Industrial relations

Pirelli Group industrial relations are conducted on the basis of constructive dialogue, fairness and respect of the various roles involved. Guaranteeing and respecting free trade union activities is one of the key values on which Pirelli bases its own Human Resource Management System. Relations and negotiations with trade unions are managed locally by each affiliate in accordance with the laws, national and/or companylevel collective bargaining agreements, and the prevailing customs and practices in each country. At this level, these activities are supported by the central departments, which coordinate activities and ensure that the aforementioned principles are observed throughout the Group.

During 2013 this activity achieved significant negotiating results for the renewal of collective agreements at various Group sites, such as Mexico. This is complemented by the important role played by the Group in Italy for renewal of the national collective bargaining agreement in the Rubber and Plastic sector, signed on January 8, 2014.

Following the persistently sharp contraction in consumption at the European level in 2013, which also impacted the tyre industry, the Company continued with an organisational and production streamlining process to contain its costs. In this perspective, an agreement was signed in July 2013 at the Bollate plant together with plant union representatives and local trade union representatives. They agreed that beginning January 2014, two new types of products would gradually come into production, in order to support a forecast output of about 2 million units annually during the two-year period 2014-2015. Accordingly, agreement was also reached on the following: a different and coherent operating structure based on a new organisation of work, a new staff of permanent employees for regular operation of the plant, amounting to 239 blue collar employees and 37 white collar employees; the redundancy of 90 workers (80 blue collar employees and 10 white collar employees); the non-traumatic management of redundancies through recourse to solidarity contracts for the period January 1, 2014 – December 31, 2015.

In the context of restructuring resulting from the crisis, the activities for closure of the steel cord plant at Merzig, Germany that began in 2012 were completed in June 2013. This closure affected about 100 employees, of whom 70 left the Company in 2013.

Consistently with the Company’s sustainable approach to restructuring processes, professional reassignment policies were adopted through framework agreements with major international companies for outplacement plans.

During 2013 Pirelli initiated a process to dispose of its steel cord business, by examining – with the support of an internationally prestigious advisor – the opportunities to sell in view of better development of the business by potential buyers that might be able to guarantee a significant international presence and adequate competitive standards.

At the end of February 2014 Pirelli & C. S.p.A. and Bekaert announced that they had signed an agreement for sale of 100% of the Pirelli steel cord activities to Bekaert for an enterprise value of about euro 255 million.

Disposal of the steel cord business will enable Pirelli to withdraw from an activity whose dimensions are no longer competitive and to focus on the more profitable premium tyre segment, while simultaneously assuring that the steel cord business would have a future in a group that is a leader in transformation technologies and sheathing of steel cables.

As part of the agreement, the two companies agreed on a long-term supply and on joint products development to boost R&D activities and guarantee that the transition to the new agreement be consistent with the companies’ respective growth and development plans, while also developing existing assets and simultaneously laying the basis for gradually opening to the market. The closing of the deal, which is subject to regulatory approval, is expected to take place in the second half of 2014 and affects all five of the Pirelli steel cord plants located in Italy, Turkey, Romania, China and Brazil.

Finally, Industrial Relations play an active role in the Group’s commitment to health and safety. In fact, 81% of Group employees are covered by representative bodies that periodically collaborate with the Company and the support of specialists in monitoring and confronting current issues and the awareness plans or programmes, in view of continuous dialogue aimed at improving the various activities operated by Pirelli to protect the health and safety of its own workers.

European Works Council (EWC)

The Pirelli European Works Council (EWC), formed in 1998, holds its ordinary meeting once annually after presentation of the Group Annual Financial Report, where it is informed about the operating performance, operating and financial forecasts, investments made and planned, research progress, and other matters concerning the Group. The agreement establishing the EWC envisages the possibility of holding additional, special meetings to comply with disclosure obligations towards delegates in consequence of transnational events concerning material changes in the organisational structure of the Company: opening, restructuring or closure of offices and plants, and important and widespread changes in the organisation of work. EWC delegates are provided with the IT tools that they need to perform their duties and a connection with the corporate intranet system, for the real time communication of official Company press releases.

The Committee currently has 14 members from the Company installations in countries entitled to be represented on the Committee itself, i.e. Italy, Germany, Spain, Sweden, Romania and the United Kingdom.

Compliance with statutory and contractual obligations governing overtime, time off association and negotiation, equal opportunities and non-discrimination, bans on child and forced labour

Group policy has always promoted compliance with all legal and/or contractual requirements concerning working hours, the use of overtime and the right to regular days of rest.

These requirements are often the subject of agreements with trade unions, in line with the regulatory context of each country. There are no restrictions on any worker’s right to use his/her total number of holidays. The holiday period is generally agreed between the worker and the Company.

As the Company also states in its Social Responsibility Policy for Occupational Health, Safety, Rights, and Environment, and in compliance with the provisions of International Standard SA8000®, which it adopted in 2004 as the benchmark tool for the management of social responsibility at its own subsidiaries and associated companies, Pirelli audits the application of provisions governing social sustainability and, in particular, respect of human and labour rights through periodic audits that are commissioned to specialised independent firms and/or performed by the Internal Audit Department. This latter entity has a high degree of independence at Pirelli insofar as it reports not only to the Board of Statutory Auditors but also to the Internal Control, Risks and Corporate Governance Committee of Pirelli, which is composed only of Independent Directors. Particular attention is devoted to the sustainability of Pirelli’s sites (and the company’s suppliers) operating in emerging countries.

The three year internal auditing plan covers all Pirelli sites. Normally every audit is carried out by two auditors and takes three weeks on site. The Internal Audit Team receives training on the environmental, social and ethical elements of an audit from the directors of the various departments to enable them to carry out an effective, clear and structured audit, giving Pirelli effective control over all aspects of sustainability. If compliance violations were found during these audits, an action plan was agreed between the local managers and central management, with precise implementation dates and responsibilities.

The Internal Audit Department is monitoring the status of implementation of agreed action plans, through specific follow-up measures.

All the managers of the affiliates involved in the audits receive training on the purpose and procedures of the audit from the central departments in question: Sustainability and Industrial Relations. In 2008 independent audits were conducted at Company sites located in Turkey, Brazil, Venezuela, Argentina, Egypt, China, Romania, Colombia, Mexico and Chile. In 2011, Pirelli commissioned new, independent audits at production sites located in Argentina, Venezuela, Brazil, China, Egypt, Turkey and Romania. In 2012 the Internal Audit function conducted sustainability audits at Company facilities in Italy, Brazil, Argentina, Venezuela and Turkey and, in 2013, in Argentina, the United States, Romania and Brazil. The audits will continue in Italy, United Kingdom, Egypt and China in 2014.

Although the instances of non-compliance revealed by the audits were not serious, they were addressed in action plans agreed by the local managers and central management, and will be subject to follow up in 2014 by the Internal Audit Department.

It should be noted that none of the audits revealed any breach of ILO Core Labour Standards, with specific reference to forced labour or child labour, freedom of association and bargaining, and non-discrimination.

Labour and social security lawsuits

In 2013, as in the past, the level of work and social security litigation remained low, thanks to a continuing trend of conflict avoidance, substantially in line with previous years.

Just as in previous years the level of litigation remains high in Brazil, to the point of representing about 90% of all the labour lawsuits currently pending against the entire Group. Labour lawsuits are extremely common in this country and depend on the peculiarities of the local culture. As such, they affect not only Pirelli but also the other multinational companies operating there. Labour lawsuits are generally initiated when an employment contract is terminated, and they usually involve the interpretation of regulatory, legal and contractual issues that have long been controversial.

The Company has made a major commitment both to prevent these disputes – to the extent possible within the previously mentioned cultural context – and resolve them, including use of settlement procedures.

Unionisation levels and industrial action

It is impossible to exactly measure the consolidated percentage of union membership at Group companies, since this information is not legitimately available in all countries where Pirelli has a presence (over 160 countries on five continents). However, it is estimated that about half the Group’s employees are trade union members.

The percentage of workers covered by a collective bargaining agreement amounted to about 81%, consistently with the previous three-year period. This figure is associated with the historical, regulatory and cultural differences between each country.

Trade union agitation affected the Italian manufacturing sites only during renewal of the national collective bargaining agreement for the rubber and plastic sector and, in regard to the steel cord plant at Figline Valdarno, during the phases related to disposal of the steel cord business.

Occupational retirement and health-care plans

Defined benefit plans are in place in the United Kingdom (the fund was closed for all employees on the payroll at April 1, 2010), in the United States (these plans were closed a number of years ago to employees on the payroll, in favour of defined contribution plans; since then, they only apply to retired employees but are not tied to wage increases) and in Germany (this scheme was closed to new hires in 1982). Other defined benefit plans exist in The Netherlands, but they represent a relatively insignificant liability for the Group. Group affiliates provide supplemental company medical benefits according to local requirements. These healthcare schemes vary from country to country in terms of allocation levels and the types of coverage provided. The plans are managed by insurance companies or funds created ad hoc, in which the Company participates by paying a fixed amount as is done in Italy, or an insurance premium as is done in Brazil and the United States. For measurement of the liabilities and costs represented by these benefits, reference is made to notes 22 – Provisions for employee benefits and 31 – Personnel expenses in Volume 01: Annual Financial Report at December 31, 2013.