FCA BANK 2016 REMUNERATION POLICY

Transcription

1 FCA BANK 2016 REMUNERATION POLICY Status Approved Initial issue date 23/03/2016 Version 2 Last revisited on 18/11/2016

2 TABLE OF CONTENTS 1. PRINCIPLES AND PURPOSES REGULATION FRAMEWORK PROFILE OF THE COMPANY AND MAIN CHANGES OF THE REMUNERATION POLICY GOVERNANCE MODEL THE BOARD OF DIRECTORS THE REMUNERATION COMMITTEE CORPORATE FUNCTIONS INVOLVED IN THE REWARD FRAMEWORK GROUP MATERIAL RISK TAKERS ( MRT ) IDENTIFICATION PROCESS REMUNERATION STRUCTURE FIXED REMUNERATION VARIABLE REMUNERATION BOARD OF DIRECTORS AND STATUTORY AUDITORS MATERIAL RISK TAKERS VARIABLE REMUNERATION FOCUS ON HEADS OF CONTROL FUNCTIONS OTHER EMPLOYEES REMUNERATION SALES INCENTIVES EXTERNAL NETWORKS QUALITATIVE AND QUANTITATIVE DISCLOSURE COMPENSATION CYCLE VARIABLE COMPENSATION COMPONENTS AND MAIN RESULTS QUANTITATIVE TABLES ANNEX A: LIST OF 2016 IDENTIFIED KEY PERSONNEL (MATERIAL RISK TAKERS) Page 2 out of 20

3 1. PRINCIPLES AND PURPOSES This document summarizes the remuneration policies used inside FCA Bank Group that, coherently with its values, manages remuneration processes according to the principles of equity, honesty and cautious risk management, with the purpose of attracting and retaining in the Company employees with appropriate professionalisms and competencies. The goal is to reach in the shareholders interest remuneration systems, in line with strategies and company long term objectives, linked to company results, conveniently risk adjusted so to take into consideration all risks, coherent with capitalization levels and liquidity needed to face corporate activities and, in any case, such to avoid distorted incentives that could persuade to violate regulations or to accept too many risks for the Bank. FCA Bank operates in a European scenario characterized by competitiveness and complexity. In this context also remuneration policies perform a primary key role in generating sustainable value for all Bank stakeholders. The primary need is to define a competitive remuneration system, balancing strategic business targets and correctly rewarding Group employees. Attracting, retaining and motivating highly qualified employees, but also rewarding those who promote corporate values with incentives correlated to the long term value generation, is a primary task. Integrity is a fundamental principle of FCA Bank for sustainable profits and value to all stakeholders. To act coherently with these principles, maintaining always an ethical behavior, is demanded to all leaders and to all employees. The Bank has the scope to reward this kind of behaviors, through appropriate remuneration processes and through a proper use of the evaluation process, with the scope of safeguarding and increasing its reputation and of generating long term value. In order to be always compliant with the prevailing banking regulation, FCA Bank Group foresees the possibility to modify, as appropriate, this policy, in case of new regulations published during the year. The guidelines and rules outlined below are applied in every country where there is a Legal Entity part of the FCA Bank Group, in any case always in full compliance with local laws and regulations. The Group remuneration approach, aimed at ensuring the competitiveness and the effectiveness of its policies, is based on the following principles: Ethical behavior; Clear governance; Full compliance with standards and with the Code of Conduct, presently in place inside the Company; Remuneration programs should drive the desired leadership behavior and business results; The compensation structure must avoid incentives that would encourage employees to take unnecessary and/or excessive risks; Remuneration sustainability and alignment of the same with corporate results and individual performances: an appropriate portion of compensation needs to be performance-based over a relevant performance period; Internal remuneration equity and competiveness with external labor market; Retain/develop key talents at all levels of the organization. Page 3 out of 20

4 2. REGULATION FRAMEWORK The ongoing changes in the financial services industry, international bodies and regulatory environment are forcing banks to a growing attention to remuneration matters, especially regarding the governance (with a special focus on the role and responsibility of corporate bodies and control functions), the design of remuneration structure and transparency with shareholders, overall aiming at ensuring a sound remuneration practice. FCA Bank Group s remuneration policy refers to the overall applicable regulatory framework and in particular to: Bank of Italy supervisory instructions on remuneration and incentives policies and practices published on 18 November 2014, enacting the European Capital Requirements Directive (CRD IV) issued on 26 June 2013 in 2014, according to EBA proposal, the European Union published the new Regulatory Technical Standards (RTS), defining qualitative and quantitative criteria for the identification of the categories of personnel whose professional activities have a material impact on the institution s risk profile (the Risk Takers ) with the purpose of promoting more consistency in the interpretation and in compliance with the requirements regarding conflicts of interest and behavior under MiFID on remuneration practice, a joint communication from Bank of Italy - Consob, published on 19 January 2015 regarding the "Implementation of the guidelines issued by ESMA", namely referred to the alignment of employee conducts to rules and regulations European Banking Authority (EBA) on December 21 st, 2015 (following a consultation document on March 4 th, 2015) containing the new guidelines on remuneration formulated pursuant to CRD IV, and providing guidance for standardized implementation of the regulations at European level. This document replaces a previous set of guidelines prepared by the EBA s predecessor, the Committee of European Banking Supervisors ( CEBS ) originally published in December Even if not yet in place, the new guidelines give recommendation on governance, remuneration structure and risk alignment, already applied during 2016 remuneration cycle remarks FCA Bank s attitude to act through a sound remuneration practice, in particular referring to the compensation structure. Furthermore, it must be highlighted that the FCA Bank Remuneration policy is fully compliant with the Volcker rule. During the year, FCA Bank Group, additionally, will assess impact of draft Guidelines on remuneration policies and practices related to the sale and provision of retail banking products and services, published for consultation on 22nd December Page 4 out of 20

5 3. PROFILE OF THE COMPANY AND MAIN CHANGES OF THE REMUNERATION POLICY FCA Bank as a "significant supervised entity" is subject to the direct supervision of the European Central Bank, which is responsible for the fulfilment of specific duties regarding the prudential supervision of credit institutions within the Single Supervisory Mechanism. Furthermore FCA Bank is requested to apply more stringent provision regarding major banks, in terms of governance and alignment of payments to risks. According to this, FCA Bank has just established the Remuneration Committee aimed at proposing, advising and enquiring on remuneration matters and whose composition, role and responsibilities are in line with regulatory provisions. In addition, FCA Bank will define the way to link the payment of at least 50% of variable payments, both up-front and deferred, to financial instruments at least for the CEO and General Manager, as main risk taker. Furthermore, the current remuneration policy includes the alignment to 33% of incidence of variable remuneration to fixed remuneration of heads of Control Functions, as required by Italian Regulatory Framework. In order to maintain the ability of attracting talents and retaining people who are crucial for the strategic goals of the Group, in terms of profits and sustainability, the remuneration structure has been enhanced, where applicable and motivated, through: a stability and non-competition agreement, able to strengthen the attractiveness of remuneration package for key people role allowances, able to compensate the role and responsibility, without incentivizing risk taking Both schemes are aimed at diversifying and enriching the compensation proposal for relevant employees, reinforcing the alignment to regulatory provisions. Finally, the overall governance model has been reinforced thanks to the contribution of control functions. The Risk and Permanent Control function has been required to perform an ex-ante independent advise on risk takers assessment process and risk-adjusted metrics able to ensure the alignment between the Remuneration Policy and Risk Appetite Framework, in addition to the assessment to verify compliance with the regulatory framework performed by the Compliance Function. As requested by the regulator, Internal Audit function verified the alignment of 2015 compensation practice to the approved remuneration policy and relevant regulations. 4. GOVERNANCE MODEL The Bank Governance model aims at guaranteeing an appropriate control on remuneration practices in all group areas, ensuring that decisions are taken with sufficient independence and in an informed way, by such functions and company Bodies, to which different responsibilities are delegated. Such model must be transparent and clear, to prevent possible conflicts of interest and to guarantee the full compliance with external standards and internal regulations THE BOARD OF DIRECTORS In accordance with regulatory provisions, the Board of Directors is responsible for determining remunerations for the Members of the Board, also with relation to their offices and duties (Chairman, Deputy Chairperson, Managing Director, Executive Board Member). The Board of Directors is responsible for adopting and maintaining yearly the remuneration policy and will be responsible for its correct execution. Furthermore, the Board of Directors guarantees that the remuneration policy is adequately Page 5 out of 20

6 documented and accessible inside FCA Bank. In particular the Board of Directors is responsible for determining or reviewing compensation and benefits for some corporate roles, mandatorily including the managers of control functions, the direct reports of the Chief Executive Officer and General Manager and Country Managers. The Board of Directors is responsible for approving taking into consideration, among others, FCA Bank profitability and capital and liquidity levels the payment of annual Performance & Leadership Bonus (PLB), as described in greater detail herein below and for suspending, in case, all variable remunerations. All remuneration decisions, for policy determination and for fixed and variable compensation review, are pre-assessed through independent directors, both, in case, as Risk & Audit Committee or independent meeting. During 2016 certain remuneration duties, in terms of advice, instruction, monitoring, and recommending for the aim of supporting the decisions of the Board of Directors, will be taken by the Remuneration Committee, according to the.supervisory provisions of Bank of Italy on Remuneration Governance (see par ). Every year shareholders approve the remuneration policy and review ex-post qualitative and quantitative disclosure regarding the previous year compensation decisions, in addition to the results of inspections performed by the Internal Audit function. Yearly the Risk & Audit Committee submits to the Board of Directors the salary adjustments for the Heads of Control Functions and verifies that economic incentives included into the remuneration package, are coherent with Risk Appetite Framework (RAF). Furthermore, every year FCA Bank s Advisory Board (important Joint Venture Committee with the scope of assuring the effective connection and interaction on matters of interest for Shareholders between themselves, the Board of Directors and the Management of the Company) review the general plan for merit-based salary review (or disbursements of lump sums), prepared by the Management, and the relevant criteria, broken down by market and compared with previous years and budget. The compensation review and variable compensation of CEO & General Manager is defined by the Board of Directors; during the session Independent Directors assess the proposed review and give their opinion. The salary adjustments and variable compensation regarding Head of Control Functions is overseen by Risk & Audit Committee. The overall decision making framework includes the role and responsibilities of management functions, as described below THE REMUNERATION COMMITTEE The Remuneration Committee is a Committee of the Board of Directors, including Independent Directors and chaired by one of them, whose mission is to provide its advise on remuneration criteria for Directors of the Board, Management and other Employees, in accordance with Bank of Italy supervisory provisions on Remuneration Governance, and to support and provide its opinion to the Board of Directors on the structure of compensation of Members of Corporate Bodies, Managing Director and Head of Control Functions. By June 2016 the Board of Directors shall approve the Regulation of the Committee. 4.2 CORPORATE FUNCTIONS INVOLVED IN THE REWARD FRAMEWORK The following is a description of the role and responsibilities of different corporate functions, to ensure transparency and robustness to the remuneration policy definition and to the compensation management process: Human Resources Function establishes and conducts the process related to the remuneration and incentive policy, preparing the remuneration policy to be approved by relevant functions and bodies; it manages its execution, through the variable compensation management, the annual salary review process as well as any off-cycle pay adjustments as a Page 6 out of 20

7 result of promotion, transfers, assignments or other urgencies. The Human Resources Function is also responsible to assess periodically market practice aimed at verifying the competitiveness and attractiveness of compensation packages. Compliance Function verifies, inter alia, the compliance of the remuneration policy and related plans and processes, including the annual process aimed at identifying Material Risk Takers, with the regulatory framework, with the articles of association and with the Code of Conduct, in order to minimize legal and reputational risks. Risk & Permanent Control Function must verify if all owners of material risks are mapped as Material Risk Takers and, on the contrary, if individuals excluded actually cannot take excessive risks, in line with EBA RTS and guidelines provisions. R&PC verifies alignment between the remuneration policy and the correct and cautious risk management, providing advice on Risk Management KPIs to be included in the Performance & Leadership Bonus (PLB), in order to align the profitability to a sound risk management practice. R&PC also assesses the KPIs to be included in the Performance & Leadership Management (PLM) individual objectives 1, to manage individual risks. Risk & Permanent Control Function, before PLB payments and any exceptional award, assesses the achievement of the financially sustainable conditions and coherence with FCA Bank economic, capital and liquidity levels. Finance Function guarantees the financial sustainability of salary-increase and variable-pay plans and their alignment with forecasts, budgets and long-term strategic plans. Internal Audit Function verifies the compliance of the remuneration implementation procedures to the relevant policies, informing the Board of Directors and Shareholders on the results of the verifications. 4.3 GROUP MATERIAL RISK TAKERS ( MRT ) IDENTIFICATION PROCESS As requested by the reference regulations, FCA Bank yearly identifies the key personnel (Risk Takers), involving different actors inside the Bank, according to the role and contribution provided, with respect to the corporate governance processes as well as to the systems and tools adopted. FCA Bank applies European Commission Delegated Regulation (EU) No 604/2014 at all Group companies, through the self-assessment process instructed, addressed and coordinated by Human Resources Function at consolidated level and for all banking subsidiary at solo-level. The Bank has accurately performed and controlled the identification process: Human Resources function deploys an initial assessment through qualitative and quantitative criteria at consolidated level and collecting individual assessments performed at solo-level by banking subsidiaries; Risk & Permanent Control function gives advice on risk-related criteria deployment and assesses if excluded staff members have a material impact on the bank s risk profile according to their duties and powers of attorney; Compliance function verifies the compliance of the MRT identification process with the regulatory framework; Internal Audit function yearly reviews the implementation and effects of such identification process. The identification process is performed at consolidated level by FCA Bank. The Headquarter is also responsible to ensure that all banking subsidiaries complete their own assessment, if requested by local laws. FCA Bank, in order to guarantee the coherence of the process, requests to be kept informed about the outcomes of such evaluations. The identification process is performed each year. 1 : for further details, please see paragraphs 5.2 and 7. Page 7 out of 20

8 The Regulatory Technical Standards (RTS) application for 2016 Remuneration Policy led to the identification of 50 Risk Takers, on the basis of the following criteria: qualitative criteria, which relate to the role, the decision-making power and managerial responsibilities of the personnel and are aimed at identifying top management members, risk takers and the personnel engaged in control functions; quantitative criteria, which relate to the thresholds associated with the level of total gross remuneration attributed to a member of personnel, in absolute or relative terms, and to the parameters that enable to place the personnel in the same remuneration range as that one applicable to top management and risk takers. The Risk Takers are: - CEO & General Manager criteria 1; - all non- executive members of Board of Directors and independent Directors criteria 2; - all senior management directly reporting to the Chief Executive Officer and General Manager and in particular Chief Credit Officer, Head of Marketing and Sales, Head of Dealer Financing, Head of European Markets and Business Development criteria 3; - Control Functions as Risk & Permanent Control, Compliance & Supervisory Relations and Internal Audit criteria 4; - CFO & Deputy General Manager, Head of Legal Affairs, Head of Human Resources, Chief Information Officer, Treasury Director, Financial Planning & Analysis Director, Tax Director, Chief Accounting Officer, ICT - HQ & Italian Market Manager, HR - FCA Bank Italia Manager, FCA Bank Italia - Legal Affair Manager, FCA Bank Italia - Financial Planning & Analysis Manager criteria 9; - Head of FCA Bank Italia (Country Manager Italy), Head of Rental Italy (Leasys CEO), Country Manager Germany, Country Manager France, Country Manager UK, Country Manager Ireland, Country Manager Spain & Portugal, Country Manager Netherlands, Country Manager Denmark & Nordics, Country Manager Poland, Country Manager Switzerland, Country Manager Greece, Country Manager Austria, Country Manager Belgium, FCA Bank Italia - Marketing Retail Manager, FCA Bank Italia - Sales Retail Manager, FCA Bank Italia - Marketing & Sales JLR Manager, FCA Bank Italia - Dealer Financing Manager, FCA Bank Italia - Retail & Corporate Underwriting Manager criteria 10; - Corporate Credit Manager, FCA Bank Italia - Credit & Customer Care Manager criteria 11. See attached list of Material Risk Takers. FCA Bank has also completed an analysis of remuneration pay levels based on quantitative criteria defined by EBA. This analysis has not identified further employees who can take material risks. The staff concerned are promptly informed, after the approval of the remuneration policy, that they belong to the category of regulated populations/risk takers and receive the remuneration policy. 5. REMUNERATION STRUCTURE According to Article 94 of the CRD IV, the fixed and variable components of total remuneration are appropriately balanced and the fixed component represents a sufficiently high proportion to allow a fully flexible policy on variable remuneration. FCA Bank Group traditionally adopts a pay mix able to: Page 8 out of 20

9 - allow flexible management of labor costs, as the variable portion may significantly decline, even down to zero, depending on the performance actually achieved during the relevant year; - discourage behaviors focused on the achievement of short-term results, particularly in case of excessive risk taking. In general, remuneration of personnel is subject to periodic review, in order to verify external competitiveness and internal adequacy, also taking into account the results of performance evaluations and assigned role and responsibilities. Employees, including key personnel, are not allowed to undertake hedging, pledging or insurance strategies for their remuneration or for any other aspect that might alter or undermine the risk alignment effects inherent in remuneration mechanisms. Coherently with norm 285 Title IV chapter 2, FCA Bank has chosen to confirm the ratio between variable and fixed as 1:1, excluding Countries or roles where local laws define a lower limit. In any case this choice is coherent with FCA Bank economic, capital and liquidity levels as well as with the related regulations about remuneration. The maximum variable compensation for the Heads of Control Functions has been established at 33% of fixed compensation. In addition to the constant evaluation of personnel and, obviously, to the full compliance with applicable laws, regulations and labor agreements, FCA Bank s remuneration policy is mainly based on two pillars: - The adoption by FCA Bank of a market-standard methodology for the evaluation and comparison of executive or management positions. Currently the FCA Bank Group uses the Mercer methodology, which is based on a system where weights are attributed to organizational roles, through the evaluation of different factors: o o o o o Impact on Company s performance (responsibility levels, powers proxies, etc.) Communication Innovation Knowledge Risk (here understood as risk for the individual s health, which has little relevance with respect to FCA Bank); - Constant reference to remuneration trends in the market by industry/level/position, through the acquisition of salary surveys and external databases, both domestic and international, in order to ensure base salaries are competitive. FCA Bank does not have, in any Market, any discretionary retirement benefits or golden parachutes granted to individual employees or limited groups, on an individual and discretionary basis. Where the Company has established supplementary pension plans, these are for the totality of employees or for identifiable homogeneous groups, e.g. the first levels of the organizational structure in a given country. Employees who work in a Legal Entity part of the FCA Bank Group are not incentivized to do speculative activities and, specifically, remuneration of employees working in trading desks complies with the demands of the Volcker rule FIXED REMUNERATION The competitiveness of the fixed part of the remuneration has to be checked with even more attention: it must be appropriate to compensate the employee for his or her role and must be commensurate with the duties, the responsibilities and previous experience. In any case, fixed salary must be sufficiently high, so as to allow variable pay to fall, in whole or in part, as needed. Page 9 out of 20

10 Human Resources function, at least yearly, drives an appropriate benchmark with external market data, in order to verify the correctness and appropriateness of the fixed remuneration ensuring that the Bank is able to attract and engage in the correct way best resources particularly in those positions, that are particularly important in order to guarantee the compliance with laws and the right and cautious management of the Bank. The following remuneration components are considered as fixed: remuneration based on level, the role held, any responsibilities assigned, and the specific experience and expertise acquired by the employee; with reference to Italy it is based also on the contractual agreements defined by Contratto Collettìvo Specifico di Lavoro (CCSL) level; allowances used to increase the basic fixed salary in situations where staff work abroad and receive less remuneration than the one that would be paid on the local employment market for a comparable position, where all of the following specific conditions are met. Allowances may be used to compensate contingent differences between the cost of living in the home Country and in the host one, to reimburse transfer discomfort and to reimburse possible expenses made by the employee; role-based allowances used to increase the basic fixed salary where staff are required to ensure an adequate independence by company/division performances they oversee directly. Role-based allowance amounts have to be yearly approved and revalidated by the Board of Directors, according to possible changes due to pay-line positioning or organizational responsibilities; ancillary payments, regulated by Group/Company guidelines and addressed to all employees or employee categories, enabling benefits not linked to the performance of the Group or the Company and reflecting prevailing standards within the FCA Group in Italy (e.g. Company cars) and market standards or common practices in foreign markets. Any change in the structure of corporate benefits in foreign markets is subject to approval by the central functions of Parent Company, FCA Bank; stability and non-competition agreements as not-typical form of remuneration to retain qualified employees in high demand within the labor market and to sustain the long term profitability of the Group. Such agreements will be based on paying predefined amounts to specific employees who commit to stay with FCA Bank and in case of resignation not to work for competitors within a limited time, geographic area and activities coupled with a non-solicitation of employees clause. The company is willing to adapt in a reasonable time frame where budgets and corporate conditions make it possible the fixed part of its employees remuneration to market standards, in particular to review it in case of internal mobility, if new positions involve growing responsibilities. The Company also pays particular attention to adjust, in a reasonable period of time, the fixed salary of these employees who, due to changes in duties and responsibilities, would qualify as key personnel in order to align it with the new levels of responsibilities taken on VARIABLE REMUNERATION The variable component in FCA Bank for Risk Takers and other employees, linked to employee's performance and aligned with the sustainable performance of the bank, may include: - Performance & Leadership Bonus for employee population with the FCA Bank internal grade Professionals and Executives eligible for variable remuneration; Page 10 out of 20

11 - Lump Sum payments not directly related to the achievement of specific objectives or Welcome Bonuses awarded in the first twelve months in case of new recruits; - Sales incentive, to incentivize sustainable commercial results; - Productivity Bonus for white collars and professionals, as regulated by the Labor Agreement applied by FCA Bank in Italy, defined for all Group employees, with procedures and rules defined by the labor agreement. In order to achieve objectives, it is a standard Group practice to establish ex ante limitations in terms of balanced maximums for variable remuneration, through the definition of specific caps on the increase of bonuses in relation to any over-performance. In any case, the overall variable compensation will be designed and, if coherent with achieved risk adjusted performances, awarded in line with ex-ante and ex-post risk alignment measures, described in details in the relevant section. All variable compensation, both for material risk takers and other individuals, is subject to clawback rules for employees who have caused or took part in causing: - Behaviors that caused significant loss for the Bank; - Loss of professionalism, integrity and independency requirements; - Fraudulent behaviors or serious guilt against the Bank. In addition, the Board of Directors can cancel - always respecting labor laws and regulation in each single Country - the disbursement of sums accrued in the past or request the pay-back of already paid amounts in case of: Significant capitalization problems for the Bank; Materialization of significant risks generated in the years when bonuses had been accrued. Detecting possible deliberate breaches of rules on risk-taking or behavior that is not compliant with the regulations or Group rules is possible through controls. Surveillance reports are made available to the control functions (R&CP and Compliance). All non-compliance with rules (abnormal risk-taking, failure to comply with regulations and/ or internal rules) are notified immediately: by the control functions (Risks and Permanent Control and Compliance) to the manager, by the manager to the employee. Instances of non-compliance (e.g. with rules) are centralized by the control functions. This notice mentions any dysfunctions observed, requests the reasons for dysfunctions and, if possible, a return to normality. The employee's answer must be validated by his/her manager, who will ensure compliance with the action plans (return to normality), by the risk manager for limit violations (validation of a return to below the limit), and by the Compliance Division for instances of failure to adhere to compliance rules. Notices to the employee and the answers given must be filed (for analysis at the end of the fiscal year) and monitored by Management and the Risk & Permanent Control and Compliance. Particular attention must be paid to repeated breaches. The control functions (permanent control/compliance) will send to Human Resources a summary statement of the anomalies observed during the fiscal year. Page 11 out of 20

12 The responsible functions and bodies will evaluate the impact of breaches on variable remuneration, decreasing till cancelling the variable component or clawing back it in case of claw-back events. 6. BOARD OF DIRECTORS AND STATUTORY AUDITORS Non-executive directors do not receive emoluments from the company and do not receive from their employers remuneration directly and significantly affected by FCA Bank s results. Only independent Directors, as defined for statutory auditors, receive emolument for their services, but the amount is set directly by the shareholders at their general meeting, as provided for by law. Such emolument consists of a fixed amount all-embracing, including also Committees attendance, independent of the Company s results. The Chief Executive Officer, as he s covering also the Company General Manager position, is entitled to receive a fixed and a variable remuneration, as described below for material risk takers. Again also in his case, he doesn t receive fees for the appointment to Director. The effective statutory auditors receive an yearly fixed emolument, defined in the articles of association and effective for the full period of their appointment. Members of the Board of Statutory Auditors do not receive any variable remuneration or other remunerations connected to Company results. 7. MATERIAL RISK TAKERS VARIABLE REMUNERATION Coherently with principles and values that the Bank wants to pursue through its own remuneration policies, the maximum attention is used to define remunerations, both fixed and variable, of this population in order to minimize potential risks for the Bank. The remuneration mechanism of leaders taking main risks is aimed at aligning long term interests of the Company and of the stakeholders with those of such employees. The main variable remuneration component is the Performance & Leadership Bonus, deriving from the Performance & Leadership Management ( PLM ) process FCA Bank Group has in place to ensure alignment of individual behaviors to corporate and shareholders yearly and long term objectives. Chief Executive Officer and General Manager and all Material Risk Takers are entitled to participate, in addition to professionals and other managers. Performance & Leadership Management is a management process that aims to establish transparent, bi-lateral communication with the employees to define together how they can contribute to the organization results and if they are working effectively towards achieving the agreed objectives, and finally providing them with adequate support to improve and develop. Performance & Leadership Management works on two dimensions, by focusing on objectives and related results, and on personal attitudes and individual behavior, making people accountable and involving them directly in their own development. The individual bonus and the overall variable remuneration are linked to individual and company results (both riskadjusted) through the following mechanism: Page 12 out of 20

13 where: - Eligible Salary means the actual Gross Annual Salary received by the employee during the performance year. It is worthy of note that account is taken of the remuneration actually received, not of the remuneration that can potentially be received by the employee for example excluding variable pay, in-kind remuneration, bonuses and any extraordinary payment in general, travel expenses reimburses and travel and transfer allowances, any performance bonus and payments set via supplements to the labor agreement. - The Target Bonus is the percentage of the Gross Annual Salary of reference for every single employee. The target bonus of employees may vary yearly based on their role. - The Company Performance Factor is the degree of achievement of the annual objectives by the relevant Market/Company/Business Unit. These objectives specifying relative weights, targets, thresholds and overachievements - are assigned every year upon proposal of FCA Bank s Advisory Board and then ratified by the Board of Directors; such objectives may take partly into account shareholders targets and partly the FCA Bank consolidated result. Specifically, thresholds and overachievements depend on each single objective. The gap between 100% and threshold will be the 50% of the gap between overachievement and 100%. At year end, Company Performance Factor is calculated based on the actual results and contributes to the above-mentioned PLB payout mechanism from 0% for not meeting threshold up to 150% in case of maximum overachievement. Particular attention is paid to identifying Risk-Management indicators able to ensure the sustainability of performance results and the inclusion of actual and future risks in performance measurements. The Risk & Audit Committee, advised by Risk & Permanent Control Function, evaluates the adequacy of risk measures and may recommend further adjustments to Company Performance Factor in case of capitalization and liquidity problems of the Bank. In elaborating annual objectives, the Advisory Board aligns as closely as possible short-term targets with the Bank s multi-year strategies. Corporate objectives include minimum achievement levels, below which no bonus is paid. Economic indicators, used as objectives, are always defined net of bad debt provisions and considering other economic risks evaluation. To define FCA Bank yearly objectives, the Advisory Board pays maximum attention to the use of correct indicators of the risk taken on and/or managed by the Bank. - The Individual Performance Modifier depends on the yearly evaluation received by every single employee, also based on the degree to which such employee has achieved the individual quali-quantitative objectives assigned to him/her, inclusive of risk-adjusted KPIs able to incentivize a sound risk management practice on specific individual risks, where applicable. The Individual Performance Modifier is determined according to the employee s assessment in terms of leadership and performances and contributes to the above-mentioned PLB payout mechanism, following the percentages of the PLM matrix: Page 13 out of 20

14 To ensure maximum objectivity to the evaluation, thus the robustness of the Individual Performance Modifier, the individual performance evaluation process consists of the following successive steps: - Objective setting: for every person entitled to the Performance & Leadership Management PLM, direct responsible and employee agree on a set of annual objectives, of a qualitative and quantitative nature, ensuring that these are related to the Bank s annual and, where applicable, multi-year objectives and that, where possible, these take into consideration risk profiles; for key personnel, at least one individual objective, inside PLM evaluation scheme, has to be correlated to risk, usually to the risk typology most relevant in his/her responsibility area; - Objectives evaluation: every direct manager has to evaluate - as an important phase in the PLM process - the achievement of performance objectives and the respect of leadership principles, as defined and recognized in the Group s leadership model; - Calibration on two levels (Competence line and individual Market/Business Unit): it is necessary, first in every area/department and then at the company and Group level, to ensure that evaluation criteria are applied consistently in the various company areas and that evaluations follow a standard distribution curve. Payment of the PLB to employees, made by cash, is subject to the final approval of FCA Bank s Board of Directors. However, the Board of Directors may also in the event that the minimum level of the assigned objectives is exceeded cancel the payment of the bonus for the entire Group or for certain Market/Company/Business Units, on the basis of qualitative assessments. These assessments can concern various aspects, such as: overall Company performance; sustainability of the payment in terms of capitalization, liquidity, risk appetite and any other significant variables; other operational reasons. Under no circumstances will payment be authorized in case of consolidated loss or when the Company s capital requirements show criticalities vis-à-vis current regulations. In the BoD minutes the reasons behind the bonus determination are always documented, in addition to any quantitative limits to be taken into account based on the Risk tolerance limits as defined in the Risk Appetite Framework. The Board of Directors can also suspend the payment of variable remuneration, also on an individual basis, in case of misconduct in respect of internal or external regulations, detected by inspection activities, done by internal control functions or by external control authorities. The award bonus is deferred by 40% and paid, pro-rata, through three yearly installments, respectively after the confirmation of the performances of years 2017, 2018 and 2019 and if no malus clauses are applicable: Page 14 out of 20

15 FCA Bank may decide not to pay the deferred amounts, in the event of an exit of the employee from the company or otherwise due to employment termination, where this does not conflict with prevailing local laws; The Board of Directors can suspend the payment of deferred variable remuneration, also on an individual basis, in case of misconduct in respect of internal or external regulations, detected by inspection activities, carried out by internal control functions or by external control authorities; The actual disbursement of the deferred portion of the bonus can decrease, in whole or in part, in case of fraudulent conduct by the employee or gross negligence of the employee detected only after the evaluation of the year in question; In case of occurrence of any event described as claw back clause; In case of lack of sustainability of the payment in terms of capitalization, liquidity, risk appetite and any other significant variables. As a Significant Institution FCA Bank has introduced, from 2016 remuneration policy the payment of 50% of awarded variable compensation by financial instruments in case of variable remuneration higher than and referred to the Chief Executive Officer & General Manager. The share-based component, both for up-front and deferrals, is subject to a further retention period (respectively 2 years for the up-front component and 1 year for the deferred component). The ex-ante sustainability assessment and the ex-post adjustment mechanism are in place even in case of assignment of Lump Sum: The overall variable remuneration awarded for 2016 may not exceed 1:1 (0,33% for Heads of Control Functions) The overall mechanism is able to ensure deferrals and malus rules, in line with applicable regulations All paid and unpaid variable remuneration is subject to clawback clause, as above described. Welcome Bonus may be awarded during the first twelve months in case of new recruits. They may not be subject to exante conditions (at Group, Company or Individual levels), but are subject to cap, deferrals malus and clawback, in line with rules defined by current remuneration policy for variable remuneration for risk takers, unless local regulations provide more stringent rules. To prevent the amounts of deferred bonuses from being irrelevant, a minimum deferral amount was set for total variable compensation for key personnel (Risk Takers). Such minimum total awarded amounts 40,000 euros and the deferral mechanism is applied to the whole bonus amount. 8. FOCUS ON HEADS OF CONTROL FUNCTIONS The variable compensations of the Heads of the Control Functions and Head of Human Resources, as requested by regulations, do not reflect quantitative or financial Company performances, which they control, and relate solely to the fulfilment of their specific duties, with special emphasis on risk management and proper and complete implementation of the required controls. Individual objectives are not connected with commercial and economic results of the Bank, the trend of which they have to monitor, to avoid prospective conflicts of interest. The Heads of control functions are therefore evaluated individually on how they carry out their responsibilities in their own specific roles and no economic objective will be filled in in their Performance & Leadership Management evaluation schemes. Page 15 out of 20

16 The Performance & Leadership Bonus (PLB) is computed without any reference to the Company Performance Factor, in order to enhance Heads of control functions independence. Therefore, the bonus of these employees is calculated by multiplying the Target Bonus by the Eligible Salary of reference, as described above, and by the Individual Performance Modifier. As with the disbursement of all PLB, also the bonuses for these employees are subject to approval by the Board of Directors, which is called upon to decide on the sustainability of overall amount of variable remuneration, and to deferral and malus, and clawback rules, as described for all Material Risk Takers. The limit is set at 33% of fixed remuneration, as above described. 9. OTHER EMPLOYEES REMUNERATION Fixed salary is a key component of remuneration, for everyone in the Bank and not only for key personnel; in itself, it must be sufficient to compensate the employee for his or her role and must be commensurate with their duties, responsibilities and previous experience. In any case, fixed salary must be sufficiently high, so as to allow variable pay to fall, in whole or in part, as needed. The ratio between variable and fixed remuneration is set 1:1 for all employees. Variable remuneration for other employees may include: - The so-called PLB (Performance and Leadership Bonus), which is related to the annual evaluation process, adopted within FCA Bank for positions not entitled to sales incentives, excluding white collars with a lower level than FCA Bank internal Grade professional ; - Productivity Bonus for white collars and professionals, as regulated by the Labor Agreement applied by FCA Bank in Italy, defined for all Group employees, with procedures and rules defined by the labor agreement; - Sales incentives, applied to commercial positions or comparable operational roles, whose performance can be measured through specific quantitative indicators, as explained in detail in 9.1; - Lump Sum or Welcome Bonus (FCA Bank Group will limit over time the use of lump sum payments not directly related to the achievement of specific objectives, except for any welcome bonuses in the first twelve months in case of new recruits). FCA Bank may use such compensation in kind of limited value, for example to reward employees involved in strategic projects and in relevant projects for the Bank. FCA Bank uses specific allowances only in case of international transfer, as defined in the chapter Key personnel remuneration, and, being them not connected in any way with the performance of the employees, they are not computed in the variable part of the remuneration. 9.1 SALES INCENTIVES For field employees of FCA Bank and its subsidiaries, or for similar roles, incentive plans are in place instead of the Performance and Leadership Bonus Plans. The maximum percentage of Gross Annual Salary under such incentive plans or any accrued variable component cannot exceed the maximum variable pay levels set for the Company s top management, CEO and General Manager; in any case such percentage is always lower than the limit defined as 1:1. The structure of the objectives and the calculation and payment mechanisms can vary, and are notified to employees every year; the same incentive plans normally vary from market to market, so as to be aligned with FCA Bank s local commercial and management strategies. Page 16 out of 20

17 Also for this type of bonus, malus mechanisms are in place in case of employee fraud or gross negligence, in all Countries in which it does not conflict with prevailing national contracts and labor laws, which have been included to avoid potential problems caused by merely commercial objectives. Clawback rules apply in case of occurrence of any event above described. Lastly, in case of significant capitalization difficulties in the Bank, liquidity problems or other proven management reasons, the CEO & General Manager or the Board of Directors may, at any time, terminate all commercial incentives, whether the objectives set at the beginning of the evaluation period have been met or not. 10. EXTERNAL NETWORKS The placement of FCA Bank services is done through suppliers of goods and services (dealer networks). Such activity does not represent exercise of agency in financial asset or credit mediation (ex. Legislative Decree 141/2010), because the promotion and the trade of financial contracts, offered by FCA Bank commercial network, is only aimed to the purchasing of goods and services of FCA Group or other car makers. Nevertheless, the network remuneration scheme, even if based on commercial indicators, is inspired by principles established by laws and regulation. In particular to link this remuneration to long term objectives and in order to minimize legal and reputational risks malus mechanisms are established to address proven fraudulent actions against customers and the Bank that would result in damages and/or payments of any kind by the Bank QUALITATIVE AND QUANTITATIVE DISCLOSURE COMPENSATION CYCLE The 2015 remuneration policy, prepared as per the first year of banking operations, has been deployed considering the intermediate positioning of the Group between major and minor banking Groups. - The independent directors have been required to express their opinion (due to the size of the bank, a Remuneration Committee was not required) - Risk and Audit Committee has been required to verify the coherence of the incentive scheme to the Risk Appetite Framework. The Board of Directors validated the document 2015 Remuneration Policy for FCA Bank on February 13 th, 2015, including the results of the identification process for Material Risk Takers, while it was approved by the Shareholders in a meeting held on March 26 th, Similarly, the various Board of Directors of the Subsidiaries Banks approved where applicable - the related remuneration policies, always in full compliance with local laws and regulations. In terms of company performance objectives, they were assigned and linked to both Shareholders objectives and specific Markets business results, including risk adjustment measures able to align results to capital requirements and liquidity and long term objectives. All functions responsible for the remuneration policy preparation, implementation and control have been involved: Human Resources prepared the Remuneration Policy in line with reward, people strategy and regulatory framework; the Compliance function assessed the alignment to legislation, regulations, internal policies; Page 17 out of 20

18 the Risk & Permanent Control verified the coherence with Risk Appetite Framework and the risk alignment of Material Risk Taker identification and exclusion process; the Internal Audit reviewed alignment of practice to policies and regulatory framework; the Board of Directors held on February 19 th, 2016 approved 2015 results and the related estimate of the overall variable remuneration and individual bonus linked to Company and individual performance. As required by the remuneration policy and the regulatory provisions, the variable remuneration of control functions is not linked to company performances but only to function objectives; the Board of Directors and lastly Shareholders receive the disclosure on 2015 remuneration policy implementation. In compliance with provisions of the Supervisory Authority, the Internal Audit Function performed an annual audit of the remuneration policy has been the first year of banking activities, so the Internal Audit focused his annual audit, performed as per planned activity in June, on the alignment of 2015 remuneration policy to regulatory framework, as well as in January 2016, to verify the efficiency and effectiveness of the procedural framework set up by the Company and the respect of the regulations by the internal remuneration and incentivisation policies and procedures. The internal control system regarding the remuneration process 2015 has been overall adequate. Analyses performed on a sample of risk takers and non-risk takers provided by Human Resources and including the Heads of Control Functions, pointed out the correct application of the calculation metrics defined by the procedures VARIABLE COMPENSATION COMPONENTS AND MAIN RESULTS In the below tables is reported the aggregate remuneration paid during 2015, in line with the detail s level required by Bank of Italy. As related to the previous policy, defined for a non-banking financial institution, payments have been made all up-front and cash. Results of 2015 have been 17.2 bn in terms of portfolio (in 2014 it was 15.3 bn), m in terms of profit before tax, reflecting an increase of approximately 103 m (+40,1%) on the previous year and the Common Equity Tier 1 ratio (CET1) settled at 10.45% at 31 December Disclosure on variable compensation linked to 2015 performances will be included in the next year remuneration disclosure, due to the pay-out timeline. It will also show the break-down between up-front and deferral payments. Estimated variable amounts to be paid approximate 2015 payments. In line with approved remuneration policy for 2015, they will include deferrals, malus and clawback rules. Page 18 out of 20

19 11.3. QUANTITATIVE TABLES Table 1 ( Aggregate 2015 Remuneration broken down by business area) Number of Incumbents * Fixed Remuneration Variable Remuneration Italy , ,16 Major Markets , ,84 Other EU Markets , ,66 * not included employees belonging to legal entities that are not in the banking perimeter, with the exception of the CEO Table 2 ( Aggregate 2015 Remuneration broken down by MRT categories) Number of Incumbents (2015) Fixed Remuneration in 2015 Variable remuneration paid during 2015 ** Cash Board of Directors (*) Senior Management Head of Control Functions Other Material Risk Takers , , , , , , ,05 * CEO & General Manager included in Senior Management according to his executive role ** Disclosure on variable compensation linked to 2015 performances will be included in the next year remuneration disclosure, due to the approval pay-out timeline. It will also show the break-down between up-front and deferral payments. Section regarding the previous year deferred remuneration is not applicable: all the payments were made up-front and cash because the company has become Bank from 2015 Additionally it must be highlighted: No new sign-on and severance agreements for MRT categories No severance payments for MRT categories No individuals remunerated 1 m or more in 2015 Table 3 (Individual total compensation for Board Members and Deputy General Manager (*)) Category Name 2015 Overall Fixed and Variable Gross Remuneration Chief Executive Officer and General Manager Giacomo Carelli ,54 (**) Deputy General Manager Franco Casiraghi ,16 Indipendent Director 1 Mario Busso ,00 Indipendent Director 2 Andrea Giorio ,00 * As reported in par. 6, the Chairman and other non-executive directors do not receive emoluments from the company. ** To be added expat allowances equal to ,00 Page 19 out of 20

20 ANNEX A: LIST OF 2016 IDENTIFIED KEY PERSONNEL (MATERIAL RISK TAKERS) Page 20 out of 20