UniCredit finds costly fix for faulty CEO pay

UBS chief executive Andrea Orcel leaves after attending a UK parliamentary inquiry into Libor interest rates in London
UBS chief executive Andrea Orcel leaves after attending a UK parliamentary inquiry into Libor interest rates in London January 9, 2013. REUTERS/Olivia Harris

MILAN, March 2 (Reuters Breakingviews) - UniCredit’s (CRDI.MI) board is learning the hard way about negotiating with Andrea Orcel. The Italian lender has decided to hike its chief executive’s compensation package just two years after hiring him, a company document showed on Wednesday. It’s an expensive fix for a flawed deal.

UniCredit originally envisaged paying the former UBS (UBSG.S) executive an annual salary of 2.5 million euros and a bonus worth twice that amount - the maximum allowed under European rules – if he hit certain targets. However, there was no extra perk if the bank exceeded its goals, as it did in 2022. Despite a war and an energy crisis, but helped by rising interest rates, Orcel delivered the bank’s best net profit in a decade and returned 5.25 billion euros to investors in share buybacks and dividends, 40% more than in the previous year. UniCredit shares are up 75% over the last twelve months, against 22% for the STOXX Europe 600 Banks Index.

To give Orcel an incentive to beat his goals again, and to keep the pay-conscious dealmaker happy, UniCredit tweaked the package. It hiked his fixed pay to 3.25 million euros but changed the way the bonus will be allocated. If Orcel hits new and more challenging targets he will earn a bonus of 4.25 million euros, lower than last year’s payout, paid all in stock. But if he overshoots again, he could get up to 9.75 million euros. Incentivising overperformance makes sense. Doing it belatedly, however, comes at a cost. (By Lisa Jucca)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own. Refiles to fix formatting.)

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