporting requirements for the issue and offer of securities, repealing Title IX, Chapter I, Section IV of Circular No. 229 of 21 April 1999. The new rules, which were published on 25 August 2015 and entered into force on 1 October 2016, do not provide for any reporting obligation with respect to shares.

44 See Article 30(2) of the Consolidated Financial Act, as amended by Legislative Decree No. 184 of 11 October 2012. A general exemption is also provided, under Article 30(1), for all offers of financial instruments whose placement takes place at the premises of the issuer (including its branches, but not at the premises or branches of its affiliates).

45 See Article 31 of the Consolidated Financial Act.

46 See the MiFID (EU Directive 2004/39/EC, repealed and replaced, with effect from 3 January 2018, by MiFID II (Directive 2014/65/EU)) and the related Italian implementing laws and regulations (including, but not limited to, CONSOB Regulation No. 20307 of 15 February 2018 on financial intermediaries, as amended (Intermediaries' Regulation)). Pursuant to Article 35(1)(d) and Annex No. 3 of the Intermediaries' Regulation, an individual may be treated as a professional client if an adequate assessment (by the authorised financial intermediary conducting the placement activities) of the expertise, experience and knowledge of the client gives reasonable assurance, in light of the nature of the transactions or services envisaged, that the client is capable of making his or her own investment decisions and understands the risks involved.

47 Pursuant to Article 84 bis(1) of the Issuers' Regulation, the information document must be made available at the issuer's registered office and published on the issuer's website. The information document must be drafted in accordance with Annex 3A, Form 7 of the Issuers' Regulation. In the event that the resolution of the shareholders' meeting contain information subject to disclosure pursuant to Article 17 of Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse, the information document were to also include: (1) a description of the recipients pursuant to Annex 3A, Form 7 of the Issuers' Regulation; (2) the essential elements concerning the features of each financial instrument that the compensation plan relies on; and (3) a short description of the reasons behind the plans. The same provision applies to issuers of shares in relation to compensation plans based on financial instruments that are issued in favour of members of the board of directors of the same controlled companies or of other controlling or controlled companies.

48 See also CONSOB's communication of 24 February 2011, requiring public companies to provide more detailed information on severance arrangements.

49 The Decree implements EU Recommendations 2004/913/EC, Sections II and III, and 2009/385/EC, Section II, Paragraphs 5 and 6, regarding remuneration of the members of the board of directors for companies listed in EU Member States.

50 The Remuneration Report must be published at least 21 days prior to the yearly ordinary shareholders' meeting (i.e., the same meeting called to resolve on the approval of the financial statements).

51 The incentive plans disclosed to the public pursuant Article 114 bis of the Consolidated Financial Act must also be attached to the Remuneration Report.

52 As amended with CONSOB Resolution No. 17389 of 23 June 2010.

53 Article 13 of the CONSOB Regulation specifies that the provisions of the CONSOB Regulation do not apply with respect to resolutions adopted at the shareholders' meeting; resolutions regarding the compensation of directors entrusted with specific powers (e.g., the chief executive officer), if the shareholders' meeting has established an aggregate maximum compensation for these directors, provided that, in both cases, such compensation is not based on the market value of financial instruments; and resolutions adopted pursuant to Article 2402 of the CC, regarding compensation of members of the board of statutory auditors. Companies may also opt, upon establishing the statutory procedures for related-party transactions, to exempt (in whole or in part) incentive plans based on financial instruments resolved at the shareholders' meeting pursuant to Article 114 bis of the Consolidated Financial Act; and any other resolution regarding compensation of directors and key management personnel that is based on remuneration policies approved at the shareholders' meeting, in the context of a decision-making process involving a committee composed exclusively of non-executive directors, the majority of whom are independent.

54 On 5 December 2011, the Italian Stock Exchange released a revised version of the Corporate Governance Code addressing in particular the remuneration of directors and key management personnel, as well as the disclosure obligation of the issuer in case of termination (Point 6.P.5 of the Corporate Governance Code recommends to issuers to publicly disclose detailed information on severance pays attributed in case of termination). As a general rule, compliance with the Corporate Governance Code is not imposed by the law: companies are required to disclose under the comply-or-explain principle what recommendations of the Corporate Governance Code, if any, are not being adopted and why. Although implementation of and compliance with the Corporate Governance Code are voluntary, the vast majority of listed companies in Italy do follow it.

55 If the by-laws so provide, the shareholders' meeting may determine an overall cap for the remuneration of all directors, including those entrusted with specific powers (see Article 2389(3) of the CC).

56 On 25 July 2012, amendments to the Bank of Italy–CONSOB Joint Regulation on Investment Services of 29 October 2007 were issued in order to also extend the application of the rules implementing CRD III to SIMs, with some minor exceptions. In addition, amendments of the Bank of Italy–CONSOB Joint Regulation on Investment Services of 29 October 2007 were also approved to implement the rules of Directive 2011/61/EU (AIFMD) with respect to remuneration policies of alternative investment funds (AIF), and the rules of Directive 2014/91/UE (UCITS V) with respect to the remuneration policies of UCITS. It should be noted that, on 31 March 2016, following its consultation on draft guidelines in summer 2015, ESMA published its final report and guidelines on sound remuneration policies under the UCITS Directive and the AIFMD. The final guidelines principally establish remuneration guidelines for management companies of UCITS funds but also include an amendment to the existing AIFMD remuneration guidelines. A separate set of regulations also applies with respect to insurance companies (see the Regulations on Remuneration Policy in the Insurance Sector, issued by the Italian control agency on the insurance sector, ISVAP – now the Italian Insurance Supervisory Authority – No. 39 of 9 June 2011). The provisions of the ISVAP regulations are similar to the BI Regulations.

57 Note that under the BI Regulations the entire set of rules only applied (entirely) to major banks with a significant international presence.

58 On 21 December 2016, the EBA issued its final report on guidelines on sound remuneration policies to ensure compliance with the CRD IV Directive. Competent authorities across the European Union were expected to implement the guidelines by the end of 2015.

59 Covered entities are also required to ensure that the variable remuneration is not paid through vehicles or other methods aimed at artificially evading the BI Regulations' requirements.

60 According to the BI Regulations, equity-settled awards (the non-deferred portion) must be subject to adequate retention policies (i.e., a minimum of two years), possibly requiring executives to hold a substantial portion of equity even following termination.