Corporate Governance Report

Informe de Gobierno Corporativo

PRINCIPLE I: Ensuring Transparency in the Relationship between the Issuer, the Business Group of which it is a Leader and/or a Part, and its Related Parties
Recommendation I.1: Ensuring Board disclosure of applicable policies to the Issuer’s relationship with the business group of which it is a leader and/or a part, and its related parties
Compliance: Total

Inform or Explain: Pampa has a policy on Related-Party Transactions Approval in place whereby all transactions (i) deemed high-value transactions, that is, with a value equal to or higher than 1% of Pampa’s Shareholders Equity; (ii) made with individuals and/or legal entities which, pursuant to Section 72 of the CMA, are considered related parties, should be subject to a specific prior authorization and control procedure carried out under the coordination of Pampa’s executive legal department with the participation of both Pampa’s Board of Directors and its Audit Committee (as applicable). This Policy strictly follows the guidelines set out in the applicable laws and regulations in this matter (Section 72 of the CMA).

Additionally, Pampa presents itemized information on any contract entered into with related parties in its annual and quarterly FS; furthermore, in compliance with the regulations in force, all high-value transactions executed by Pampa with related parties are subject to the consideration of the Audit Committee and promptly reported under the caption ‘relevant event’ to both the CNV and the markets where the Company quotes its shares.

Recommendation I.2: Ensuring the existence of mechanisms to prevent any conflict of interest
Compliance: Total

Inform or Explain: Pampa has a Code of Business Conduct in place stating the ethical principles that constitute the groundwork for the relationship between Pampa, its Directors and Statutory Auditors, as well as its employees and third parties (customers, suppliers, shareholders, the public sector and the community). These guidelines provide that individuals within the scope of the Code of Business Conduct should avoid any situation resulting in a conflict between their own personal interests and the company’s, thus preventing their personal or family interests from exerting any influence on their decisions and/or professional performance.

Any infringement of a provision of the Code of Business Conduct may be reported through Pampa’s Ethics Hotline.

Recommendation I.3: Preventing misuse of insider information
Compliance: Total

Inform or Explain: The Code of Business Conduct provides that all information generated, transmitted or stored by Pampa will be considered confidential and private, and may not be disseminated in the absence of an express authorization. It also provides that the collected information may not be used for any personal or third party’s benefit.

Additionally, in regards to insider trading practices, Pampa has a Policy on Best Securities Trading Practices which provides that any person deemed a Covered Individual may not use material non-public information about Pampa, its controlled companies, subsidiaries, affiliates, and related companies to derive any personal or third party’s benefit when trading marketable securities.

In this regard, the policy provides that, at all times, all Covered Individuals should require the compliance of an officer’s express authorization to conduct any trading operation involving Pampa, its controlled companies, subsidiaries, affiliates and related companies’ securities. Furthermore, the policy provides for ‘restricted periods’ within which no covered individual is authorized to conduct any operation.

PRINCIPLE II: Laying the Groundwork for Sound Management and Supervision by the Issuer
Recommendation II.1: Ensuring that Board takes on the Issuer’s management, supervision and strategic direction
II.1.1

II.1.1.1

Compliance: Total

Inform or Explain: Pampa’s Board of Directors approves the Company’s annual budget, strategic management goals and administrative matters, taking into consideration the specific circumstances of the Company and the industries where it operates. It also monitors the strategic goals pursued by Pampa’s subsidiaries.

 

II.1.1.2

Compliance: Total

Inform or Explain: Pampa has a Finance Executive Department in charge of implementing procedures and monitoring the Company’s financial transactions in order to ensure the transparency, clarity, and real-time availability of information. In turn, the articulation of investment policies is supervised by the Company’s CEO and executive directors.

Furthermore, Pampa has an Investment Project Management Policy in place aimed at systematizing and standardizing the steps to be followed by the Company’s different areas involved in the management of investment projects so as to provide an analysis, authorization and control mechanism enhancing Pampa Energía Group’s economic value.

 

II.1.1.3

Compliance: Total

Inform or Explain: On an annual basis, the Board of Directors approves the Corporate Governance report pursuant to CNV General Res. No. 606/12.

 

II.1.1.4

Compliance: Total

Inform or Explain: The appointment of Pampa’s senior managers is the result of a joint and coordinated recruitment process by the Company’s CEO, vice-presidents and the human resources department. Pampa has an employment policy in place which describes the selection process for any candidate irrespective of his or her category or position.

Furthermore, the Company has a procedure coordinated by the human resources department whereby all the employees are evaluated on an annual basis on the level of performance and fulfillment of goals previously set by more senior officers. Based on the degree of fulfillment of corporate goals, among other factors, an annual variable compensation (performance bonus), and potential promotions and salary increases are determined in accordance with market parameters and the company’s internal criteria.

 

II.1.1.5

Compliance: Partial

Inform or Explain: The CEO and the vice-presidents are in charge of assigning responsibilities to senior managers. The Company does not have specific policies regulating the allocation of responsibilities to senior managers.

 

II.1.1.6

Compliance: Partial

Inform or Explain: The CEO, together with vice-presidents and the human resources department, are in charge of designing succession planning for senior managers. The Company does not have specific policies regulating the succession planning for senior managers.

 

II.1.1.7

Compliance: Total

Inform or Explain: At Pampa, we understand Corporate Social Responsibility as a strategic management model which is implemented through the Foundation, with a strong commitment to society that goes beyond energy demand satisfaction, by developing programs oriented towards improving the life quality of our employees, their families and the communities we are part of.

Since 2016, with the incorporation of new assets and their communities of influence, the Foundation has adopted a new strategic focus: education as a fundamental right, local management of Corporate Social Responsibility for relationships between the asset and the community, and corporate volunteering.

Since 2008, the Foundation has promoted programs that contribute to strengthening the abilities of people and social organizations, showing a clear sustainable commitment with the communities Pampa Energía is part of.

 

II.1.1.8

Compliance: Total

Inform or Explain: Regarding risk management, in 2007 Pampa implemented a risk management methodology as a useful working tool to identify the main risks affecting Pampa. Such methodology provides for adequate risk response solutions, as well as formal risk disclosure channels. Later on, in 2008, Pampa’s Board of Directors approved the ‘Risk Management Handbook’, which in December 2010 was updated and restated as the ‘Business Risk Management Policy’.

The key aspect of this policy is the establishment of responsibilities, duties and methods for the prevention and detection of risks arising from activities conducted by the Company, and affecting its business or operations.

Based on these policies’ guidelines, the internal control management updates Pampa’s risk map in accordance with the administered businesses on a yearly basis.

Regarding internal controls, Pampa’s Internal Audit area has Bylaws regulating its activities and aligned with the most relevant standards issued by the Institute of Internal Auditors. This document has been approved by the Audit Committee.

Moreover, Pampa has an Anti-Fraudulent Practices Policy and a Procedure for handling complaints. These documents contain a detailed description of how to file a complaint, and the process to be followed from its reception to the conclusion of the investigation and the application of any pertinent corrective action. At least quarterly, the Internal Audit area reports the received cases and the adopted decisions to the Audit Committee. The Audit Committee supervises the channel’s operations and the resolution of complaints in issues within its authority. This regulation is complementary to the Code of Business Conduct.

 

II.1.1.9

Compliance: Partial

Inform or Explain: Pampa has implemented a training policy geared at supporting professional and academic development, as well as allowing for the development of programs to attract, develop and retain its human resources. This policy is not formally approved or supervised by Pampa’s Board of Directors, but is approved by the CEO and administered by the human resources department.

 

II.1.2

Compliance: Total

Inform or Explain: There is no other relevant corporate governance policy not previously mentioned in this report.

 

II.1.3

Compliance: Total

Inform or Explain: Pampa’s executive legal department supplies all Pampa’s Directors and Statutory Auditors, as early as possible, with all the information on business to be transacted at any Board meeting. Moreover, by way of Pampa’s executive legal department, any Director and/or Statutory Auditor may ask the relevant managers’ office questions on issues that are submitted to them for consideration. Moreover, it is Pampa’s internal practice to submit quarterly management reports to the Board of Directors stating all relevant business, technical, regulatory, financial and accounting information related to Pampa and its subsidiaries.

 

II.1.4

Compliance: Total

Inform or Explain: Every Pampa’s significant ordinary business affair or administrative matter to be approved by its Board of Directors is supported by the relevant reports written by Pampa managers’ offices involved, as well as their opinions on the risks inherent in such matters. If applicable, all these procedures are conducted within the framework of the Business Risk Management Policy.

Recommendation II.2: Ensuring effective Corporate Management Control
II.2.1

Compliance: Total

Inform or Explain: Pampa’s Board of Directors, either on its own behalf or by delegating its functions to the various Company managers’ offices, regularly verifies compliance with, deviations from, or adjustments to the annual budget, on a quarterly basis, as well as the business plan.

 

II.2.2

Compliance: Total

Inform or Explain: As specified in Recommendation II.1.1.4, the Company conducts an employee performance process, coordinated by the human resources department, whereby every employee is evaluated on the level of performance and fulfillment of goals set by more senior officers on an annual basis. Based on the degree of fulfillment of these goals, among other factors, an annual variable compensation (performance bonus), and potential promotions and salary increases are determined in accordance with market parameters and the company’s internal criteria.

Recommendation II.3: Ensuring disclosure of the Management Body’ performance assessment and its impact
II.3.1

Compliance: Total

Inform or Explain: Pampa Board of Directors’ performance is subject to the provisions set forth in the Bylaws, the board rules, and any other applicable laws and regulations.

In 2012, Pampa’s Board of Directors approved its internal rules, which primarily regulate issues concerning the directors’ powers and responsibilities and the holding of board meetings.

Moreover, every Director completes a self-assessment on an annual basis to evaluate the Board of Directors’ performance. This self-assessment is submitted to the executive legal department, which is responsible for analyzing results and, if necessary, suggesting actions aiming to improve this body’s operations.

 

II.3.2

Compliance: Total

Inform or Explain: Simultaneously with the approval of audited annual FS, as well as quarterly FS with limited review, Pampa’s CEO, on behalf of the Board of Directors and the Investor Relations Area, organizes a conference call for all Pampa’s shareholders and other stakeholders generally, with a view to sharing information on management and financial results, giving reasons for such results, and answering any questions and queries.

Historically and generally, Pampa’s General Shareholders’ Meetings transacting the Directors’ annual performance assessment have generally approved such business without any qualification or specification. As of the date of this report, no Pampa shareholder present at these meetings has ever requested to have the performance of directors assessed based on the compliance levels specified in this Recommendation.

Recommendation II.4: Ensuring that the number of external and independent members constitutes a significant share of the Board
II.4.1

Compliance: Total

Inform or Explain: Pampa considers that the ratio of regular Directors who are independent (40% – 4 out of 10), who perform executive functions (50% – 5 out of 10) and who are external (10% – 1 out of 10) is adequate based on its structure.

Furthermore, all members of Pampa’s Audit Committee are independent pursuant to the U.S. SOX provisions.

 

II.4.2

Compliance: Total

Inform or Explain: It is not necessary to implement any type of internal policy to ensure that at least 20% of Board members are independent because under the applicable laws and regulations in force, and as provided by the Company Bylaws, the Board of Directors has a greater proportional number of independent directors than that specified in this Recommendation. Also, there are no shareholders’ agreements regarding the designation of Board members. To date, the independence of the members of Pampa’s Board of Directors has never been challenged.

Besides, Pampa’s Directors holding Company’s shares and participating in the Company shareholders’ meetings refrain from discussing and voting on any matter relating to their management.

Recommendation II.5: Ensuring the existence of standards and procedures for recruitment and proposed appointment of directors and senior managers
II.5.1

Compliance: Total

Inform or Explain: In 2018, Pampa created a Nominations Committee, the primary aims of which are: a) to set the general guidelines regarding independence, incompatibilities and diversity in the Board of Directors; and b) to describe the process for the identification and evaluation of Board of Directors’ nominees, both by the Board and shareholders, to be presented for consideration by the Shareholders’ Meeting; all of this in compliance with the applicable legal provisions and, especially, section 12 of Pampa’s Bylaws, which sets out the method for the selection of directors, who are elected upon candidate lists, thus guaranteeing enhanced transparency in the recruitment process.

 

II.5.1.1

Compliance: Partial

Inform or Explain: The Nominations Committee reports to Pampa’s Board of Directors, and is made up of three regular members and an equal or smaller number of alternate members, the Chairman being independent director pursuant to the independence criteria stipulated by the CNV rules.

 

II.5.1.2

Compliance: Total

Inform or Explain: Please refer to Principle II.5.1.1. above.

 

II.5.1.3

Compliance: Total

Inform or Explain: Even though the members of the Nominations Committee do not necessarily need to have an orientation or specialization in human capital management in their CVs, they should demonstrate proper competence to hold the offices for which they have been appointed and have extensive corporate experience.

 

II.5.1.4

Compliance: Total

Inform or Explain: The policy regulating the Nominations Committee provides that it should meet as frequently as deemed necessary, but at least once a year. Pampa finds that this periodicity is sufficient to comply with the Committee’s main function, which is to assist the Board of Directors in the nomination of directors, which happens once a year before the General Ordinary Shareholders’ Meeting.

 

II.5.1.5

Compliance: Total

Inform or Explain: The policy regulating the functions of the Nominations Committee specifically provides in its section 8.4. that the Committee’s opinion will not be binding on the Board of Directors or the Shareholders’ Meeting, but its recommendations will be informed to the Shareholders’ Meeting at the time of conducting the ballot for the appointment of directors.

 

II.5.2

II.5.2.1

Compliance: Total

Inform or Explain: The Nominations Committee was created at the end of 2018, and as of the date of 2018 Annual Report, due to the short time span since its creation, the Committee has neither reviewed its rules nor assessed its performance, which it will do in due course. As of the date hereof, the Committee has only held its first meeting, where it approved its internal rules, among other formal issues.

 

II.5.2.2

Compliance: Total

Inform or Explain: The Policy on Nominations provides that the Committee will evaluate, inter alia, factors such as the nominees’ independence, diversity, age, skills, experience, and knowledge of the company’s businesses and the industry in order to provide its recommendations to the Board of Directors. The Committee will perform this evaluation for the first time when assessing the nominees to be recommended to the General Shareholders’ Meeting which will be held at the beginning of 2019.

 

II.5.2.3

Compliance: Partial

Inform or Explain: Pursuant to Section 12 of Pampa’s Bylaws and the provisions of the Policy on Nominations, the Board of Directors (or shareholders holding at least 3% of Pampa’s capital stock) submit a list of candidates to the Committee for their assessment and the issuance of a recommendation. The Nominations Committee does not provide recommendations regarding senior managers. In this sense, please refer to Principle II.1.1.4.

 

II.5.2.4

Compliance: Non-Compliance

Inform or Explain: The Nominations Committee’s only function is to analyze nominees to be proposed for election as directors, but not to suggest the appointment of directors in the different Company committees.

 

II.5.2.5

Compliance: Total

Inform or Explain: As previously explained in Principle II.5.2.1, due to the short time span since its creation, the Committee’s action has been limited to purely formal issues. However, following an organizational restructuring process and in line with the highest corporate governance standards, at the end of 2018 a CEO not holding office as chairperson was appointed.

 

II.5.2.6

Compliance: Total

Inform or Explain: As previously explained in Principle II.5.2.1, due to the short time span since its creation, the Committee’s action has been limited to purely formal issues. However, a brief outline of all Company directors’ CVs, including their terms of office, is available at Pampa’s website, even prior to the creation of the Nominations Committee.

 

II.5.2.7

Compliance: Total

Inform or Explain: As previously explained in Principle II.5.2.1, due to the short time span since its creation, the Committee’s action has been limited to purely formal issues. However, every year the Board of Directors, with the assistance of the executive legal department, identifies directors whose terms of office are due and evaluates the possibility of their reelection pursuant to the applicable regulations in force and, if the reelection is not deemed appropriate or in case there is legal impossibility to do so, the search for nominees is launched so that the Board of Directors may later submit its proposal to the Shareholders’ Meeting.

 

II.5.3

Compliance: Total

Inform or Explain: There is no other relevant policy not previously mentioned in this report.

Recommendation II.6: Assessing the suitability that directors, and/or statutory auditors, and/or Supervisory Committee members may perform functions at different issuers
Compliance: Total

Inform or Explain: It is not necessary to limit the participation of Pampa’s Directors and/or Statutory Auditors in other companies that are part of other business groups. We understand that the existing legal limitations on this matter, in addition to the liability system applicable to directors and statutory auditors and the pertinent provisions of the Code of Business Conduct, are sufficient and ensure an adequate performance of duties by Pampa’s Directors and Statutory Auditors.

Recommendation II.7: Ensuring training and development of the Issuer’s directors and senior managers
II.7.1

Compliance: Partial

Inform or Explain: In 2018, training programs aimed at further strengthening the integration of leaders and employees into Pampa’s culture and main values.

To such end, managers participated in the Leaders Development Program, which was based on a corporate leadership model deeply grounded in the main features of our culture.

With a high level of participation, leaders enhanced their skills in the four axes of the model and had the possibility to receive subsequent specialization in one of these dimensions based on their interests and concerns. The axes underpinning these contents were self-leadership, entrepreneur leadership, developer leadership and transformational leadership.

This training was in turn integrated with educational visits to the Company assets to strengthen knowledge on the different businesses.

Furthermore, the process was complemented with individual coaching by all the Company managers to consolidate the training’s contents, approaches and individual development possibilities.

On the other hand, the Audit Committee approves an annual training plan for non-audit-related issues (for example, auditing and internal control according to international accounting standards, among other issues). In this sense, during fiscal year 2018 its members received training on the 3-line defense model, the internal audit’s policy framework.

 

II.7.2

Compliance: Total

Inform or Explain: Pampa generally provides financial support for master degree programs and postgraduate education to its employees.

PRINCIPLE III: Endorsing an Effective Policy for Identifying, Measuring, Managing and Disclosing Business Risk
Recommendation III: The Board of Directors must provide for a comprehensive business risk management policy and monitor its proper implementation
III.1

Compliance: Total

Inform or Explain: Please refer to Principle II.1.1.8.

 

III.2

Compliance: Total

Inform or Explain: The Policy mentioned in Principle II.1.1.8 sets out responsibilities and methods for business risk assessment, and the procedure is conducted with the assistance of the Audit Committee, which is in charge of supervising assessment procedures and implementing related measures.
The key business risk factors taken into consideration by Pampa include, inter alia:
i. Strategic economic and political risks;
ii. Risks associated with competitors and joint ventures;
iii. Risks associated with natural disasters;
iv. Risks relating to social issues;
v. Corporate governance risks;
vi. Compliance risks;
vii. Process risks, including, but not limited to, those associated with human resources, fraud, IT and operations; and
viii. Financial and reporting risks.

 

III.3

Compliance: Total

Inform or Explain: The Policy also provides for the role of a Risk Manager, who is responsible for: (i) including in its annual programs all the necessary tests for detecting business risk indicators and signals; (ii) monitoring the effectiveness of the process as a whole, and safeguarding compliance with and oversight of this policy; (iii) informing the CEO and the Audit Committee of the risk management process; and (iv) following up on the implementation of action plans to ensure that corrective measures are taken once a risk is detected. Moreover, the manager in charge of internal control assists the Board to keep the risk matrix updated, identifying and assessing risks, as well as following up with the action plan, if required, and keeping the CEO and Audit Committee informed of this process.

 

III.4

Compliance: Total

Inform or Explain: The Business Risk Management Policy is reviewed on an annual basis to detect improvement possibilities, and updated if necessary. The risk manager submits any applicable improvement possibilities to the consideration of the Audit Committee.

 

III.5

Compliance: Total

Inform or Explain: The results from this risk assessment procedure are communicated to the different departments and disclosed in the Annual Report.

PRINCIPLE IV: Safeguarding Integrity of Financial Information with Independent Audits
Recommendation IV: Ensuring independence and transparency of the duties assigned to the Audit Committee and the External Auditor
IV.1

Compliance: Total

Inform or Explain: Pursuant to the Bylaws, the CNV rules and the Audit Committee’s Regulations, this committee consists exclusively of independent members.

 

IV.2

Compliance: Total

Inform or Explain: At Pampa, the Internal Audit area reports functionally to the Audit Committee, and administratively to the Executive Committee made up of the chairperson, the CEO and the vice-presidents.

At the beginning of every fiscal year, the Internal Audit area submits a proposed annual audit plan to the Audit Committee for its evaluation and approval. The plan’s performance is followed up on quarterly basis, and the progress report is submitted to the Audit Committee. This report summarizes the completed tasks and main findings.

On an annual basis, the Audit Committee evaluates the independence level and performance of the Internal Audit function in issues within its authority, and discloses its assessment in its annual report.

As a member of the Institute of Internal Auditors, the Company uses the standards it considers reasonable and/or applicable without expressly adhering to them.

 

IV.3

Compliance: Total

Inform or Explain: Upon the presentation and publication of Pampa’s annual FS, the Audit Committee conducts an annual assessment of the external auditors’ performance and issues an informed opinion pursuant to Section 18, Title V, Chapter III of CNV Rules (Text Restated in 2013) and the Audit Committee’s Internal Rules.

 

IV.4

Compliance: Total

Inform or Explain: Pampa has no specific policy in place regarding turnover of members of the Supervisory Committee and/or the External Auditor, as it considers that no such policy is necessary as it fully complies with the applicable provisions in force.

PRINCIPLE V: Respecting the Rights of Shareholders
Recommendation V.1: Ensuring that shareholders have access to the Issuer’s information
V.1.1

Compliance: Total

Inform or Explain: Pampa’s CEO, on behalf of the Board of Directors and the investor relations area, organizes a conference call upon each closing and presentation of the Company’s annual and quarterly FS. In these conference calls, which may be attended by all shareholders willing to participate and the general investing public, information is provided on profits and losses and relevant events for the applicable period, and answers on specific doubts and queries are provided.

 

V.1.2

Compliance: Total

Inform or Explain: Pampa has a special area within its organization that receives questions and/or queries from its shareholders and/or the general investing public.

Besides, Pampa’s website has a special ‘Investors’ section containing all material information (FS, filings before regulatory authorities —including the SEC and the NYSE—, relevant events, corporate governance policies, etc.) for its shareholders and the general investing public. In turn, this special website section facilitates the channeling of queries.

Recommendation V.2: Promoting active participation by all shareholders
V.2.1

Compliance: Total

Inform or Explain: Shareholders are given notice of meetings through the formal means set out in the Bylaws and applicable regulations. Observance of these formalities to call for meetings is effective, and it does not undermine the principle of equal treatment to shareholders.

 

V.2.2

Compliance: Total

Inform or Explain: Pampa considers it is unnecessary and inappropriate to implement any kind of rules to ensure disclosure requirements before shareholders’ meetings since the Company strictly complies with the effective regulations in this matter. Along this line, Pampa guarantees shareholders the unrestricted exercise of the right to information, making available within the times specified in the applicable regulations, at its home office and also posted on its website, all relevant information and/or any information especially requested by a shareholder.

 

V.2.3

Compliance: Total

Inform or Explain: Pursuant to the provisions set out in the applicable laws and regulations, the Bylaws expressly state that, upon written request, shareholders representing at least 5% of capital stock may call for a meeting, specifying its purpose and reasons. These requests will be handled in such a way that the Board of Directors or the Supervisory Committee will convene the meeting for it to take place within 45 days of the date the notice of call is received.

To date, no shareholder or shareholder group representing at least 5% of Pampa’s capital stock has expressly called for a meeting.

 

V.2.4

Compliance: Non-Compliance

Inform or Explain: Pampa has no policies in place to encourage the participation of major shareholders, thus abiding by the principle of equal treatment to shareholders, whether actual or potential.


V.2.5

Compliance: Non-Compliance

Inform or Explain: When directors are nominated for office, shareholders do not usually require them to state their position for or against the adoption of a Corporate Governance Code.

Recommendation V.3: Ensuring the one share one vote principle
Compliance: Total

Inform or Explain: The implementation of a policy to promote the one share one vote principle is not applicable to the Company. This is because, pursuant to the Bylaws, shares are not divided into classes, and all of them confer the right to one vote.

Recommendation V.4: Setting out protection mechanisms for all shareholders vis-à-vis company takeovers
Compliance: Total

Inform or Explain: Pursuant to the provisions set forth in section 90 of the CMA, the application of the Public Acquisition Offer system is universal, thus comprising every company listing its shares on the stock exchange, such as Pampa. Furthermore, the Bylaws establish certain mechanisms applicable to the acquisition of controlling or significant interests.

Recommendation V.5: Encouraging the Issuer’s shareholding dispersion
Compliance: Total

Inform or Explain: Pursuant to information supplied to the market in compliance with the requirements set forth in section 62 of the ByMA Listing Rules, as of December 31, 2018, there is a controlling group at Pampa holding 19.38% of its issued capital stock and voting rights. Consequently, the remaining percentage of capital stock is scattered among the investing public, largely exceeding the 20% specification contained in this recommendation.

Moreover, in the last three years, it has been confirmed that more than 20% of the Issuer’s capital stock is dispersed in the market. Thus, in compliance with section 62 of the ByMA Listing Rules, the following percentages were identified in relation to the controlling group: (i) as of 12/31/18, 19.38%; (ii) as of 12/31/17, 17.89%; and (iii) as of 12/31/16, 20.16%.

Recommendation V.6: Ensuring transparency of the Company’s dividend policy
V.6.1

Compliance: Total

Inform or Explain: In 2018, Pampa’s Board of Directors approved the Company’s Dividend Policy, which outlines the guidelines to reach a proper balance between distributed amounts and Pampa’s investment plans with the purpose of establishing a clear, transparent and consistent practice allowing shareholders to make informed decisions, all of this in consonance with the Company Bylaws and the applicable legal and regulatory framework in force. Based on this policy, the Board of Directors assesses the possibility of paying dividends to Pampa’s shareholders on a prudential basis within each fiscal year, and evaluates thoroughly the economic circumstances prevailing at the time.


V.6.2

Compliance: Partial

Inform or Explain: Although the Company has not put in place documented procedures to prepare the Issuer’s proposal for appropriation of retained earnings, Pampa’s Board of Directors draws up an informed proposal in conformity with legal requirements, which is included in the Annual Report.

The Shareholders’ Meeting held on April 27, 2018 resolved that profits recorded in the fiscal year ended 12/31/2017, amounting to AR$3,382 million, should be allocated as follows: (i) AR$116 million to the constitution of the Legal Reserve; and (ii) the balance, to increase the Voluntary Reserve.

PRINCIPLE VI: Maintaining Direct and Responsible Bonds of Trust with the Community
Recommendation VI: Providing the community with information on the Issuer’s affairs, and a direct communication channel with the Company
VI.1

Compliance: Total

Inform or Explain: Pampa’s website, www.pampaenergia.com, is a user-friendly and permanently updated browser tool, which includes complete and accurate information on the member companies of the business group led by Pampa and their respective businesses. This website also enables users to ask questions and send queries.

 

VI.2

Compliance: Total

Inform or Explain: In 2018 we published our first Sustainability Report in accordance with the essential option of the Global Reporting Initiative (GRI) Standards, under the AA1000 SES standard. The Sustainability Report contains information resulting from the internal control systems implemented at Pampa Energía, which contribute to the integrity and credibility of the information provided in the report and, therefore, has not been subject to an external verification process. The Sustainability Report is published on an annual basis and covers the period from January 1 to December 31, 2017.

The information disclosed in the 2017 Sustainability Report includes programs and actions conducted by Pampa Energía together with the Pampa Foundation and only considers data of the Company’s operations in Argentina resulting from Pampa Energía’s Consolidated Financial Statements as of December 31, 2017, with the exception of Edenor, the Sustainability Report of which can be found in its website www.edenor.com.ar.

Furthermore, all Pampa assets are subject to third-party certification accredited by the OAA, under ISO 14,001 (environmental management), and OHSAS 18,001 (occupational health and safety management) standards. The power generation, R&D and petrochemicals segment’s assets are certified under the ISO 9,001 standard, and especially, the Lubricants Plant and CTGEBA are also certified under the ISO 50,001 (energy management) standard.

Pursuant to the implemented model, external audits are conducted on an annual basis to guarantee adherence to the requirements of the above-mentioned international standards. Furthermore, each asset has a Management Program which promotes continuous performance improvement.

PRINCIPLE VII: Providing for Fair and Equitable Compensation
Recommendation VII: Setting out clear-cut policies for compensation of directors and senior managers, specifically focusing on conventional or bylaws-imposed limitations depending on the existence of profits
VII.1

Compliance: Total

Inform or Explain: In 2018, Pampa created a Compensation Committee which will assist the Board of Directors and/or the Shareholders’ Meetings in the preparation and follow-up of compensation policies and/or plans and/or benefits for Pampa’s main officers who also serve as directors.

 

VII.1.1

Compliance: Total

Inform or Explain: The Compensation Committee reports to Pampa’s Board of Directors, and is made up of three regular members and an equal or smaller number of alternate members, who may not exercise executive functions at Pampa. Currently, the majority of its members are independent.

 

VII.1.2

Compliance: Total

Inform or Explain: Currently, the Compensation Committee’s chairperson is independent pursuant to the criteria set out by the CNV.

 

VII.1.3

Compliance: Total

Inform or Explain: Even though the members of the Compensation Committee do not necessarily need to have an orientation or specialization in human resources in their CVs, they should demonstrate proper competence to hold the offices for which they have been appointed and have extensive corporate experience.

 

VII.1.4

Compliance: Total

Inform or Explain: The policy regulating the functions of the Compensation Committee provides that it should meet at least annually, or more frequently if the circumstances so require and upon request of any of its members. Pampa finds that this periodicity sufficient to comply with the Committee’s main function, which is to assist the Board of Directors in compensation matters.

 

VII.1.5

Compliance: Total

Inform or Explain: Pampa’s Policy on Compensation provide that every year the Board of Directors will submit to the approval of the Shareholders’ Meeting a global amount of compensations payable to directors, all of this with the assistance of the Committee, which decisions will not be binding.

 

VII.2 In case it has a Compensation Committee:

VII.2.1

Compliance: Total

Inform or Explain: Pursuant to Pampa’s Policy on Compensation, the Compensation Committee renders its previous opinion so that Directors’ compensations are in line with those received by Directors of similar companies at the domestic level and pursuant to the limitations set forth by the applicable laws and the CNV rules.

 

VII.2.2

Compliance: Total

Inform or Explain: Please refer to the answer to Principle VII.2.1 above.

 

VII.2.3

Compliance: Partial

Inform or Explain: Please refer to the answer to Principle VII.2.1 above.

 

VII.2.4

Compliance: Total

Inform or Explain: As previously mentioned in Principle II.1.1.4, Pampa has an employment policy in place which describes the processes for employee recruitment, selection and onboarding, as well as resignations and dismissals or requested modifications, allowing it to detect, attract and retain qualified employees for each position, also taking into consideration each employee’s requirements, irrespective of his or her category or position. This policy is administered by the human resources department and the leader of each specific area.

 

VII.2.5

Compliance: Total

Inform or Explain: As previously mentioned in Principle VII.2.1, the Compensation Committee renders its opinion on directors’ fees. The Compensation Committee does not issue an opinion on compensations received by main executives who do not serve as directors. The Company has a procedure coordinated by the human resources department whereby all the employees are evaluated annually on the level of performance and fulfillment of goals set by more senior officers. Based on the degree of fulfillment of corporate goals, among other factors, an annual variable compensation (performance bonus), and potential promotions and salary increases are determined in accordance with market parameters and the company’s internal criteria.

 

VII.2.6

Compliance: Total

Inform or Explain: Due to its recent creation, the Compensation Committee has still not informed of its actions to the Board of Directors. Beyond this, pursuant to its Rules, the Committee will report its conclusions, recommendations and any other issue deemed necessary to the Board of Directors at least once a year.

 

VII.2.7

Compliance: Total

Inform or Explain: No Shareholders’ Meeting for the approval of compensations has been held yet since the creation of the Compensation Committee. However, the Committee’s Rules provide that its chairperson’s functions will include attending Board of Directors and Shareholders’ Meetings on behalf of the Committee.

 

VII.3

Compliance: Total

Inform or Explain: There is no other relevant policy not previously mentioned in this report.

 

VII.4

Compliance: Total

Inform or Explain: Not applicable.

 

PRINCIPLE VIII: Promoting Business Ethics
Recommendation VIII: Ensuring ethical behavior within the Issuer
VIII.1

Compliance: Total

Inform or Explain: Pampa has a Code of Business Conduct in place which states the ethical principles constituting the groundwork for the relationship between Pampa, its employees, customers, suppliers, shareholders, investors, the public sector and the community at large. Moreover, it provides means and instruments to ensure transparency in the handling of matters and issues that may affect Pampa’s adequate management.

The Code of Business Conduct is publicly available at the Company’s website and should be expressly accepted by all Company employees, directors and members of the Supervisory Committee. Furthermore, the Code is included as part of the general recruitment conditions.


VIII.2

Compliance: Total

Inform or Explain: Pampa offers the Ethics Hotline, an exclusive channel to report, on a strictly confidential basis, any suspected misconduct or breach to the Code of Business Conduct. This tool is available through different channels (toll-free telephone number, e-mail or web page) and is managed by a third-party supplier to ensure higher transparency and information integrity. Additionally, the Company has policies and procedures in place prescribing the way in which received complaints should be analyzed and dealt with. The responsibility over this channel rests with the Audit Committee, which delegates its administration to the internal audit area.

 

VIII.3

Compliance: Total

Inform or Explain: Pampa has an Anti-Fraudulent Practices Policy and a Procedure for handling complaints. Both documents contain a detailed description of the process to be followed from the reception of the complaint to the conclusion of the investigation and the application of the pertinent corrective action. At least quarterly, the Internal Audit area reports the received cases and the adopted decisions to the Audit Committee. The Audit Committee supervises the channel’s operations and the resolution of complaints in issues within its authority, and approves related regulations.

PRINCIPLE IX: Deepening the Scope of the Code
Recommendation IX: Fostering the inclusion of good corporate governance practices in the Bylaws
Compliance: Total

Inform or Explain: The Board of Directors approves the Code Report, which is drafted in accordance with the applicable CNV rules on an annual basis. However, Pampa’s Board of Directors believes that at present the provisions of the Code should not necessarily be reflected in whole in the Bylaws. Given that the Bylaws, as well as the Report, are publicly available information through the CNV web page, Pampa fully complies with the capital market transparency principle.

Glossary
AR$: Argentine Pesos
ByMA: Bolsas y Mercados Argentinos (Buenos Aires Stock Exchange)
CEO: Chief Executive Officer
CMA: Capital Market Act No. 26,831
CNV: Comisión Nacional de Valores (National Securities and Exchange Commission)
Code: Pampa’s Code of Corporate Governance
CTGEBA: Central Térmica Genelba
Edenor: Empresa Distribuidora y Comercializadora Norte S.A.
Foundation: Fundación Pampa Energía
FS: Financial Statements
NYSE: New York Stock Exchange
Pampa / the Company / the Group / the Issuer: Pampa Energía S.A. and its subsidiaries
R&D: Refining and Distribution segment
SEC: Security and Exchange Commission
SOX: Sarbanes-Oxley Act