Avio S p A : REMUNERATION POLICY AND REPORT

REMUNERATION POLICY AND REPORT

in accordance with Article 123-ter of the CFA and 84-quater of the Consob

Issuers' Regulation

Issuer: Avio S.p.A.

website: www.avio.com

Approved by the Board of Directors on March 22, 2024

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	CONTENTS
INTRODUCTION	5
EXECUTIVE SUMMARY	6
SECTION I	13

1. GOVERNANCE - PROCEDURES FOR THE ADOPTION AND IMPLEMENTATION OF THE

REMUNERATION POLICY

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2. MARKET PRACTICES AND INDEPENDENT EXPERTS INVOLVED IN PREPARING THE REMUNERATION

	POLICY	17
3.	REMUNERATION POLICY	18
4.	POLICY UPON BENEFITS ON CONCLUSION OF OFFICE	29
SECTION II	31
PART 1	31
PART 2 - TABLES	37

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Letter of the Chairperson of the Appointments and Remuneration Committee

Dear Shareholders,

In my capacity as Chairperson of the Appointments and Remuneration Committee, and also on behalf of the Committee and the Board, I am proud to present to you the "Remuneration Policy and Report" of Avio S.p.A.

(hereinafter "Avio" or the "Company").

This Report seeks to inform Stakeholders (shareholders, employees and customers) concerning the correspondence between the Company's remuneration policies and business strategies: for Avio, remuneration represents a key tool in aligning the interests of top management with those of our stakeholders, contributing to the pursuit of the Company's corporate strategy, long-term interests and sustainability. The ability to attract, retain and motivate management is a key factor for any company which, like Avio, operates in a highly- specialised sector requiring constant and rapid alignment to the requirements imposed by the market and technological development.

In this perspective, the Committee prepared and submitted for the approval of the Board of Directors the remuneration policy for 2024 (illustrated in the first section of this Report), in line with the corporate context of Avio. For Avio, success is measured on the basis of economic, financial and equity results, but also, in broader terms, on human, social, relational and environmental capital: our policies are inspired by sustainability, inclusiveness and the incentivisation of equal opportunities.

The policy for 2024 contains some new elements:

• as part of the Performance Share Plan, for the 2024-2026 cycle, the revision of KPI weightings: increasing the overall weighting of the ESG KPIs from 16% to 20%, to reflect the growing attention to ESG issues, and reducing the weighting of Reported EBITDA and Average Return on Invested Capital from 42% to 40%;
• a greater emphasis on monitoring employee remuneration and working conditions in light of inflationary pressures, and on work-life balance initiatives, and the introduction of a welfare quota in the new supplementary employee contract (excluding executives);
• an improvement in the disclosure of policies for dialogue with investors during the year, and in how this was taken into account in the 2024 Remuneration Policy.

Throughout the year, Avio maintained an ongoing dialogue with investors and stakeholders, who showed significant appreciation of our Policies at the most recent Shareholders' Meeting. The remuneration policy described in this Report takes into consideration the feedback from the Company's stakeholders. It should be noted that top management is directly involved in business risk by means of holdings in the share capital of Avio S.p.A. These are held through the investment vehicle In Orbit S.p.A. which at December 31, 2023 represents about 4.1% of share capital. Moreover, this equity investment has increased over time from 3.7% at the time of listing to the current 4.1% about, demonstrating the alignment of interests between management and shareholders in relation to business risk.

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INTRODUCTION

This Report was prepared by Avio in accordance with Article 123-ter of the CFA, Article 84-quater of the Issuers' Regulation and Annex 3-A, Schedule 7-bis, in addition to, on the basis of self-regulation, Article 5 of the Corporate Governance Code, with which Avio complies.

Pursuant to Article 123-ter of the CFA, the Report comprises two sections.

Section Ioutlines the Remuneration Policy adopted by the Company for Financial Year 2024, with regards to the following parties:

1. Members of the Board of Directors, distinguishing between Executive and non-Executive Directors;
2. Members of the Board of Statutory Auditors;
3. Group Senior Executives.

Section I of the Report also outlines the procedures utilised for the preparation and adoption of the Remuneration Policy, in addition to the bodies and parties responsible for the Policy's correct implementation.

The Remuneration Policy was approved by the Board of Directors on March 22, 2024, with the favourable opinion of the Appointments and Remuneration Committee. As resolved, the Remuneration Policy will be updated on an annual basis.

Section IIof the Report for the year 2023 outlines each of the items comprising the remuneration of the individuals listed at points (i), (ii) and (iii), as well as an analysis (in a specific table) of the remuneration paid to these parties, in any regard and in any form by the Company or by its subsidiaries in 2023, in addition to remuneration not yet paid at the Report approval date, although relating to 2023. In addition, a comparison for the years 2019-2023 between the change in remuneration for members of the Board of Directors and the Board of Statutory Auditors, employee remuneration and the Company's performance is shown.

A relative table, as per Article 84-quater, paragraph 4 of the Issuers' Regulation, presents holdings in the Company or its subsidiaries by these parties and by parties related to them.

This Report is sent to Borsa Italiana and is made available to the public at the registered office of Avio (in Rome, via Leonida Bissolati 76, Rome) and on the Company's website www.avio.com, "Investors - Shareholders meeting 2024" section, at least 21 days before the Shareholders' Meeting called to approve the 2023 Annual Accounts.

On March 22, 2024, Avio's Board of Directors resolved to submit: (i) Section I of the Report on the 2024 Remuneration Policy to a binding vote of the Shareholders' Meeting; and (ii) Section II on compensation paid in 2023 to an advisory vote.

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EXECUTIVE SUMMARY

Introduction

The Remuneration Policy and Report represents the liaison between the Company's strategic development targets and management action. The structure and rationale for the policies are designed to be consistent with the Company's goals of growth and long-term shareholder value creation. In particular, the selection of economic and financial indicators and the processes for defining and monitoring targets are designed to support and incentivise management to achieve the Group's targets.

Avio's business model and long-term sustainability is based on its capacity for development and technological innovation, and therefore on its ability to attract and develop highly qualified resources at both managerial and technical-scientific level. For this, the remuneration policy is a key tool. The criteria and tools adopted in the policy incorporate the most advanced elements of national and international best market practices. In this context, long-term sustainability, a structural characteristic of the Group's long history, is a priority target that led in 2020 to the inclusion of specific parameters, complementary to the economic and financial targets, against which to measure management performance. These sustainability targets reinforce the active role that Avio has always played in collaboration with the main institutional stakeholders at an international level (such as the European Space Agency, the European Union and the European Commission),- at a national level (such as the Italian Space Agency and the Presidency of the Council of Ministers), and at a local level (such as the Municipal Administration of Colleferro).

Principles of Avio's remuneration

Avio's Remuneration Policy for Executive Directors and Senior Executives is based on the following principles and criteria:

• • this policy seeks to attract, retain and motivate individuals of high professional standing, with particular regard to key positions for the development and management of the business;
• a link with Company's performance and risk profile;
• the alignment of the interests of Company Management with the pursuit of the target to contribute to the corporate strategy, to create value for shareholders over the long-term and to achieve sustainable performance over time.

Key performance drivers

Our incentive systems reflect Avio's performance drivers, closely linked to the key priorities of the Company's strategy:

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Main changes in the 2024 Remuneration Policies

The key changes introduced in the 2024 Policies include:

• as part of the Performance Share Plan, for the 2024-2026 cycle, the revision of KPI weightings: increasing the overall weighting of the ESG KPIs from 16% to 20%, to reflect the growing attention to ESG issues, and reducing the weighting of Reported EBITDA and Average Return on Invested Capital from 42% to 40%;
• a greater emphasis on monitoring employee remuneration and working conditions in light of inflationary pressures, and on work-life balance initiatives, and the introduction of a welfare quota in the new supplementary employee contract (excluding executives);
• an improvement in the disclosure of policies for dialogue with investors during the year, and in how this was taken into account in the 2024 Remuneration Policy.

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2024 Remuneration Policy at a glance

The following table outlines the key elements regarding the remuneration of the Chief Executive Officer/General Manager and Senior Executives explored subsequently in the Report.

Member	Features and parameters
Fixed remuneration component	This is determined in consideration of the role, market
	practices for comparable positions, qualifications and
It is the fixed component, determined	individual expertise, and measured through the
by taking into account the scale and strategic nature	application of an independent evaluation methodology
of the	of the roles (Hay Method).
position held
	▪ CEO/GM: fixed gross remuneration of Euro 500,000
	▪ Senior Executives: determined based on pre-
	established criteria, in line with market median

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Short-term variable component		Beneficiaries:
Annual monetary incentive plan, which provides for	▪ Chief Executive Officer/General Manager
the payment of a monetary bonus on the reaching of	▪	Senior Executives
the pre-set annual targets.		▪ Managers and key professionals
			Size
			▪	CEO/GM: 75% of fixed remuneration for target
				performance; 115% of fixed remuneration for
				maximum performance
			▪ SEs: 30% of fixed remuneration for target
				performance; 50% of fixed remuneration for
				maximum performance (average values)
			Performance Targets
			▪ On/off conditions, valid for all beneficiaries:
				Adjusted EBITDA and Group Net Financial Position
				CEO/GM: Adjusted EBITDA, Net Financial Position
			▪	SEs:
				• Group targets (Adjusted EBITDA, Net
				Financial Position)
				• targets that are primarily quantitative,
				economic/financial and operational.
			▪ Matured bonuses are subject to clawback clauses.
Medium/long-term variable component	Beneficiaries:
Performance Share Plan, subject to Shareholders'	▪ Chief Executive Officer/General Manager
▪	Senior Executives
Meeting approval, which provides for grants on an	▪ other selected Managers with key roles within the
annual basis	and a three-year	performance		Company.
measurement period.
Consideration was given to adopting, starting in 2023
and subject to	Shareholders' Meeting	approval, a	Size
Performance Share Plan to further promote alignment
between the interests of management1 and	▪ CEO/GM/COO: 60% of fixed remuneration for target
shareholders.				performance; 90% of fixed remuneration for
				maximum performance
			▪ SEs: 35% of fixed remuneration for target
				performance; 52.5% of fixed remuneration for
				maximum performance
			Three-YearPerformance Targets:
			▪	Cumulative Reported EBITDA
			▪ Three-year average Return on Invested Capital
			▪ ESG targets (Gender Diversity, Gender Pay Gap,
				Waste Management and Employee Training)
			The plan includes a clawback clause.
Benefits			They include supplementary pension plans and
			insurance cover,

1 Avio's top management has a direct stake in the capital of Avio S.p.A. through the management investment vehicle In Orbit S.p.A., which as at December 31, 2023 holds about 4.1% of the capital. Moreover, this equity investment has increased over time from 3.7% at the time of listing to the current 4.1%, demonstrating the alignment of interests between management and shareholders in relation to business risk.

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Non-monetary benefits in addition to those provided	company cars for business and personal use and
under the applicable contract defined in accordance	housing.
with market practices
Compensation in the event of early termination	▪	CEO/MD: with regard to benefits in the case of
of employment		termination of employment contract by the
		Company for any reason other than just cause, an
		all-inclusive gross amount will be recognised equal
		to two years of the sum of fixed remuneration and
		the short-term variable bonus (calculated as 100% of
		fixed remuneration). This amount is inclusive of
		mandatory contractual provisions relating to notice2
	▪	SE: The provisions of the national contract for
		industry Executives apply. The Company may define
		compensation in advance in the event of
		termination of employment, but the compensation
		for early termination of employment may
		correspond to no more than two years' payment of
		the sum of fixed remuneration and short-term
		variable bonus, including mandatory contractual
		provisions relating to notice.
Non-competition agreement	▪ A 12-monthnon-competition agreement has been
		defined for the CEO/GM, which envisages payment
		of 6 months' fixed remuneration.
	▪ The Company in addition reserves the right to sign
		non-competition agreements involving specific roles
		requiring strategic knowledge, in compliance with
		the statutory provisions and limitations of a
		maximum duration of 12 months which envisages
		payment of 6 months' fixed remuneration.

2 As of the date of publication of this report, the number of months' pay provided by the national collective bargaining agreements for notice is 8.

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Pay-mix of the Chief Executive Officer/General Manager and Senior Executives

The make-up of the remuneration package of the Chief Executive Officer/General Manager and the Senior Executives, in the case of achieving the target and maximum performance levels, is as follows:

Chief Executive Officer/General Manager

Pay-mix - performance target

Pay-mix - maximum performance

Senior Executives

Pay-mix - performance target

Pay-mix - maximum performance

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