Post on 10-Feb-2016
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Executive Directors’ RemunerationMM&K/Manifest Survey Seminar Launch
Monday 10 June 2013Agenda:• 5:00pm Registration, coffee and networking• 5:30pm Chairman’s Welcome and Opening Address• 5:35pm Keynote Presentations
Survey highlights - Cliff Weight, Director, MM&KShareholder engagements and voting results - Sarah Wilson, Chief Executive, Manifest
• 6:00pm Panel Debate with Cliff WeightSarah WilsonDr Daniel Summerfield, USSchaired by Deborah Hargreaves, with contributions from the floor
• 7:00pm Seminar ends followed by drinks
Survey ResultsCliff Weight, Director,
MM&K Remuneration Consultants
Agenda• Context• Definitions• Differences of Averages and Medians• Total Remuneration Realised • Total Remuneration Awarded• Comments on BIS proposals
2
Context - Corporate Governance Changes
• Voting– Advisory vote on payments made– Binding vote on future policy
• Disclosure– Single figure of total remuneration– 5+ year history of TSR, single figure, bonus %
and LTIP % vesting– Scenario analysis of future policy – No surprises
3
Communicating Pay to Shareholders- a window on the soul of the company
4
How directors and senior managers are remunerated provides an important window on corporate governance more generally.
•A well-managed process – with a properly constituted remuneration committee which operates independently, appoints expert, professional, independent remuneration consultants to assist it, listens to shareholders and management and evaluates their inputs – is a good sign that other corporate governance will be effective.
Process
•The choice of performance measures and their relative importance in the delivery of performance-related pay is the second window on corporate governance, as they indicate what is felt to be important in the company.
Performance measures
PensionNormally entitlement is
defined in contract of service and only changes with salary
level
Long term incentiveAwards decided by the
remuneration committee
Bonus opportunityRemuneration committee sets
max. and on-target opportunity (expressed in % of salary)
DIMENSIONS OF REMUNERATION
Salary(e.g. £1m)
Key issue: valuation Face value of shares? Expected value (rule of
thumb or Black Scholes?) Modelling for the future?
Realised valueCan be further deferral of LTI after performance conditions
are met
Realised
Time 0(Jan 01)
Time 1(Dec 31)
Time 3(+ 3 yrs or more)
Time n(After retirement) ¼ tax
free at retire-ment
¾ paid as pension until death of
executive and then widow(er)s pension
until their death
Realised remuneration
Pay award decisions
Performance
Deferred(poss. matched
grant if voluntary deferment)
Performance
MM&K, Y. Chahed & L. Goh (LSE), 2011
TOTAL PAY
Note: Total reported pay is driven by decisions made at different points in time and does not necessarily reflect current market conditions. Some users (e.g. press) use realised value from prior year grants to criticise pay increases
Defined Benefit (DB = x% of final salary) Value depends on accrual
rate, which drives the x% (eg 1/30th for each year of service)
Final salary (eg highest 12months in last three years)
OR Defined Contribution(DC = y% of salary)OR Cash Salary Supplement(SS = y% of salary)
Total Remuneration Survey Definitions
Realised AwardedSalary Paid in year SameBonus Paid for year SameDeferred Bonus Value Vested in year Value DeferredLTIPs Value Vested in year Expected ValueOptions Gain on Exercise Expected ValuePensions Complicated Same
6
Total Remuneration Survey Definitions
Realised AwardedSalary Paid in year SameBonus Paid for year SameDeferred Bonus Value Vested in year Expected ValueLTIPs Value Vested in year Expected ValueOptions Gain on Exercise Expected ValuePensions Complicated Same
7
Exercise price
Option Gain
Share price
TimeVests at 3 years
Total RemunerationRealised Awarded LSE Listing
RulesBIS – single figure
Salary Paid in year Same Same Same
Cash Bonus Paid for year Same Same Same
Deferred Bonus
Value Vested in year
Value Deferred Value Deferred Value Deferred
LTIPs Value Vested in year
EV FV at award Value Vested for year
Options Gain on Exercise
EV FV at award Gain at date of vesting
Pensions ComplicatedFor DB = increase in TV of accrued pension
same Actuarial GN11 20x inc in accrued pension
EV = Expected ValueFV = Face Value 8
Top 100 Average and Median Increases, and Average of Increases
TRR Latest
TRR Previous Year % Increase
109,832 2,516,023 -96% 2,336,182 9,025,143 -74% 7,349,176 23,792,621 -69% 2,536,849 6,180,209 -59% 4,545,009 9,182,308 -51% 1,835,560 3,395,423 -46% 2,329,894 4,282,149 -46% 6,441,480 9,818,324 -34% 6,591,441 9,711,926 -32% 2,246,648 3,240,120 -31% 4,098,580 5,800,967 -29% 2,941,209 3,754,024 -22% 7,645,027 9,744,134 -22% 1,994,024 2,498,631 -20% 4,622,238 5,707,865 -19% 1,460,121 1,782,000 -18% 4,443,208 5,388,297 -18% 4,504,627 5,324,919 -15% 6,124,609 7,151,274 -14% 2,209,720 2,558,453 -14% 1,996,000 2,265,000 -12% 4,447,348 4,952,044 -10% 8,696,797 9,641,836 -10% 1,869,952 2,066,975 -10% 1,888,658 2,004,774 -6% 1,588,541 1,674,625 -5% 895,600 940,403 -5% 549,000 562,768 -2% 1,966,600 2,010,900 -2% 1,519,384 1,548,605 -2% 1,808,000 1,795,339 1% 2,851,291 2,800,783 2% 2,500,000 2,454,000 2% 373,759 358,000 4% 4,439,287 4,208,869 5% 2,268,174 2,133,357 6% 817,351 755,449 8% 3,036,158 2,796,333 9% 5,446,492 4,923,923 11% 8,337,658 7,526,992 11% 1,306,139 1,160,369 13% 3,046,465 2,601,449 17% 1,653,000 1,408,000 17% 5,277,165 4,425,682 19% 3,886,898 3,254,579 19% 2,782,811 2,295,874 21% 8,213,682 6,417,717 28% 3,492,186 2,699,773 29% 9,358,567 7,201,168 30% 4,235,260 3,157,706 34% 8,018,252 5,885,402 36% 6,650,854 4,846,845 37% 9,690,658 6,986,177 39% 3,377,163 2,360,307 43% 2,485,878 1,620,125 53% 4,591,365 2,979,269 54% 4,846,112 3,137,000 54% 3,012,788 1,899,403 59% 5,080,095 3,199,851 59% 7,960,340 4,876,024 63% 3,477,608 1,873,835 86% 6,234,928 3,323,751 88% 8,188,834 4,060,510 102% 12,162,890 5,885,277 107% 5,067,376 2,310,948 119% 3,852,128 1,737,214 122% 6,140,665 2,676,000 129% 4,410,273 1,671,984 164% 9,724,005 3,636,731 167% 4,516,814 1,618,361 179% 5,759,667 2,035,000 183% 6,376,572 1,900,554 236% 16,901,241 4,937,859 242% 8,353,092 1,935,194 332%
Increase in average 10%Median increase 8%Average of increases 30%
-200%
-100%
0%
100%
200%
300%
400%
TOTAL REMUNERATION REALISED -% INCREASES
9
2012 £4.25m2011 £3.86m
0%
2%
4%
6%
8%
10%
12%
14%
16%
<30 31-100 101-300 301-1,000
1,001-3,000
3,001-10,000
>10,001
Company Turnover £ millions
UpperQuartileMedian
LowerQuartile
Salary Increases – Latest Data
Top 100 – Average Salary2011 £849,5092012 £861,594% increase 1%Median increase 2.7%
10
CEO Salary + Bonus Awarded- Average of FTSE 100.Shift to deferred bonus results in reduction in cash bonus, but
masks future increases in deferred bonus payouts
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Deferred Bonus
Cash Bonus
Salary
188%
74%93%
168%
Deferred Bonus is value deferred in the year, on this slide11
LTIPs – How they work - Example
2009 2012 2012
AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % of Max VESTING + DIVIDENDS
62% +30%
Max £1.9m
Expected Value £1.167 m
£1,198,0001,556,000
12
LTIPs Realised
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013
FTSE
100
Inde
x
Impact of share prices on LTI payouts
2008 LTIP awards had 8% increase in share prices
13
LTIPs – Comparison of 2011 Realised and 2012 Realised
2009 2012 2012
AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % VESTING + DIVIDENDS
62% +30%
Expected Value £1.167 m 1,198,000 1,556,000
2008 2011 2011AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE
% VESTING + DIVIDENDS39% +15%
Expected Value £1.480 m 959,000 1,102,000
14
Max £1.9m
Max £2.5M
LTIPs – Comparison of 2011 Realised and 2012 Realised
2009 2012 2012
AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % VESTING + DIVIDENDS
62% +30%
Expected Value £1.167 m 1,198,000 1,556,000
2008 2011 2011AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE
% VESTING + DIVIDENDS39% +15%
Expected Value £1.48 m 959,000 1,102,000
15
Max £1.9m
Max £2.5M
+41%-21%
£849,509 £861,594
£581,481 £506,701
£794,063 £640,261
1,535,973 2,157,448
£0
£500,000
£1,000,000
£1,500,000
£2,000,000
£2,500,000
£3,000,000
£3,500,000
£4,000,000
£4,500,000
2011 2012
CEO Total Remuneration Realised - Average of FTSE 100increases by 10% to £4.25 million
LTI
Cash Bonus
Other
Pension
Salary
+40%
-19%
-13%
+1%
16LTI includes deferred bonus realised, in this slide
17
Total Remuneration
Realised AwardedMEDIAN +8% +1%AVERAGE +10% -5%
Due to payouts realised (vested) from LTIs awarded 3+ years ago
Due to Rem Com decisions in the year.Awarded = expected value of awards
SURVEY RESULTS - Summary
2011 2012£0
£500,000
£1,000,000
£1,500,000
£2,000,000
£2,500,000
£3,000,000
£3,500,000
£4,000,000
£4,500,000
£849,509 £861,594
£581,481 £506,701
£794,063 £640,261
1,535,973 2,157,448
CEO Total Remuneration Realised - Average of FTSE 100increases by 10% to £4.25 million
LTI
Cash Bonus
Other
Pension
Salary
+40%
-19%
-13%
+1%
5,896 6,268 6,2965,165
3,5674,391 4,814
5,618 6,221 6,457
4,5625,412 6,014 5,700 5,898
£0
£500,000
£1,000,000
£1,500,000
£2,000,000
£2,500,000
£3,000,000
£3,500,000
£4,000,000
£4,500,000
£5,000,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Total Remuneration Awarded and FTSE 100 Index (excludes dividends)
LTIP EV
Otpions EV
Def Bonus
Bonus
Other Remuneration
Pension
Salary
FTSE100
FTSE 100 Index at 31 Dec
Moderation in Award Levels
• Total Remuneration Awarded up just 1% for FTSE 100 CEOs (Median). Average reduced by 5%.
• Is this the effect of the Shareholder Spring?• Impact of deferred bonus understates pay by
about 8%
19
FTSE 100 Average CEO Pay v. Company Size – BIGGER NOT BETTER
• Indexed data back to 1998.• Pay has increased as has turnover and since 2003 market cap. • However pay has increased much faster than the FTSE 100 index.• What might change the long term trends?• Can pay keep rising?
20
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -
50
100
150
200
250
300
350
400
450
500
Total Remuneration Awarded (EV) £
Turnover £bn
Market Capitali-sation £bn
FTSE 100 Index in 000's
CEO costs 2.7 basis points• CEO total rem = £4.5 million _______________________• Market cap = £17 billionFigures are for average The top 100 CEOs
21
= 0.027%
2121
CEO costs 2.7 basis points• CEO total rem = £4.5 million _______________________• Market cap = £17 billionFigures are for average The top 100 CEOs
22
= 0.027%
2222
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -
0.5
1.0
1.5
2.0
2.5
3.0
3.5
CEO Pay / Market Cap (bp = basis points)
BIS Proposal re 5/10 year disclosure- example
Single Figure of Total
Remuneration£000
Annual variable element award
rates against maximum
opportunity
Long term incentive vesting
rates against maximum
opportunity 2013 CEO2 4,516 83% 100%2012 CEO2 4,771 90% 0%2011¹ CEO2 2,250 93% 0%2011 CEO1 4,245 82% 100%2010 CEO1 3,958 93% 02009 CEO1 3,895 89% 67%
DISCLOSURE CONSEQUENCES
Year Salary Bonus LTI Realised
Total Remuneration
Received
Total Remuneration
Awarded
1 1 1 0 2 42 1 1 0 2 43 1 1 0 2 44 1 1 0 2 45 1 1 10 12 4Total 5 5 10 20 20Average per year
1 1 2 4 4
24
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-40%
-30%
-20%
-10%
0%
10%
20%
30%
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
Comparison of FTSE 100 index performance and av-erage Top 100 CEO Remuneration
FSTE 100 index % change
Total Remuneration Awarded
Total Remuneration Realised
Incr
ease
in t
he F
TSE
100
inde
x in
the
yea
r (%
)
CEO
Pay
in £
25
Ratio CEO to Average Employee
26
Trend Data for Total Remuneration of CEO and Average Employee
YearCEO Total
Remuneration Awarded
Average Employee Earnings
CEO as Multiple of Average Employee
2002 £2,599,551 £24,182 107
2003 £2,786,143 £24,767 112
2004 £3,087,028 £25,955 119
2005 £3,304,533 £27,254 121
2006 £3,308,814 £30,828 107
2007 £3,876,921 £25,677 151 (see note)
2008 £3,958,000 £30,994 128
2009 £3,895,000 £32,521 120
2010 £4,245,000 £34,176 124
2011 £4,770,946 £35,744 133
2012 £4,516,474 £33,967 133
% increasesCEO Total
Remuneration Awarded
Average Employee Earnings
CEO as Multiple of Average Employee
2003 7% 2% 5%
2004 11% 5% 6%
2005 7% 5% 2%
2006 0% 13% -11%
2007 17% -17% 41%
2008 2% 21% -15%
2009 -2% 5% -6%
2010 9% 5% 4%
2011 12% 5% 7%
2012 -5% -5% 0%
cumulative 02-12
74% 40% 24%
average p.a. 02-12
6% 3% 2%
The FTSE100 companies employ around six million people.The apparent 2007 drop in employee remuneration is largely caused by G4S plc entering the FTSE 100. It employs over half million people with a low average pay.
0
20
40
60
80
100
120
140
160
£0
£1,000,000
£2,000,000
£3,000,000
£4,000,000
£5,000,000
£6,000,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
CEO
as
Mul
itple
of A
vera
ge E
mpl
oyee
CEO Total Remuneration Awarded
Average Employee Earnings
CEO as Multiple of Average Employee
CEO Total Remuneration Awarded and Average Employee Earnings