Broad-Based Equity Plans in Italy

In 2024, Italy witnessed a sudden proliferation of Broad-Based Equity Plans (known as Piani di Azionariato Diffuso - PAD).
But what exactly are these Plans, recently chosen by major FTSE MIB companies (such as Eni, and Unicredit, among others) as a form of employee compensation?

What are PADs and how do they work? 

PADs are share-based compensation plans that allow all (or almost all) company employees to obtain shares in the latter. Employees can obtain shares:

• Through purchase, and/or
• As a "gift" from the company.

1. Purchase Plans 

Typically, if the PAD includes the possibility of purchasing shares, employees are given the opportunity to invest a lump sum (following, for example, the conversion of a production bonus “premio di produttività” or a bank transfer) or to deduct the investment amount from their monthly pay.
To encourage purchase, companies usually offer either:

• a discount on the shares purchased, or
• the delivery of free shares following the purchase (for example, for every two shares bought and held for a certain number of years, typically three, the company gives one free share).

2. Free Share Plans

Plans that involve the delivery of free shares also generally require a holding period for the shares, usually around three years.

3. Additional Tools  

Regardless of the type of PAD (based on purchase or free delivery), companies can decide to support the plan with financial instruments such as:

• Insurance Coverage: A tool that allows the recipient's investment to be "protected," ensuring the return of the invested amount at the end of the vesting period (even if the share price has fallen).
• Leverage: A tool that allows the initial investment's gains to be amplified.

4. Taxation

 PADs follow the tax regime of other incentive plans. In simple terms, anything "gifted" to the employee is considered taxable income, while anything purchased by the employee is not.
However, there is an exception provided by the Italian Income Tax Code (“TUIR”, specifically Article 51, paragraph 2, letter g). This exception allows employees to receive up to €2,065.83 worth of shares per tax year, tax-free, meaning they are not considered taxable income.
This is under the following conditions:

• The shares are offered to all employees, and
• The shares are not repurchased by the issuer or employer, and
• The shares are held by the recipients for at least 3 years from the date of allocation.

Objectives of PADs

1. 1. Compensation, Attraction & Retention
   PADs are certainly a compensation tool used by companies to enhance the package offered to all employees. Like other compensation tools, they have the clear objective of attracting and retaining talent within the company.
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3. 2. Employer Branding
   Thanks to the evolution of Italian work culture, talents expect equity tools to be included in their compensation package. Consequently, companies use PADs to demonstrate their status as a "good employer," even when recruiting new resources is not the priority.
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5. 3. Marketing for Investors and the Public
   The launch of PADs is an important opportunity to demonstrate the company's solidity to its investors and other stakeholders. For example, the launch of a PAD can coincide with the celebration of a corporate milestone or a change in strategy or governance.
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7. 4. Corporate Culture and Alignment of Interests
   Involving all employees in the share capital means aligning the interests of employees with those of shareholders. It also helps create a culture of belonging and "loyalty" to the company.
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9. Challenges and Solutions

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11. The launch and management of a PAD undoubtedly involve complexities for the functions involved, which are varied (typically including HR, Finance, Legal, IR, among others).

    However, these complexities can be leveraged to build plans appreciated by all stakeholders that achieve the set objectives.

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13. 1. Strategic Choices

    Launching a PAD means choosing timing, types of instruments used, treatment of different categories of participants, among other things. These choices have significant consequences on the plan's success. Generally, to make informed decisions, it is important to involve all relevant functions and consult strategic advisors.

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15. 2. Communication

    The true protagonists of PADs are the employees. It is therefore essential to effectively communicate the plan's benefits from the launch, through relevant events (e.g., purchase campaigns, share vesting, etc.). For effective communication, it is important to involve internal communication functions, sometimes including external advisors, and to use an internal or external technology platform for plan visualization.

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17. 3. Management

    During the plan's duration, critical events occur, such as share purchase campaigns, share vesting, etc. To manage these events, it is crucial to have clear internal responsibilities and a proactive approach, potentially supported by external experts.

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19. 4. Compliance

    PADs have significant tax and regulatory impacts. It is essential to have a clear understanding of these impacts from the start, even for the company's non-central jurisdictions. Typically, to have a clear idea of these impacts, especially abroad, it is advisable to have support from experts in the field.

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21. How can we help you?

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23. Optio handles the launch and management of incentive plans like PADs in Italy and worldwide.

    In Italy, we provide strategic advisory services for the launch and management of PADs, as well as plan administration (platform for employees and administrators) and accounting for the instruments used.

    For a non-committing conversation, contact us here!

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