to download Telecom Italia Annual Report 2011 - Company Reporting

Note 36 – Equity compensation plans
Equity compensation plans are used by Telecom Italia for retention purposes and as a long-term
incentive for the managers and employees of the Group.
However, it should be noted that these plans do not have any significant effect on the economic result or
on the financial position or on cash flows at December 31, 2011.
Description of stock option plans
• Top 2008 Stock Option Plan
This plan refers to options granted on April 15, 2008 to the then chairman and chief executive
officer, originally for 11,400,000 options, exercisable at the end of the vesting period, expiring after
three years from the grant date at a price of 1.95 euros per option. The exercise period is from April
15, 2011 to April 15, 2014. Each option gives the right to one Telecom Italia S.p.A. ordinary share.
75% of the options granted (equal to 8,550,000 options) are not subordinate to performance
targets and is still valid while the remaining 25% (equal to 2,850,000 options) were forfeited in
2010 because the performance target were not reached. During 2011, no options were exercised.
Unexercised options expire at the end of the plan.
Description of other equity compensation plans
• Performance Share Granting Plan 2008-2011
The Plan grants free Telecom Italia ordinary shares to beneficiaries (Top Management of
Telecom Italia or subsidiaries) for a pre-determined maximum and variable number of shares,
according to the period of each individual beneficiary’s effective participation in the plan and the
extent to which the pre-set share performance targets have been reached.
Since the performance targets were not met, all the rights were forfeit and the plan expired on
June 30, 2011.
• Broad-based Employee Share Ownership Plan
The Plan consists of a subscription offering for Telecom Italia ordinary shares at a discount off the
market price, reserved for employees of Telecom Italia or companies controlled by Telecom Italia
with registered offices in Italy. A further grant of ordinary shares shall be made, in a ratio of one
bonus share for every three subscribed shares, subject to retaining the subscribed shares and
maintaining an employment relationship with companies of the Telecom Italia Group.
The first part of the plan was carried out and on July 29, 2010 a number of Telecom Italia ordinary
shares was issued equal to 27,056,139 (of which 24,427,422 were reserved for employees of
Telecom Italia S.p.A. and 2,628,717 for employees of Italian subsidiaries).
These shares were offered for subscription at a per share price of 0.84 euro, corresponding to the
arithmetic mean of the market price of the shares between May 25, 2010 and June 25, 2010,
discounted by 10%.
On August 2, 2011, capital was increased by the grant of 8,876,296 bonus ordinary shares to those
entitled, for a total par value of 4,881,962.80 euros.
• Long Term Incentive Plan 2010-2015 (LTI Plan 2010-2015)
The Plan grants, to a selected number of Group management who are not already beneficiaries of
other long-term incentive plans, a cash bonus based on three-year performance measured against
pre-set targets, with the option of investing 50% of the bonus in Telecom Italia ordinary shares at
market price. At the end of the three-year performance period, if the manager decides to invest half
of the bonus, retaining these shares and maintaining an employment relationship with companies of
the Group for the next two years, the manager will have the right to the grant of an equal number of
free ordinary shares.
The performance targets are measured using the Total Shareholder Return of Telecom Italia (TSR TI)
and Free Cash Flow (FCF). In particular, the payment of 65% of the bonus will be linked to the
relative TSR TI in the three years 2010-2012 whereas the payment of 35%, instead, will be linked to
an absolute performance indicator represented by the cumulative FCF during the period 2010-2012.
Telecom Italia S.p.A. Separate Financial Statements Note 36 – Equity compensation plans 422