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Expert Corporate Governance Service (ECGS)
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Etude de l'AG du 03/05/2017

In September 2016, the major shareholders "la Caixa" and Repsol sold 20% of Gas Natural shares to the infrastructure fund manager Global Infrastructure Partners (GIP). Following the transaction, Gas Natural's major shareholders are "la Caixa" (24.4%), Repsol (20.1%) and GIP (20%).

On 21 September 2016, the Board decided several changes to its composition and regulations, to reflect the new shareholder structure. In items 8.1 to 8.8, it is proposed to appoint 8 non-executive Directors, all representing the major shareholders. As we have concerns over the lack of independent representation on the Board (35%), we recommend that shareholders oppose all appointments.

In item 11, shareholders are called to a binding vote on the remuneration policy for the 3- year period 2018-2020. No significant changes are proposed to the remuneration policy that was approved last year. The CEO's base salary was increased by 32% in 2015, by 5% in 2016 and by 5% in 2017, to € 1'537'987. No justifications have been made for the increases other than benchmarking performed by external consultants. We note that the CEO's fixed remuneration exceeds by 48% the median at Spanish large companies (€ 1.04 million in 2015) and is 56% higher than the median of the European "Utilities" sector (€ 0.99 million in 2015). The Company has improved the quality of disclosure, including the short-term performance criteria and the ex-post disclosure of the level of achievement of annual targets. The overall variable remuneration is reasonable, as on aggregate capped at 185% of the CEO's base salary. However, we regret that it depends more on short-term results (representing 62% of total variable remuneration) rather than on long-term performance. Furthermore, there are no equity-based variable remuneration components, and in our opinion the executive remuneration is not adequately structured to align the interests of executives and shareholders in the long term. Also taking into account that severance payments (3 years of total remuneration) exceed the ECGS' voting policy limit of 2 years of remuneration, and that the policy specifically allows the payment of discretionary bonuses, we recommend opposition.

Underlying
Naturgy Energy Group SA

Naturgy Energy Group SA, formerly Gas Natural SDG SA, is a Spain-based company active in the energy sector. The Company's activities are divided into four business segments: Gas & Electricity, which includes generation and renewables businesses, gas supply, marketing and logistics of liquefied natural gas (LNG) worldwide, as well as gas and electricity commercialization in Europe; Infrastructure Spain & EMPL - Medgaz, which comprises gas and electricity network businesses in Spain and the Maghreb gas pipelines; Infrastructure Latin America South Zone that implies gas and electricity networks businesses in Chile, Argentina, Brazil and Peru, and Infrastructure Latin America North Zone, which includes gas and electricity network businesses in Mexico and Panama.

Provider
Proxinvest
Proxinvest

Founded in 1995, Proxinvest is an independent proxy firm supporting the engagement and proxy analysis processes of investors. Proxinvest mission is to analyse corporate governance practices and resolutions proposed at general meetings of listed firms.

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Analysts
Expert Corporate Governance Service (ECGS)

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