Share-based incentive plans

Fiat S.p.A. has established share-based incentive plans for more than 900 Group employees, in Italy and abroad, whose activities and leadership have a significant impact on the Group.

 

The incentive plans currently in place, approved by Fiat S.p.A. between 2004 and 2010, offer Fiat ordinary shares for purchase at a predetermined price (stock options) or grant Fiat ordinary shares (stock grants). Following the demerger of activities from Fiat S.p.A. to Fiat Industrial S.p.A., those plans were amended to ensure they fulfill the objectives for which they were adopted, even subsequent to the Demerger. Those entitled to stock options or stock grants will, therefore, receive one ordinary Fiat share and one ordinary Fiat Industrial share for each right they hold, with the option exercise price (for stock option plans) and the free grant of shares (for the stock grant plan) remaining unchanged.

 

In addition, the subsidiary CNH Global N.V. has existing stock option and/or stock grant plans based on its ordinary shares, while the stock option plan established by Ferrari S.p.A. for its Chairman Luca Cordero di Montezemolo expired at the end of 2010. Prior to coming under the Group’s control, other subsidiaries had approved cash-settled share-based payment plans referred to as Stock Appreciation Rights (SARs).

 

Following is a description of the principal characteristics of the incentive plans based on Fiat S.p.A. shares.

 

These plans were established to incentivize individuals in key positions toward the achievement of Company and Group performance targets and align those incentive plans to the long-term value created for shareholders. The level of commitment is further strengthened where, as has generally been the practice since 2004, vesting is subject to achievement of specific profitability targets during the reference period.

 

At the same time, incentivizing management through instruments that reflect the Company’s market value contributes to the alignment of their interests with those of shareholders, promoting their sense of identification with the Group and significantly enhancing retention.

 

Plan beneficiaries are selected using objective criteria that take into account the impact of their role on business objectives. The number of options/shares actually granted is determined on the basis of individual leadership qualities.

 

The stock option plans established by Fiat S.p.A. grant beneficiaries the option to purchase one Fiat ordinary share for each option exercised at a predetermined price. As stated above, under the amendments made pursuant to the Demerger, beneficiaries have the option to purchase one Fiat ordinary share and one Fiat Industrial ordinary share.

 

The options are subject to a predetermined exercise period beginning from the vesting date until the plan expiry date.

 

For all stock option plans, the exercise price is based on the average daily market price for the month prior to the grant date and may be subject to adjustment as a result of transactions affecting the Company’s share capital, with any adjustment factor being determined by the AIAF. The exercise price is payable in cash at the moment of exercise.

 

On 26 July 2004, the Board of Directors granted Sergio Marchionne, as a part of his variable compensation as Chief Executive Officer, options to purchase 10,670,000 Fiat S.p.A. ordinary shares at a price of €6.583 per share, exercisable from 1 June 2008 to 1 January 2011. In each of the first three years following the grant date, the CEO acquired the right to purchase, beginning 1 June 2008, a maximum of 2,370,000 shares annually. As of 1 June 2008, he also acquired the right to exercise, effective from that date, the remaining options on 3,560,000 shares as a result of predetermined performance objectives for the reference period having been met. At the Annual General Meeting on 27 March 2009, Shareholders approved a number of amendments proposed by the Board of Directors, which determined that it was significantly in the Group’s interests to restore the retention capability of the Plan given the change in conditions in the real economy and financial markets and the particularly uncertain period being faced by the automotive sector globally. More specifically, a new vesting period was introduced, conditional solely on Mr. Marchionne remaining in office, which rendered the options unexercisable until 31 December 2010 and extended the exercise period through to 1 January 2016, with all other conditions of the plan remaining unchanged.

 

On 3 November 2006, the Fiat S.p.A. Board of Directors approved (subject to the final approval of Shareholders at the General Meeting of 5 April 2007) an eight-year stock option plan, which provided certain managers of the Group and the Fiat S.p.A. Chief Executive Officer with the right to purchase a set number of Fiat S.p.A. ordinary shares at the fixed price of €13.37 per share. In particular, the 10,000,000 options granted to employees and the 5,000,000 options granted to the Chief Executive Officer had a vesting period of four years, with a quarter of the number vesting each year, were subject to achieving certain pre-determined profitability targets (Non-Market Conditions or “NMC”) in the reference period and were exercisable from the date on which the 2010 Financial statements are approved. The remaining 5,000,000 options granted to the Chief Executive Officer of Fiat S.p.A. also had a vesting period of four years with a quarter of the number vesting each year and are exercisable from November 2010. Exercise of the options was also subject to specific restrictions regarding the duration of the employment relationship or the continuation of the position held. The Board also exercised its powers under Article 2443 of the Civil Code to issue new shares, in service of the incentive plan, to employees of the Company and/or its subsidiaries up to 1% of share capital or a maximum of €50,000,000 (€35,000,000 following the Demerger) in the form of 10,000,000 ordinary shares having a par value of €5.00 (€3.50 following the Demerger) each, representing 0.78% of total share capital or 0.92% of ordinary share capital, at a price of €13.37 each. Execution of the capital increase is subject to the conditions of the Plan being satisfied.

 

On the basis of amendments to the stock option plans introduced in relation to the Demerger, the vesting conditions of each stock plan, whether they consisted in the continuation of a professional relationship with the Fiat Group or the achievement of specific performance targets, expired on 31 December 2010. With specific reference to options granted under the 2006 Stock Option Plan, for which vesting was subject to the achievement of pre-established profitability targets, only the first tranche (i.e., 25%) of those rights vested as the profitability targets established in 2006 for the 3-year period 2008-2010 were not met. As a result, the remaining 75% did not vest.

 

On 26 February 2008, the Board of Directors of Fiat S.p.A. approved an incentive plan, authorized by Shareholders on 31 March 2008, which allowed for the periodic granting of a maximum 4 million stock options and/or stock appreciation rights until the end of 2010. This plan was intended for managers hired or promoted subsequent to the stock option plan established on 3 November 2006, or who, in any event, warranted additional recognition, and it was structured similar to the 2006 plan in terms of profitability targets, vesting and exercise. On 23 July 2008, the Board of Directors, in execution of that plan, voted to grant 1,418,500 stock options at an exercise price of €10.24. The plan did not vest as the profitability targets established for the 3-year period 2008-2010 were not met.

 

On 23 February 2009, the Board of Directors of Fiat S.p.A. approved an incentive plan, which was subsequently approved by Shareholders at the Annual General Meeting of 27 March 2009, based on the granting of rights that, subject to achievement of pre-determined performance targets (Non-Market Conditions or “NMC”) for 2009 and 2010 and continuation of a professional relationship with the Group, entitled the CEO of Fiat S.p.A. to receive a total of 2 million ordinary shares. Vesting was in a single tranche upon approval of the 2010 consolidated financial statements by the Board and the number of shares granted equivalent to 25% of the rights allocated for achievement of the 2009 targets and 100% of the rights allocated for achievement of the 2010 targets.

 

The Group profitability targets for 2009 were reached. At the proposal of the Board, on 26 March 2010 Shareholders introduced a loyalty only component for an additional 2 million rights, the vesting of which was subject solely to continuation of a professional relationship with the Group at the date of approval of the 2011 financial statements. In addition, the original duration of the Plan was extended to the date of approval of the 2011 financial statements and the targets for 2010 and 2011 were reset. On 18 February 2011, the Board of Directors, having consulted the Compensation Committee, verified the vesting of 375,000 rights based on the achievement of the predetermined operating targets and, in light of the extraordinary transactions occurring during the year, also voted to make vesting of the remaining rights, which was dependent on the achievement of 2011 operating targets, subject only to the continuation of a professional relationship with the Group until the end of 2011. As stated previously, following the Demerger, the stock grant plan will entitle beneficiaries to receive one Fiat ordinary share and one Fiat Industrial ordinary share for every stock grant right held, with all other conditions of the plan remaining unchanged.

 

The stock grant plan is to be serviced through shares bought on the market rather than through the issue of new shares.

 

Detailed information on all Plans is also available in the notes to both the consolidated and parent company financial statements.

 

SHARES HELD BY MEMBERS OF THE BOARDS OF DIRECTORS AND STATUTORY AUDITORS, GENERAL MANAGERS AND OTHER EXECUTIVES WITH STRATEGIC R
NameShares heldNo of shares
held at
31.12.2009
No of shares
  bought at
31.12.2009
No of shares
  sold at
31.12.2009
Change in
no. of shares
held by
incoming
/outgoing
managers
No of shares
held at
31.12.2010
Sergio Marchionne   Fiat Ordinary    240,000
 -   -   -   240,000
Luca Cordero di Montezemolo   Fiat Ordinary    127,172
 -   -   -   127,172
Gian Maria Gros-Pietro   Fiat Ordinary    3,300    -   -   -   3,300  
             
Executives with strategic responsibilities 
Fiat Ordinary    103,974
     (10,685)
 93,289
  Fiat Preference 
 -   -   -   -   - 

Fiat Savings
618  -  -  (618)  -
 
CNH Ordinary 7,464  -  -  -  7,464 

© 2011 FIAT S.p.A - P.IVA 00469580013