CMS Expert Guide to ESG Compensation in Italy

From an Italian employment law perspective, regulations governing remuneration are provided for by the Italian Civil Code, laws and applicable collective bargaining agreements, as well as the individual employment contracts, in consideration of the main sector in which the company operates.

At this stage and as a general principle, Italian law does not provide any specific rules governing ESG criteria and obligations in executive remuneration, but leaves this to negotiations between the parties.

Remuneration for all employees is based on Article 36 of the Constitution, which states that 'workers have the right to a remuneration commensurate to the quantity and quality of their work and in any case such as to ensure them and their families a free and dignified existence'.

However, companies have the possibility to establish regulations in this regard within the framework of works agreements or group works agreements.

NCBA of the company's business sector may contain more detailed ESG forecasts.

See point 1 for additional information.

See above

See above

There is no specific distinction between directors and top management employees. Under Italian law, the highest category of employees is that of executives (in Italian 'dirigenti'), which includes both top management and directors. In some cases, collective bargaining agreements regulate the activities of these employees in more detail. However, the term 'top management' can also refer to individuals holding both management and corporate positions.

We are not aware of any regulations in Italy governing ESG obligations for employees' remuneration who are not directors or top management.

The difference between executive pay and the pay of the rest of the workforce is not an issue, as long as it is not discriminatory.

In fact, under Italian law, no one may be discriminated against on the basis of gender, race, personal beliefs, etc. (equal treatment requirement).

Law No. 162/2021 provides for gender equality certification as of 1 January 2022. This document must certify the policies and measures specifically adopted by the employer to reduce the gender gap (e.g. opportunities for growth in the company, equal pay for equal work, gender equality management policies and maternity protection).

Subsequent decrees of the Council of Ministers will define the minimum parameters for certification, data monitoring and, from January 2022, bonus measures such as:

• relief on employer's social security contributions up to a limit of 1 per cent and EUR 50,000 a year for each company,
• bonus points for the granting of state aid and/or public financing in general. Furthermore, in the context of calls for tenders for the acquisition of services and supplies, possession of a gender equality certification with a higher score will determine a better ranking.

Variable remuneration in Italy is paid upon achievement of agreed targets. To be valid, it must meet the following criteria: (i) the objectives must be negotiated or, in any case, mutually agreed; (ii) they must be achievable according to a criterion of normal predictability; (iii) there must be a possibility for the employee to influence the objective; (iv) the sums recognised must constitute an appreciable percentage of the gross annual remuneration.

In Italy, there are no mandatory remuneration schemes in relation to ESG.

No, each company sets up its own KPIs.

It is difficult to identify a complete market practice in Italy in this respect, as market practice is still evolving.

Yes, the market practices derive from self-regulation if companies adopt ESG criteria.

Market practices have emerged in all sectors and industries, but are currently strongest in the banking and insurance sectors.

Environment

• Use of renewable energy
• Reducing carbon emissions
• Waste management, waste reduction, selective waste collection
• Circular economy, recycling
• Reducing water use

Social

• Hiring employees with reduced working capacity
• Hiring employees who are underprivileged or belong to minorities
• Occupational health and safety
• Improving gender ratios in the workplace
• Education and training
• Data protection

Governance

• Involvement of external stakeholders in decision-making
• Use of independent experts in decision-making
• Risk management
• Transparent operation, sharing of operational data

ESG KPIs are usually used in short-term pay; however, we have evidence of their use in both short-term and long-term pay.

We cannot specify the share of ESG-related variable remuneration in numbers.

To date, there are no other ESG disclosure requirements other than thos mentioned above (which are likely to be better aggregated in the near future).

Existing agreements could be affected. At this stage, it is not yet possible to outline the effects that detailed legislation will have on existing agreements.

ESG measures could be adopted as amendments to the individual employment contract, agreed upon with employees on a case-by-case basis. A case-by-case assessment is appropriate.

No

We are not aware of any upcoming regulations. However, there might be some private self-regulation initiatives. Even though the current government has announced several bills related to social aspects of employment, the concept of “ESG” is still relatively new in Italy. It will still be necessary to wait for the new government's initiatives and monitor developments.