Corporate Governance Report

Informe de Gobierno Corporativo

Background

Following the guidelines of the abrogated Public Offering Transparency Regime, Executive Order No. 677/01 (‘RTOP’), the CNV, under General Res. No. 516/07, approved the minimum content requirements for the preparation of a Code of Corporate Governance (the ‘Code’). Pursuant to this Code, all listed companies authorized by the CNV to make public offering of their marketable securities should meet disclosure requirements for the presentation of their annual Financial Statements (‘FS’). Their annual report should include a separate appendix with a detailed report where they should inform whether and how they complied with the recommendations in this Code, or explain the reasons why they failed to fully or partially comply with them, and/or whether they planned to adopt such recommendations in the future.

Then, based on the core principles set out in CNV General Res. No. 516/07 regarding corporate governance and best practices, on May 23, 2012, the CNV passed General Res. No. 606/12, specifically providing as follows: (i) abrogating CNV Res. No. 516/07 for fiscal years beginning as from January 1, 2012; (ii) setting out a new Code laying down the various corporate governance principles and recommendations (substantially similar to those contained in the previous resolution); (iii) broadening the scope of application of this Code, covering all the issuers subject to the securities public offering regime, except for small and mid-sized enterprises, commercial paper debt issuers, credit unions, associations, and financial trust/depositary receipt Cedear issuers; and (iv) changing the way in which issuers must present their annual report, specifying full or partial compliance with the provisions contained in this Code.

As a result of the passing and enactment of Capital Market Act No. 26,831 (‘CMA’), in force since January 25, 2012, the RTOP regime was expressly abrogated by such law, and any reference thereto contained herein will conform to the new principles. Therefore, Pampa’s Board of Directors has approved the report required by the Code, which is an integral part of these FS, and which contents are indicated below:

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 or a part, and its related parties
Compliance: Total

Inform or Explain: In Meeting No. 2019 dated October 10, 2008, Pampa’s Board of Directors approved the Related Party Transaction Policy and later, in meeting No. 2,123 dated October 27, 2015, approved an update of this Policy. Pursuant to this policy, 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). Said procedure strictly follows the guidelines set out in the applicable laws and regulations in this matter (Section 72 of the CMA).

Additionally, Pampa will present 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 are the groundwork for the relationship between Pampa, its directors and statutory auditors, as well as its employees and third parties (customers, suppliers, communities, colleagues, shareholders, etc.) These guidelines provide that individuals within the scope of the applicable 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 professional performance.

Any infringement upon 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: On the one hand, the Code of Business Conduct provides that all information generated, transmitted or stored by Pampa will be considered private and confidential and may not be disseminated in the absence of an express authorization. The obtained information may not be used for its own or third party’s benefit.

On the other hand, and specifically relating to insider trading practices, Pampa has a Code of Best Securities Trading Practices. The policy provides that Directors, statutory auditors, managers and employees may not use material privileged information about Pampa, its affiliates, subsidiaries, and related companies to take advantage for their own or for third parties whenever they purchase or sell marketable securities.

In this regard, the Code provides that, at all times, all Covered Subjects should require the compliance officer’s express authorization to conduct any trading operation involving Pampa, its controlled companies, subsidiaries, affiliates and related companies’ securities. Furthermore, the Code provides for ‘restricted periods’ within which no covered subject is authorized to conduct any operation. For example, before the issuance of the FS, a restricted period is established, starting 20 days before and 48 hours after the presentation of the quarterly FS, and of 40 days before and 48 hours after the presentation of the annual FS.

PRINCIPLE II: Laying the Groundwork for Sound Management and Supervision by the Issuer
Recommendation II.1: Ensuring that Management 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, management goals, administrative matters, and different policies and strategies. It also monitors the strategic goals pursued by Pampa’s subsidiaries.

 

II.1.1.2

Compliance: Total

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

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

 

II.1.1.3

Compliance: Total

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

Moreover, most of the internal policies implemented in the company in accordance with the aforementioned Res., are approved by Pampa’s Board of Directors.

 

II.1.1.4

Compliance: Total

Inform or Explain: The appointment of Pampa’s senior managers is the result of a coordinated recruitment process conducted by the Company’s Chairman, executive directors, and the Human Resources Department. Within the organization, there is 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 in place that is coordinated by the Human Resources Department, by which all the employees (including managers) are annually evaluated 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 based on market parameters and the company’s internal criteria.

 

II.1.1.5

Compliance: Partial

Inform or Explain: The CEO and the executive directors are in charge of designing succession planning for 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 executive directors 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.

As from 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, at the meeting held on March 7, 2007, Pampa’s Board of Directors decided to implement a risk management methodology that would turn into a useful tool for identifying the main risks affecting Pampa. Such methodology provides for adequate risk response solutions, as well as formal risk disclosure channels. Later on, at Meeting No. 2004 held on March 7, 2008, Pampa’s Board of Directors approved the ‘Risk Management Handbook’, which in December 2010 was updated and restated as ‘Business Risk Management Policy’.

Regarding internal controls, Pampa’s Internal Audit Area has Bylaws in place regulating its activities which is aligned with the most relevant standards issued by the Institute of Internal Auditors and has been approved by the Audit Committee.

Besides, Pampa has an Anti-Fraudulent Practices Policy and a Procedure for reporting suspected frauds or irregularities. Both documents contain a detailed description of the process to be followed from the reception of the complaint to the conclusion of 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. 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, and allowing for conducting programs to attract, develop, and retain its own 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. Besides, 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 administration matter to be approved by its Board of Directors is supported by the relevant reports written by Pampa’s managers offices involved, as well as their opinions on the risks inherent to 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 and 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 for the annual budget, 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 assessment, as coordinated by the Human Resources Department, by which every employee (including managers) is annually evaluated on the level of performance and fulfillment of goals set by corporate officers. 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 based on 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’s 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 Meeting No. 2087 held on March 30, 2012, Pampa’s Board of Directors approved its Internal Rules. These regulations primarily regulate issues concerning the requirements for holding board meetings.

Besides, on an annual basis every Director completes a self-assessment to evaluate the Board of Directors’ management. 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: Contemporaneously with the approval of audited annual FS, as well as quarterly FS with limited review, Pampa’s CFO, 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, Pampa’s Annual General Shareholders’ Meetings transacting the annual performance assessment of directors have generally approved such business without any qualification or specification. As of the date of this report, none of the shareholders present at these meetings has ever requested to have the performance of directors assessed according to the compliance levels specified in this Recommendation.

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

Compliance: Total

Inform or Explain: Based on its structure, Pampa has an adequate proportional number of independent and executive directors.

Regarding independent directors, pursuant to the criteria set out in the CNV Rules, Pampa has a greater proportional number than that required under section 109 of the CMA. This is due to the fact that Pampa is subject to the U.S. SOX.

Therefore, all members of Pampa’s Audit Committee are ‘independent’ directors.

 

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. Besides, 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 shares and participating in the Company shareholders’ meetings regularly abstain from discussing and voting on any matter relating to their performance (e.g., approving their performance, setting their compensation, etc.).

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

Compliance: Non-Compliance

Inform or Explain: The duties to be discharged by an Appointment Committee would overlap with certain duties already undertaken by Pampa’s Audit Committee. Moreover, Section 12 of Pampa’s Bylaws sets out a method for recruitment of directors, who are elected upon candidate lists, which guarantees enhanced transparency for such recruitment process.

 

II.5.1.1 – II.5.1.5

Compliance: Non-Compliance

Inform or Explain: Not applicable

 

II.5.2 and subsections

Compliance: Non-Compliance

Inform or Explain: Not applicable

 

II.5.3 and subsections

Compliance: Non-Compliance

Inform or Explain: Not applicable

Recommendation II.6: Assessing the suitability that directors, and/or statutory auditors, and/or supervisory board members may discharge 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: Total

Inform or Explain: In 2017, training programs sought that leaders and employees should integrate into Pampa’s culture to consolidate our corporate values and renew our staff’s commitment with professional and personal development.

Board of Directors’ members and first-line managers received systematic training on the strengthening of leadership skills through the implementation of the ‘Leaders’ School’ together with the Torcuato di Tella University. Several Directors and Managers participated in this program, with a high attendance level.

The training program was developed throughout the year and included, among others, the following topics: business knowledge, high-performance team management, diversity, innovation and other management contents oriented at enhancing our leaders’ managerial skills.

Furthermore, the top management team attended management coaching sessions focusing on role strengthening, decision-making and managerial responsibilities.

Besides, 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 2017 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: At the meeting held on March 7, 2007, Pampa’s Board of Directors decided to approve the selection, adjustment, and implementation of a risk management approach as a useful tool for identifying the main risks affecting Pampa. Such method provides for adequate risk response solutions, as well as formal risk disclosure channels. Afterwards, at meeting No. 2004 held on March 7, 2008, Pampa’s Board of Directors approved the ‘Risk Management Handbook’, later updated and restated as ‘Business Risk Management Policy’ in December 2010, which describes a process methodology and the roles and responsibilities for risk management.

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

 

III.2

Compliance: Total

Inform or Explain: The Policy mentioned in Recommendation III.1 above 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, among others: (i) regulatory conditions having an impact on the Company; (ii) potential production failures; (iii) operational interruptions; (iv) losses resulting from incidents and/or disasters; (v) claims and complaints arising from disputes having an impact on the organization; (vi) environmental issues; (vii) impaired margins; (viii) trade union disputes; (ix) delay in certain maintenance works (known to and consented by the manufacturer) increasing the probability of unit failure despite taking every possible precaution; (x) loss of key staff and role models; (xi) decline in oil and gas reserves; (xii) impossibility to meet commitments under agreed Programs; among others.

 

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 signals and indicators; (ii) monitoring the effectiveness of the program 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 brings support to the Board in order 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 updated on a yearly basis and the Risk Manager presents all new events to the Audit Committee for consideration.

 

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 function is supervised by the Audit Committee and reports functionally to one of the partners.

At the beginning of every fiscal year, the Internal Audit area has to submit a proposed annual audit plan to the Audit Committee for its evaluation and approval. Besides, the plan’s performance is followed up on quarterly, and the progress report is submitted to the Audit Committee and the responsible partner. 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 investing public generally, information is provided on profits and losses for each fiscal year and relevant events for each period, and answers on specific doubts and queries are provided.

 

V.1.2

Compliance: Total

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

On the other hand, Pampa’s website has a special ‘Investor Relations’ 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 investing public generally. In turn, this special website section facilitates channeling 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 unnecessary and inappropriate to implement any kind of rules to ensure disclosure requirements for shareholders prior to holding a meeting 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: Following 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 Board 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 due to the fact that, 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 significant or controlling interests.

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

Inform or Explain: Pursuant to information supplied in compliance with the requirements set forth in Section 62 of the ByMA Listing Rules, as of December 31, 2017, there is a controlling group at Pampa holding 17.89% of its 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 12/31/17, 17.89%; (ii) as of 12/31/16, 20.16%; and (iii) as of 12/31/15, 29.16%.

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

Compliance: Non-Compliance

Inform or Explain: Pampa has not set out a specific policy for dividend payments due to the unique characteristics of the industries where it operates, the current scenario, and the volatility of the markets. In this sense, it is not advisable to establish a specific dividend payment policy. The Board of Directors assesses the possibility of paying dividends to Pampa’s shareholders on a prudential basis within each fiscal year, and thoroughly examines 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 drafts an informed proposal in conformity with legal requirements, which is included in the Annual Report.

The Shareholders’ Meeting held on April 7, 2017 resolved that profits recorded in the fiscal year ended 12/31/2016, amounting to AR$1,352 million, be allotted as follows: (i) 5% to the Legal Reserve; and (ii) the balance, to the Optional 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 business. This website also enables users to ask questions and send queries.

 

VI.2

Compliance: Partial

Inform or Explain: All Pampa assets are subject to third-party certification accredited by the OAA, under ISO 14001 (environmental management), and OHSAS 18001 (occupational health and safety management) standards. The generation, R&D and petrochemicals segment’s assets are certified under ISO 9001 standard, and especially, the Lubricants Plant and CTGEBA are also certified under the ISO 50001 (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: Non-Compliance

Inform or Explain: Pampa has no Compensation Committee in place. One of the key functions that this committee would perform regarding the compensation of directors and statutory auditors is currently performed by Pampa’s Audit Committee. Besides, any matter concerning remuneration of managers and employees is addressed by the Company’s Human Resources Department in compliance with applicable laws and regulations.

Notwithstanding the foregoing, on February 8, 2017, the Company’s Board of Directors approved a Stock-based Compensation Plan aiming to encourage the alignment of the covered employees’ performance with the Company’s strategy and to generate a clear and direct link between the creation of value for shareholders and the covered employees’ compensation. To such effect, the Board of Directors created an Implementation Committee.

Finally, on June 2, 2017, the Company’s Board of Directors approved compensation agreements with the Company’s Senior Management with the purpose of efficiently aligning their interests with those of the Company and its shareholders, and creating value for them only inasmuch as value is generated for shareholders.

 

VII.1.1 – VII.1.5

Compliance: Non-Compliance

Inform or Explain: Not applicable

 

VII.2 and subsections

Compliance: Non-Compliance

Inform or Explain: Not applicable

 

VII.3

Compliance: Non-Compliance

Inform or Explain: Not applicable

 

VII.4

Compliance: Total

Inform or Explain: The Human Resources Department is responsible for developing and executing the applicable compensation setting process. Furthermore, the Company has a procedure in place that is coordinated by the Human Resources Department, by which all the employees (including managers) are annually evaluated on the level of performance and fulfillment of goals set by their hierarchical superiors. 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 based on market parameters and the Company’s internal criteria.

 

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

Compliance: Total

Inform or Explain: Pampa has put in place a Code of Business Conduct which, additionally to setting out the ethical principles which lay the groundwork for the relationship between Pampa and its employees and suppliers, provides for means and tools that guarantee the transparency of affairs and issues affecting Pampa’s proper management. The Code establishes the principles that will govern the relationship between Pampa and its contractors, subcontractors, suppliers, and advisors pursuant to applicable laws and regulations.

On the other hand, the Code of Business Conduct, which is publicly available, must be signed by all the Company’s employees and members of the Board of Directors or the Supervisory Board, as well as by any person wishing to enter into a contract with the Company.


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 which is operated through different channels (toll-free telephone number, e-mail, and/or web page) and is managed by a third-party provider to ensure higher transparency. Additionally, the Company has policies and procedures in place prescribing the way in which received complaints should be analyzed and dealt with.

 

VIII.3

Compliance: Total

Inform or Explain: Pampa has an Anti-Fraudulent Practices Policy and a Procedure for Reporting Suspected Frauds or Irregularities. Both documents contain a detailed description of the process to be followed from the reception of the complaint to the conclusion of 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.

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 annually approves the Code Report, which is drafted in accordance with the applicable CNV Rules. 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. Considering 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.