The Executive Remuneration Review: Italy


The government has approved several measures aimed at attracting international executives to Italy. These measures include, in particular, a 70 per cent tax exemption on income earned by executives moving to Italy and a new rule clarifying (favourably for taxpayers) the tax regime applicable to carried interest.

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

At the same time, and not unlike other European countries, executives in the financial services sector remain subject to strict regulations. In line with the various European and international regulations issued to address executives' compensation, the Italian competent supervisory authorities have 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 Directive 2013/36/EU (CRD IV) 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: cash bonuses (cash-settled awards), which include all incentives and bonuses regulated in cash, as short-term incentives; and company shares or other financial instruments (equity-settled awards), granted as mid-long term incentives either directly (such as stock or restricted stock grants) or through options, restricted stock units or any other right to purchase such financial instruments.

In the private equity sector, it is also common to offer top executives the option to purchase financial instruments at market value (through carried interest type of investment or, more in general, through a direct investment option).3 The recently enacted rule on carried interest mentioned above is clearly expected to increase this practice.


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:

  1. 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
  2. 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 or subscription price, if any;7 equity-settled awards are generally subject to tax upon grant or 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 specifically addresses the tax regime applicable to carried interest type of incentives awarded to executives; subject to certain conditions being met, income derived by executives and directors from carried interest or sweet equity-like financial instruments is taxed as financial income (i.e., dividends or capital gains, as the case may be) and not as employment income, resulting in a reduction of the applicable tax rate from roughly 46 per cent to generally 26 per cent, which is the rate applicable to investments in securities generating passive income.

In particular, for this tax treatment to apply, the beneficiaries must:

  1. be executives or directors 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. invest, in the aggregate, an amount corresponding to at least 1 per cent of the investment called by the investment fund or of the company's net equity value;
  3. invest in financial instruments providing a payout 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 contractual arrangements); and
  4. hold the financial instruments for at least five years (unless an exit occurs).

This 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 its actual terms and conditions, their investment can be assimilated to a third-party financial investment.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

Moreover, 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 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 an 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 2021 amounts to €103,055.12

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 executives that are qualified as employees, and not to quasi-employees such as 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 international accounting standards (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 However, 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

A full tax deduction for the costs accounted for in relation to equity-settled awards, including awards attributing newly issued shares, should always be allowed for companies adopting IAS accounting standards or International Financial Reporting Standards.

iv Other special rules

Tax incentives for executives transferring to Italy17

Qualifying executives who moved to, and became tax residents of, Italy up until 30 April 2019 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 or her tax residence to Italy and for the following four tax periods. Beneficiaries are required to maintain their Italian tax residence for at least two years.19

These tax breaks have been significantly enhanced, and made easier to access,20 for executives transferring to Italy21 as of 1 May 2019. Such executives will enjoy a 70 per cent exemption from IRPEF on any employment income (including income derived from cash-settled or equity-settled awards) received during a five-year period that includes the year of the transfer and the following four years, provided that they have not been resident in Italy in the two-year period preceding the year of the transfer to Italy, they maintain an Italian tax residence for at least two tax years after the transfer, and they will mostly work in Italy.22 The exemption increases to 90 per cent if the executive moves to certain Italian southern regions.23

In addition, the tax breaks will be extended for an additional five-year period if the executive has at least one minor or dependent child, or the executive (or his or her partner or child) purchases a house in Italy in the year of the transfer or in the preceding year. During such additional five-year period, the exemption is reduced to 50 per cent.24

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.25

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 by a company directly controlled by the qualifying start-up company, and are not purchased back by the start-up company or the issuer, or any entity or person directly related to it.26

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.27

Reporting obligations

With respect to equity-settled awards, if the relevant financial instruments are held abroad, the beneficiaries must report in their annual tax return the value of such financial instruments (together with any other overall offshore investments, such as financial and real estate assets).28

Stamp duties on financial assets

A proportional stamp duty applies to 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.29 Stamp duty is generally computed on the nominal or purchase cost of 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.30

Italian financial transaction tax

Under certain circumstances, the purchase by executives of financial instruments under equity-settled awards may also be subject to the Italian financial transaction tax,31 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 American depository receipts). 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). 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.32

Tax planning and other considerations

The tax breaks for executives transferring to Italy and the rule on the taxation regime of carried interest have provided extremely interesting possibilities for attracting qualified personnel to Italy and for tax planning opportunities, as they ensure access to a very competitive tax reduction in the personal tax rates generally applicable to employment income.

Given the rules on carried interest, it is also expected that Italian-resident executives and their employers will increasingly explore ways to make executives invest in financial instruments, which, while requiring an immediate financial outlay by the executives, might give access to the more favourable tax regime provided for investments in securities generating passive income.

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 in industrial holding companies must still give careful consideration to the impact of the 10 per cent additional tax described in Section II.iv.

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

Employment law

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 an executive's duties) that irreparably undermines an executive's fiduciary relationship with his or her 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 notice.33 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 for certain subjective reasons relating to an executive's performance or conduct).34 Executives are entitled to damages35 (but generally not to their reinstatement)36 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.37

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 applicable to executives must, inter alia, provide a specific remuneration, only cover specific fields of activities and a well-specified geographical area, and not 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 an award's grant or included in an award's terms and conditions. The clawback provisions' enforceability would be uncertain, however, if they were applied to existing arrangements.

Securities law

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

i Public offers of securities

The offering of financial products to directors or employees may benefit from several exemptions from the general obligation38 to publish a prospectus in compliance with either the Prospectus Regulation39 or the Italian provisions40 regulating the offerings to the public of financial products. In particular, the following may be exempted:

  1. the offering of financial instruments to existing or former directors, employees or financial promoters by their employer,41 provided that a document is made available to the public containing information on the number and nature of the financial instruments and the reasons for and details of the offer;42
  2. financial instruments that are offered to fewer than 150 people, other than qualified investors;43
  3. offerings limited to qualified investors;44 and
  4. offerings whose total value, over a period of 12 months, amounts to less than €8 million.45

ii Internal dealing transactions

With respect to Italian public companies, directors and executives may be subject to additional disclosure obligations in relation to transactions involving financial instruments of an issuer pursuant to EU and Italian regulations. In particular, directors and executives qualifying as significant parties (or a person connected with a significant party) of the issuer are treated as insiders,46 and must disclose any purchase, sale, subscription to and exchange of shares or other financial instruments of their employer in excess of €20,000.47 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.48

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 (i.e., the issuer) and the Italian exchange commission (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.49,50

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, the 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 these entities' premises.51

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.52

The requirement to use financial advisers does not apply to offers to professional clients.53


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.54

In addition, pursuant to Article 123 bis(1)(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 cases of resignation, dismissal without just cause or termination following a tender offer on the company's shares.55

Finally, Article 123 ter of the Consolidated Financial Act (see also Section VII) requires 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 (Remuneration Report).56 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 remuneration expected to be received in the future by those individuals for services rendered during the relevant fiscal year.57 In the second section of the Remuneration Report, companies must disclose specific information relating to severance arrangements or other similar benefits, such as:

  1. the circumstances upon the occurrence of which they are due;
  2. the amount of the severance benefits, indicating the portion that is immediately paid and the portion subject to deferral mechanisms, if any, as well as the portion paid in connection with the recipient's role as director and the portion due in connection with the employment relationship, if any, and any other non-compete arrangements; and
  3. an indication of these severance benefits' consistency with the remuneration policy and, in the case of inconsistency, the reasons for such an inconsistency and the procedure adopted, also in application of the rules issued by CONSOB on 12 March 2010 (CONSOB RPT Regulation).58

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 CONSOB RPT Regulations set out both specific periodic disclosure and corporate governance requirements for related-party transactions that specifically include resolutions regarding compensation of directors and key management personnel, with some exceptions.59

iv Price-sensitive information

Article 114(1) of the Consolidated Financial Act provides that listed companies must promptly disclose to the public any inside information referred to in Article 17 of Regulation (EU) No. 596/2014 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.

Corporate governance

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 generally 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.60

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, it is the board of directors that determines the compensation of directors entrusted with specific powers (e.g., the chief executive officer), taking into account the opinion of the board of statutory auditors.61

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

The board of directors must appoint a remuneration committee of non-executive directors, the majority of whom, including the president of the committee, must be independent directors. At least one member must be an expert in financial or remuneration matters.

Pursuant to Article 5 of the Corporate Governance Code, the board of directors, with the support 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.

ii Substantive requirements under the Corporate Governance Code

Remuneration level and structure

Article 5 of the Corporate Governance Code includes a series of principles and criteria directly addressing the structure of top executives' compensation to ensure that the executives' interests are aligned long term with those of a company's shareholders, and that they are also remunerated based on performance and results.

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

  1. top executives' remuneration should guarantee an appropriate balance between fixed and variable remuneration components, taking into account the specifics of a company's business; variable remuneration components should be, in any case, a significant portion of the overall remuneration;
  2. companies should set limits on the variable components of remuneration paid to top executives;
  3. companies should identify financial and non-financial performance targets that are predetermined, measurable, and based on long-term results; such performance targets should be consistent with a company's strategic objectives as well as aimed at pursuing the sustainable success of a company;
  4. a significant part of any accrued variable remuneration should be deferred consistently with the specifics of the relevant company, including its risk profile;
  5. contractual arrangements shall be entered into, providing clawback provisions to allow a company to recapture, in whole or in part, the variable components of remuneration that were awarded based on erroneous data or other circumstances determined in advance by such company;
  6. share-based incentive plans can improve the alignment of top executives' interests with those of the shareholders, provided that such awards require a minimum vesting period, and holding period following delivery, of at least five years; and
  7. remuneration of non-executive directors should be consistent with their tasks and should not – if not for an insignificant portion – be linked to the economic results of the issuer.

Provisions on golden parachutes

Article 5 of the Corporate Governance Code requires companies to set clear rules for the payment of termination indemnities (if any), such as golden parachutes, by identifying the maximum payable amount (to be linked to a predetermined amount or a predetermined number of years). This indemnity should not be paid if the termination of the relationship is due to inadequate results. In addition, when payments of such termination indemnities are made, the Corporate Governance Code also requires companies to disclose through a press release detailed information on severance payments made to executive directors and general managers.

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 particular, pursuant to Article 123 ter of the Consolidated Financial Act, the Remuneration Report is subject to the say on pay of the shareholders' meeting. If shareholders do not approve the remuneration policy described in the first section of the Remuneration Report, companies are required to revert to the remuneration practices in force under the last approved remuneration policy or to implement remuneration policies in line with market practice, provided that a new remuneration policy will need to be submitted to the vote of the shareholders by the time of the next general shareholders meeting.62 With reference to the second section of the Remuneration Report, the shareholders' meeting expresses a non-binding vote, which is publicly disclosed.63

Specialised regulatory regimes

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 (BI Regulations), substantially reflecting the final Guidelines on Remuneration Policies and Practices issued by the Committee of European Banking Supervisors (now the European Banking Authority (EBA)) on 10 December 2010 to implement Directive 2010/76/EU (CRD III).64

CRD III has been replaced by CRD IV (on which see also the EU Overview chapter), 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 by the Bank of Italy Circular No. 285/2013 of 18 November 2014 (Circular 285). Circular 285 largely confirms the set of rules provided for under the BI Regulations while increasing certain substantive and disclosure requirements, and also introduces a fixed ratio for variable compensation.

In October 2018, the Bank of Italy amended Circular 285 to take into consideration the final guidelines on sound remuneration policies issued by the EBA following the approval of CRD IV.65

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 covered entities' dimensions, 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 applies only to major banks.66

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 relevant staff, namely those executives whose professional activities may have a material impact on an entity's risk profile.67

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

CRD IV was recently amended through the approval of CRD V68 with the purpose, inter alia, of further reducing excessive risk-taking and short-termism by executives of European banks. CRD V requires several implementing measures to be adopted at the European level, and EU Member States are required to implement such measures into domestic law by December 2020, except for certain exceptions.69

Compensation structure

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

Ex ante adjustment measures include a 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 covered entities and of the business units concerned, as well as each 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 under 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.70

Most importantly, Circular 285 provides a mandatory ratio for variable components of remuneration71 paid to executives, which cannot exceed their fixed compensation (hence it is set at a ratio of 1:1, which can increase up 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:

  1. variable remuneration (including deferred compensation) should be paid only if sustainable and justified in accordance with the (preferably multi-annual) performance of the firm, business unit and 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;
  2. 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 performance (malus and clawback arrangements are recommended);72
  3. severance pay should be consistent with an executive's actual performance and the risks taken;
  4. guaranteed variable remuneration is prohibited, except for entry bonuses for first-year hires;
  5. a substantial portion of the variable remuneration component (at least 40 per cent, or 60 per cent in the case of material risk-takers and variable remuneration of material amount)73 should be deferred over a period of at least three to five years; and
  6. 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).74

CRD V, while confirming the regulatory framework of CRD IV (e.g., it confirms the cap on variable compensation, which will continue to apply to all covered entities and their staff), implemented certain changes, including new rules on deferred compensation.75 Moreover, to reduce the income gap between men and women, CRD V also establishes that covered entities must adopt gender-neutral remuneration policies and practices.

Governance and disclosure requirements

A covered entity's by-laws should require at least annually the approval at an 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, boards of directors are required to appoint a remuneration committee composed solely of non-executive directors, the majority of whom are independent, which should advise boards in connection with the implementation of remuneration policies.

Developments and conclusions

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 (which are confirmed by CRD V).

However, the implemented tax breaks provide an effective and extremely competitive instrument to attract top-level talent to Italy.

Hence, while the regulatory framework may present a challenge for financial companies, the current overall scenario offers companies based in Italy the unique opportunity to benefit from the tax breaks to recruit qualified executives, while establishing new remuneration policies that are in line with the long-term interests of companies and their shareholders.

The 2020 and 2021 fiscal years, however, have also presented the unique challenge of the covid-19 pandemic. The Italian government has approved several measures aimed at supporting job levels and employees' rights and security,76 but the pandemic still had an impact on salaries and job relationships. Several companies in Italy have recently agreed with their executives on a salary cut (of either their fixed or their variable compensation), with a preliminary and largely symbolic step that will likely not be replicated. As to incentives, many listed companies have awarded the stock awards accrued in 2019 or 2020 based on post-covid stock exchange valuations, attributing reduced awards or having to deal with the dilutive effects of awarding more shares than expected.

The incentives to be approved in 2021 and the incentive plans whose vesting period includes the 2021 fiscal year present different issues, and the challenge for companies would be to strike a balance between the interests of executives and stakeholders and the current economic and social situation.

Where possible, based on the approved arrangements or applicable regulations, companies are considering changing the current vesting mechanisms by reducing the targets or approving new short-term targets. In the specific case of long-term incentive plans, consideration is given to the possible extension of the performance period, changing the metrics from absolute to relative (e.g., related total shareholder return), changing the performance-time vesting mix by increasing the time-vesting component or providing the rollover of what was lost in 2020 and 2021 on 2022 awards.

Companies that have not approved the incentives' annual targets yet are also considering deviating from classic metrics and setting targets that take into account the response to the pandemic, for example by rewarding the preservation of jobs and the safety of employees and customers or, from a financial perspective, adequate capital and liquidity targets.

More generally, however, the pandemic has unequivocally shown that environmental and social issues may have enormous financial consequences, reinforcing the growing concern and attention for environmental, social and governance issues. The current situation, therefore, offers companies a unique opportunity to focus on their long-term sustainability, starting with their incentive plans, which should incorporate sustainability parameters as conditions for the accrual of the relevant awards.


1 Gianluca Russo is a senior attorney at Cleary Gottlieb Steen & Hamilton LLP. The author would like to thank his colleagues Edoardo Filiberto Roversi, Fabio Gassino and Vito De Giorgio for their invaluable help in the preparation of this chapter.

2 These measures include the favourable tax regime for high net worth individuals moving to Italy, new tax rules promoting private financing transactions in Italy, the 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 (i.e., usually providing no voting rights and special economic rights and 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, for listed stock, its average trading price in the rolling month preceding the delivery date, and 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 be exempt 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 is 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. Based on the Italian tax authorities' position, pursuant to which the relevant taxation moment should coincide with the date on which the executive becomes the actual owner of the equity, which may coincide with the grant date if the actual delivery is for any reason postponed, when determining equity awards' taxable moment (especially for restricted stock or similar awards) careful consideration should be given to a number of factors, including whether the actual delivery is subject to performance or time-based conditions, or whether the recipient would be accruing dividends on the underlying equity following grant and/or would be entitled to vote the shares.

9 The Italian tax authorities have expressly clarified that income derived by executives from carried interest types 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 the award, the executives' exposure to the risk of losing the investment would be a clear indication that they are being 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 37 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 quasi-employees for labour law purposes. For example, payments made to directors who are treated as quasi-employees may be subject to slightly different rates.

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 and not the payment in cash of the corresponding value (see Communication No. 25602 of 12 October 2010 of the Italian social security authority (INPS)).

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 by Article 16 of Legislative Decree No. 147 of 14 September 2015, subsequently amended by the Italian 2017 Budget Law (Law No. 232 of 11 December 2016), was further amended by Law Decree No. 34 of 30 April 2019 and, again, amended by Law Decree No. 124 of 26 October 2019 to extend the regime to individuals transferring to Italy as of 1 May 2019. The 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 As mentioned, the existing tax breaks were significantly simplified and enhanced by Article 5 of Law Decree No. 34 of 30 April 2019, which was converted into law, with amendments, by Law No. 58 of 28 June 2019.

21 For these purposes, the tax residence will be determined pursuant to Italian statutory rules or the applicable tax treaty rules. Under Italian rules, an individual is deemed to be an Italian tax resident if, for the greatest part of the tax period he or she either is enrolled in the registry of the Italian resident population, or sets the centre of his or her economic, social and personal interests in Italy or has an Italian habitual abode available to him or her.

22 Executives seconded to Italy, athletes, artists or performers, as well as entrepreneurs meeting these conditions and starting a new business in Italy as of 1 May 2019, would also be eligible to benefit from the tax breaks. In the case of a secondment (from abroad to Italy or from Italy to abroad during the relevant two-year period), the tax breaks apply if the services rendered during the secondment differ from the activities carried out by the executive prior to the transfer (see Tax Rulings No. 76/E of 5 October 2018, No. 45 of 23 October 2018 and No. 510 of 11 December 2019).

23 Namely, Abruzzo, Molise, Campania, Apulia, Basilicata, Calabria, Sardinia and Sicily.

24 However, if the eligible individual has at least three minor or dependent children, the exemption percentage is increased to 90 per cent. The extension applies to individuals who transferred to Italy as of 1 May 2019. Law No. 178 of 30 December 2020 has granted the possibility to enjoy the extension also to executives who have moved their tax residence to Italy before 2020, to the extent they are already benefitting from the favourable tax regime on 31 December 2019. These individuals can opt for the five-year extension by paying an amount equal to 10 per cent of the employment income produced in Italy in the tax year prior to the year in which the option is exercised, provided that the option can be exercised only if the executive has at least one minor child or the executive (or his or her partner or child) has purchased a residential property in Italy in the year of the transfer or in the preceding year. The amount of the additional payment is reduced to 5 per cent if the worker has at least three minor children and becomes or has become the owner of a residential property within the mentioned deadlines.

25 The 10 per cent additional tax was approved, effective as of 31 May 2010, by Article 33 of Law Decree No. 78 of 31 May 2010 (converted into law by 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 and Tax Ruling No. 106 of 13 December 2018).

26 This exemption also applies to employees and executives of certain small to mid-cap innovative companies, that is, small to mid-cap non-listed companies investing in R&D activities, 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).

27 Pursuant to Article 1(182-190) of Law No. 208 of 28 December 2015, instead of the ordinary progressive rates, a 10 per cent substitute tax applies on variable performance bonuses paid to employees under local or plant-level collective bargaining agreements, up to €3,000 for each employee, if the paying company reaches, in the relevant vesting period, at least one incremental target (which must be a productivity, profitability, quality, efficiency or innovation-related target), as established in the relevant bargaining agreement. This favourable regime is limited to performance bonuses paid to employees whose overall employment income, in the precedent tax year, was lower than €80,000.

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

29 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.

30 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.

31 The Italian financial transaction tax was approved by 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).

32 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 transfer of shares of small to medium 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).

33 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.

34 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).

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

36 According to Article 18(1) of Law No. 300 of 20 May 1970, as recently amended, in certain cases only (including in 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.

37 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.

38 See Article 94 of the Consolidated Financial Act (Legislative Decree No. 58 of 24 February 1998).

39 Regulation (EU) 2017/1129.

40 Following the enactment of the Prospectus Regulation, the Italian regime applicable with respect to prospectus obligations depends on the type of financial product that is being offered: if the offer concerns 'securities', the applicable provisions are those provided for by the Prospectus Regulation, while if the offer concerns 'financial products' other than 'securities', national laws and regulations apply. As regards the definition of 'securities', Article 2(a) of the Prospectus Regulation provides that 'securities' means transferable securities as defined in Article 4(1)(44) of MIFID II (Directive 2014/65/EU) with the exception of money market instruments as defined in Article 4(1)(17) of MIFID II, having a maturity of less than 12 months. The Italian exchange commission (CONSOB) Resolution No. 21016 of 24 July 2019 amended Article 3(1)(b) of Regulation No. 11971 of 14 May 1999 (Issuers' Regulation) issued by CONSOB to mirror the definition of 'securities' provided for by the Prospectus Regulation.

41 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.

42 See Article 1(4)(i) of the Prospectus Regulation and Article 34 ter(i) of the Issuers' Regulation as replaced by CONSOB Resolution No. 21016 of 24 July 2019.

43 See Article 1(4)(b) of the Prospectus Regulation and Article 34 ter(a) of the Issuers' Regulation as replaced by CONSOB Resolution No. 21016 of 24 July 2019.

44 See Article 1(4)(a) of the Prospectus Regulation and Article 34 ter(b) of the Issuers' Regulation as replaced by CONSOB Resolution No. 21016 of 24 July 2019.

45 See Article 3(2)(b) of the Prospectus Regulation and Article 34 ter(01) and 34 ter(c) of the Issuers' Regulation as replaced by CONSOB Resolutions No. 21016 of 24 July 2019.

46 See Article 152 sexies(1)(c) and 1(d) of the Issuers' Regulation for a list of significant parties, which includes any person owning a participation representing at least 10 per cent of the issuer's share capital represented by shares with voting rights, while a person connected with a significant party includes any legal entity, partnership or trust in which a significant party or a family member has a managerial role, or entities directly or indirectly controlled by a significant party or a family member. 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 it 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.

47 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 sexies1(d) of the Issuers' Regulation).

48 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.

49 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 a small or medium-sized enterprise, 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 3 per cent threshold to protect investors and market integrity. Moreover, Article 120 of the Consolidated Financial Act, as amended, imposes additional disclosure obligations on certain shareholders, who must now disclose their future plans regarding the issuer. In particular, any person whose aggregate shareholding in a listed issuer reaches or exceeds 10, 20 or 25 per cent of the share capital of a listed company must notify to CONSOB and the issuer his or her objectives regarding the shareholding for the following six months.

50 According to the previous instructions for the supervision of banks, set out in Bank of Italy 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. In 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.

51 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).

52 See Article 31 of the Consolidated Financial Act.

53 See the MiFID (EU Directive 2004/39/EC, repealed and replaced, with effect from 3 January 2018, by MiFID II 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.

54 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 contains 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 should also include a description of the recipients pursuant to Annex 3A, Form 7 of the Issuers' Regulation; the essential elements concerning the features of each financial instrument that the compensation plan relies on; and 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.

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

56 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).

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

58 As amended by CONSOB Resolutions No. 17389 of 23 June 2010, No. 1995 of 22 March 2017, No. 19974 of 27 April 2017, No. 21396 of 10 June 2020 and No. 21624 of 10 December 2020. See in particular Paragraph 1.2 of the Section II, of Annex 3A, Form 7-bis of the Issuers' Regulation, as amended by CONSOB Resolutions No. 21624 of 10 December 2020. Before this amendment was approved, specific disclosure obligations for certain companies listed in Italy (generally, medium to highly capitalised companies) were provided for in relation to severance arrangements, in the form of recommendations to issuers, by CONSOB's communication of 19 June 2014.

Paragraph 1.2 of Section II, of Annex 3A, Form 7-bis of the Issuers' Regulation clarifies that companies deemed 'small companies' under CONSOB RPT Regulation can decide to provide information relating to severance arrangements only in relation to executive directors and the chair of the board of directors.

59 Article 13 of the CONSOB RPT Regulation specifies that the provisions of the CONSOB RPT Regulation do not apply with respect to resolutions adopted at the shareholders' meeting; resolutions regarding the compensation of directors as well as 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; 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, provided that (1) the issuer adopted a remuneration policy approved by the shareholders' meeting, (2) the decision-making process relating to the remuneration policy involved a committee composed exclusively of non-executive directors the majority of whom are independent and (iii) the remuneration paid complies with such policy and its amount is determined on the basis of criteria which do not require any discretionary assessment.

60 The Corporate Governance Code is issued, and periodically updated, by the Italian Stock Exchange. As a general rule, compliance with the Corporate Governance Code is not mandatory: however, 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 the underlying rationale. Although the implementation of and compliance with the Corporate Governance Code are voluntary, the vast majority of listed companies in Italy do follow it.

61 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).

62 See Article 123 ter(3ter) of the Consolidated Financial Act as introduced by Article 3 of the Legislative Decree No. 49 of 10 May 2019.

63 See Article 123 ter(6) of the Consolidated Financial Act, as replaced by Article 3 of the Legislative Decree No. 49 of 10 May 2019.

64 On 25 July 2012, amendments to the Bank of Italy–CONSOB Joint Regulation on Investment Services of 29 October 2007 were issued to also extend the application of the rules implementing CRD III to Italian banks and investment companies (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 managers of alternative investment funds, and the rules of Directive 2014/91/UE (UCITS V) with respect to the remuneration policies of managers of UCITS. It should be noted that on 31 March 2016, following its consultation on draft guidelines in summer 2015, the European Securities and Markets Authority 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 certain amendments to the existing AIFMD remuneration guidelines. A separate set of regulations also applies with respect to insurance companies with provisions (adopted by the Italian control agency on the insurance sector, ISVAP – now the Italian Insurance Supervisory Authority, IVASS) that are similar to the BI Regulations.

65 The EBA issued its final report on guidelines on sound remuneration policies to ensure compliance with CRD IV on 21 December 2016.

66 Note that under the BI Regulations the entire set of rules only applied (entirely) to major banks with a significant international presence. However, in order to ensure a consistent application of the proportionality principle as required by CRD V, the BI Consultation Paper proposed to maintain only two categories (i.e., 'small and less complex banks' and 'other banks').

67 CRD V facilitates the identification of relevant staff by introducing a non-exhaustive list of risk-takers. The BI Consultation Paper (as defined below) intends to amend the Circular 285 accordingly.

68 Directive 2019/878/EU.

69 Please note that on 18 November 2020 the Bank of Italy issued a Public Consultation on remuneration and incentive policies and practices in banks and banking groups (the BI Consultation Paper), aimed at amending Circular 285 in order to implement CRD V. The consultation ended on 17 January 2021 but, as of the date of this publication, the results of such public consultation have not been published yet.

70 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.

71 The definition of variable remuneration includes allowances and carried interest types of awards, as well as amounts paid under non-competition covenants or paid pursuant to a settlement agreement.

72 The Bank of Italy mandates that the remuneration policy indicates the minimum duration of application of clawback clauses (such period being at least five years in relation to risk-takers).

73 Covered entities must determine (and update every three years) in their remuneration policies the level of remuneration deemed to be of a material amount, pursuant to the provisions set forth by Circular 285.

74 Subject to certain exceptions, according to Circular 285, equity-settled awards must be subject to adequate retention policies, with a minimum retention period of one year (which may be reduced to six months for the remuneration deferred for at least five years).

75 CRD V increases the minimum deferral period from three to four years, and to five years for senior management, but also provides that the mandatory deferral provisions will not apply to non-large institutions, i.e., with a total asset value not exceeding €5 billion over a four-year period; and staff members with an annual variable remuneration not exceeding €50,000 and one-third of the total annual remuneration (it being understood that Member States may lower or increase such thresholds under certain conditions). Accordingly, the BI Consultation Paper amends the Circular 285 providing for a minimum deferral period of four to five years as well as a such exemption.

76 For example, covid-related emergency regulations prohibit Italian companies from starting any collective dismissal procedures on or after 24 February 2020 until 31 October 2021. Depending on how the pandemic evolves, these measures could be extended or other similar measures could be adopted.

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