Chrysler 2010 Annual Report Download - page 94

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SHARE-BASED INCENTIVE PLANS
Fiat S.p.A. has established share-based incentive plans for more than 900 Group employees, in Italy and abroad, whose activities and leadership have a
significant impact on the Group.
The incentive plans currently in place, approved by Fiat S.p.A. between 2004 and 2010, offer Fiat ordinary shares for purchase at a predetermined price
(stock options) or grant Fiat ordinary shares (stock grants). Following the demerger of activities from Fiat S.p.A. to Fiat Industrial S.p.A., those plans were
amended to ensure they fulfill the objectives for which they were adopted, even subsequent to the Demerger. Those entitled to stock options or stock grants
will, therefore, receive one ordinary Fiat share and one ordinary Fiat Industrial share for each right they hold, with the option exercise price (for stock option
plans) and the free grant of shares (for the stock grant plan) remaining unchanged.
In addition, the subsidiary CNH Global N.V. has existing stock option and/or stock grant plans based on its ordinary shares, while the stock option plan
established by Ferrari S.p.A. for its Chairman Luca Cordero di Montezemolo expired at the end of 2010. Prior to coming under the Group’s control, other
subsidiaries had approved cash-settled share-based payment plans referred to as Stock Appreciation Rights (SARs).
Following is a description of the principal characteristics of the incentive plans based on Fiat S.p.A. shares.
These plans were established to incentivize individuals in key positions toward the achievement of Company and Group performance targets and align those
incentive plans to the long-term value created for shareholders. The level of commitment is further strengthened where, as has generally been the practice
since 2004, vesting is subject to achievement of specific profitability targets during the reference period.
At the same time, incentivizing management through instruments that reflect the Company’s market value contributes to the alignment of their interests with
those of shareholders, promoting their sense of identification with the Group and significantly enhancing retention.
Plan beneficiaries are selected using objective criteria that take into account the impact of their role on business objectives. The number of options/shares
actually granted is determined on the basis of individual leadership qualities.
The stock option plans established by Fiat S.p.A. grant beneficiaries the option to purchase one Fiat ordinary share for each option exercised at a
predetermined price. As stated above, under the amendments made pursuant to the Demerger, beneficiaries have the option to purchase one Fiat ordinary
share and one Fiat Industrial ordinary share.
The options are subject to a predetermined exercise period beginning from the vesting date until the plan expiry date.
For all stock option plans, the exercise price is based on the average daily market price for the month prior to the grant date and may be subject to
adjustment as a result of transactions affecting the Company’s share capital, with any adjustment factor being determined by the AIAF. The exercise price
is payable in cash at the moment of exercise.
On 26 July 2004, the Board of Directors granted Sergio Marchionne, as a part of his variable compensation as Chief Executive Officer, options to purchase
10,670,000 Fiat S.p.A. ordinary shares at a price of €6.583 per share, exercisable from 1 June 2008 to 1 January 2011. In each of the first three years
following the grant date, the CEO acquired the right to purchase, beginning 1 June 2008, a maximum of 2,370,000 shares annually. As of 1 June 2008, he
also acquired the right to exercise, effective from that date, the remaining options on 3,560,000 shares as a result of predetermined performance objectives
for the reference period having been met. At the Annual General Meeting on 27 March 2009, Shareholders approved a number of amendments proposed
by the Board of Directors, which determined that it was significantly in the Group’s interests to restore the retention capability of the Plan given the change
in conditions in the real economy and financial markets and the particularly uncertain period being faced by the automotive sector globally. More specifically,
a new vesting period was introduced, conditional solely on Mr. Marchionne remaining in office, which rendered the options unexercisable until 31 December
2010 and extended the exercise period through to 1 January 2016, with all other conditions of the plan remaining unchanged.
REPORT ON
OPERATIONS
SHARE-BASED
INCENTIVE PLANS