One year after Unicredit narrowly avoided a binding rejection of its executive remuneration policy, the Italian megabank’s pay practices are once again in the spotlight.
The company’s 2021 annual general meeting was held in the wake of significant top-level leadership turnover, with questions raised about the company’s direction. Andrea Orcel’s appointment as CEO in early 2021 followed rumours about alleged disagreements between the former CEO, Jean Pierre Mustier, and the current board chair, Pier Carlo Padoan, regarding the strategic vision for the future of the bank. The co-option of Padoan, a former Italian finance minister, was reported to signal a stronger focus on the domestic market, and was met with concern by shareholder Bluebell Capital Partners. In particular, Bluebell highlighted a potential acquisition of the embattled Banca Monte dei Paschi di Siena, which the Italian government bailed out under Padoan’s watch.
Meanwhile, Orcel’s appointment was roundly supported — but his remuneration package, which outpaced most of the bank’s European peers and included an equity award not linked to performance, proved more controversial. The company’s overall remuneration policy passed by a very slim margin, receiving 54% of shareholder support. Complicating matters, despite agreeing Orcel’s employment terms months in advance, the company chose not to disclose key features of the new CEO’s pay package ahead of the meeting. Some of the opposition spilled over to the election of directors, with the slate proposed by the outgoing board receiving just 76% support — in 2018, the slate presented by the outgoing board was supported by approximately 90% of voting shareholders.
Over the past year, the strategic questions appear to have been resolved. Although the company pursued an acquisition of Banca Monte dei Paschi di Siena, negotiations with the Italian Ministry of Economy and Finance ended in late October without reaching a deal. However, it remains unclear if the bank has done enough to resolve shareholder questions about executive pay.
Both the forward-looking, binding remuneration policy and the backwards-looking, advisory remuneration report are on the AGM agenda, meaning that investors will get to weigh in separately on those new arrangements, as well as how the company implemented its existing policy during the year under review. That backwards-looking, advisory proposal covers much of the ground that prompted opposition in the first place — including a salary set more than twice as high as that of the company’s prior CEO and, in lieu of any variable incentives, a non-performance-based equity award worth 5 million euros, or 200% of salary. Moreover, the new policy that is being proposed raises potential concerns of its own. In particular, some of the targets under the new Group Incentive Plan do not appear particularly stretching: executives would receive full vesting of TSR-based awards for sub-median performance, and a 70% payout for TSR in the bottom quartile.
With the meeting set for April 8, investors have a lot to consider.
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