Remuneration Committee

Functions of the Remuneration Committee

In 2004, a specific Remuneration Committee was established within the Board of Directors, whose duties were identified in compliance with the provisions of the Governance Code of reference and the methods by which the meetings are held, governed by a specific internal organisational regulation adopted by the Board of Directors since January 24, 2007 ("Organisational Regulation of the Remuneration Committee of TERNA S.p.A.") subsequently updated on November 9, 2011, in order to assure full coherence with the indications of Article 7 of the 2010 edition of the Governance Code.

During the meeting of December 19, 2012, in making some changes to the specified Organisational Regulation, the Board of Directors resolved further adjustments in relation to the competences and composition of the Committee in order to bring it perfectly into line with the new provisions of the Governance Code (Article 6).

More specifically, the following are the competences of the Committee: (i) on the remuneration policy of the Directors and Executives with strategic responsibilities (Articles 6.P.4 and 6.C.5 of the Governance Code); (ii) on the proposals and opinions for the remuneration of executive directors and other directors holding specific roles; (iii) on the fixing of performance objectives linked to the variable part of that remuneration; (iv) monitoring the application of the decisions taken by the Board; and (v) verification of the effective achievement of performance objectives (Article 6.C.5 of the Governance Code).

With regard to the new provisions on the composition of the Committee, we note that, as envisaged by the transitional provisions of the Governance Code (paragraph VIII of the "Guidelines and transitional regime"), they are to be applied during the next renewal of the Board of Directors.

The current composition of the Committee in any case is more than appropriate for the provisions of the previous Governance Code as, following the renewal of the Board of Directors during the meeting of May 13, 2011, three directors were appointed, all non-executive and independent: Salvatore Machì (to act as Chairman), Romano Minozzi and Paolo Carlo Renato Dal Pino. At least one member is in possession of sufficient financial knowledge and experience.

The Chairman of the Committee or other member of the Committee reports to shareholders on how duties are exercised. To this end, it is envisaged that the Chairman of the Committee or another member of the Committee shall attend the Annual Shareholders' Meeting (Comment to Article 6 of the Governance Code). The Chairman of the Committee attended the Shareholders’ Meeting of May 16, 2012, making a speech.

No Director takes part in Remuneration Committee meetings where proposals intended for the Board are formulated on matters concerning its own remuneration, unless proposals are presented that regard general Committee members as established within the Board (Article 6.C.6 of the Governance Code).

At the request of the Chairman of the Committee, members of the Control and Risk Committee and/or other members of the Board of Directors can attend the meetings, the Chairman of the Board of Statutory Auditors or another Statutory Auditor appointed by him and other TERNA’s executives or other people whose presence may prove helpful to the best fulfilment of the Committee functions (Article 4.C.1, letter f) and Comment to Article 6 of the Governance Code).

In 2012, the Remuneration Committee held 4 meetings, with the regular participation of all members and the Chairman of the Board of Statutory Auditors. The meetings lasted an average of about 40 minutes each. None of the Directors participated in the Committee meetings in which proposals regarding their remuneration were submitted to the Board of Directors. Upon the Committee's request, the meetings were also attended by Directors of the Company whose presence was deemed helpful for the best information regarding the items on the agenda.

Minutes were duly taken of all committee meetings and the committee had the chance to access the information and business functions necessary to go about its duties and to use external consultants in accordance with the terms established by the Board (Article 4.C.1, letter e) of the Governance Code). In this latter regard, the Committee verified the existence of the requirement of independence of the consultants used (Article 6.C.7 of the Governance Code).

In 2013, the Committee will hold as many meetings as are sufficient for carrying out the duties assigned.

During the year up to the date of approval of this Report, the Committee has held two meetings.

The percentage participation of each member of the committee in the meetings held during FY 2012 is indicated in table 1 attached (Article 123-bis, paragraph 2, letter d) of the Consolidated Law on Finance).

As part of its duties, and with respect to the remuneration of the CEO and other Directors covering particular offices, during 2012 the Remuneration Committee made specific proposals to the Board of Directors, with the support of a consultancy company that set the remuneration benchmark, that provided for a portion of the Executive Director's compensation to be based on the Company's results and the achievement of specific objectives indicated in advance by the Board. Moreover, using the support of a consulting firm, it prepared the specific proposal for the "Remunerations Policy" adopted by Terna for the remuneration of executive directors, other directors assigned specific duties, statutory auditors, general managers and executives with strategic responsibilities, submitted to the annual Shareholders’ Meeting in accordance with Article 123-ter, paragraph 6 of the Consolidated Law on Finance and, on that occasion, positively considered, in accordance with the reference provisions of the Governance Code, the overall coherence and concrete application of the policy adopted by the company. In addition, during the meetings held in 2012, the Remuneration Committee examined the incentive plans for the Company's top management. In 2013, the Committee also formulated proposals for the "Remuneration Policy" for at least the following year, approved by the Board and to be submitted to the Shareholders’ Meeting called to approve the financial statements for FY 2012 pursuant to Article 123-ter, paragraph 6 of the Consolidated Law on Finance.

During the meeting of March 15, 2013, the Board of Directors evaluated the duties and performance of the Committee. The generally positive evaluation of the composition, size and responsibilities of the committee, was confirmed by the Board of Directors within the yearly review of the Board itself and of the committees.

The Committee has been granted adequate financial resources.