UniCredit CEO Orcel has leverage in pay debate

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Italian banker Andrea Orcel attends a trial against Santander over the bank's withdrawal of a CEO job offer to him, in a high court in Madrid, Spain, May 19, 2021. REUTERS/Juan Medina/File Photo

MILAN, Dec 6(Reuters Breakingviews) - Andrea Orcel’s remuneration is making headlines again. The UniCredit (CRDI.MI) chief executive has already had a bumper year – in January, a Madrid court awarded him 51.4 million euros in compensation after Santander (SAN.MC) withdrew a job offer. A trickier question is what the 25 billion euro Italian bank’s board should agree to pay its veteran dealmaker for his day job.

Under UniCredit’s remuneration policies, Orcel receives 2.5 million euros in salary, with the potential for twice that via an annual bonus. In 2022, there’s a strong case to pay that in full. He is on track to hit quantitative targets that include net revenues of 16.3 billion euros and a return on tangible equity above 7%. He has also cut costs while keeping core capital above 15% of risk-weighted assets.

Orcel will also keep his promise to return nearly 4 billion euros of capital to shareholders this year. UniCredit shares trade at 0.38 times their tangible book value, against an average of 0.48 times for European banks. That’s up from 0.34 times and 0.57 times respectively when he took over in April 2021, Refinitiv data show.

A regulatory cap prevents UniCredit from paying its CEO a bigger bonus, so the board may have to hike his fixed salary to pay him more. It’s not totally clear that’s warranted, though. Orcel’s dealmaking abilities were a key factor in his hiring, but deals have so far eluded him. Talks to purchase state-controlled Banca Monte dei Paschi di Siena (BMPS.MI) collapsed last year. A subsequent tentative approach with Banco BPM (BAMI.MI) also fizzled out, sources with direct knowledge of the situation told Breakingviews. And Orcel is sitting on a 7-billion-euro exposure to Russia, which has unnerved some investors even though the bank says it would only erode 91 basis points of capital in an extreme loss scenario.

UniCredit Chairman Pier Carlo Padoan said Orcel has not asked for a pay rise. But he would have two types of leverage in a pay debate. His total compensation is comparable to that of Intesa Sanpaolo (ISP.MI) CEO Carlo Messina, and above the median of salaries of other top European bank CEOs. But it’s between one quarter and 60% less than the maximum compensation offered to the leaders of Deutsche Bank (DBKGn.DE), Santander, Barclays (BARC.L) and UBS (UBSG.S).

Meanwhile, there is always a risk that Orcel jumps ship to another large European bank. Should the top job at former employer UBS become available, for example, he would be a leading candidate. As UniCredit’s board members mull whether to up his pay, that will be at the front of their minds.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

Italian lender UniCredit will review the pay package of its Chief Executive Andrea Orcel ahead of its 2023 general meeting.

UniCredit Chairman Pier Carlo Padoan told Reuters in an emailed comment on Dec. 2 that the bank’s remuneration committee will make a recommendation to the board regarding the CEO’s pay “incorporating views of investors and wider stakeholders.” Orcel has not asked for a pay rise, Padoan added.

Orcel’s pay package envisages a fixed salary of 2.5 million euros a year and a bonus of up 5 million euros. Orcel, whose package is more than twice that of predecessor Jean-Pierre Mustier, was also awarded a sign-on bonus worth 4.8 million euros in shares when he joined the bank in 2021.

Editing by George Hay and Pranav Kiran

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