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Breakfast briefing: 2017 AGM season
What’s really happening?
4 May 2017
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AGM season has started…
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…and the headlines are flooding in
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But is pay really falling? What is really happening?
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What have we seen so far?
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Reports published
Voting recommendations AGMs
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6
Restraint – particularly on quantum (some high profile reductions)
Some simplification – reducing number of LTI plans
Rebalancing – changes to incentive quantum
Reducing pension
The AGM season so farPolicy changes – key themes
Demonstrating increasing longer-term alignment with shareholders
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Is pay going down?
• Maximum annual bonus reduced to 400% (CEO), 250% (CFO). Minimum 40% in deferred shares
• Maximum LTIP opportunity reduced to 600% (CEO), 300% (CFO), threshold vesting reduced to 15%
• Maximum annual pension contribution reduced to 30% of base salary
• Maximum incentive award, the combination of short- and long-term incentives, for a new appointee to the Board, is being reduced to 8 times base salary
• The maximum pension contribution for a new appointee to the Board is being reduced to 25% of base salary
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Is pay going down?
• Acknowledged challenging year
• Committee exercised downward discretion to reduce payout levels to 0% for annual bonus and by 50% for LTIP vesting, despite CEO not being in tenure during period of poor performance
• This reduced the CEO’s total annual pay by £14 million
• Also reduced options granted for 2017 and 2018 – within policy
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• Increased maximum bonus opportunity from 110% to 150%
• Added LTI headroom of up to 250% of salary for ‘outstanding’ external hires (200% policy max)
• Increased maximum bonus opportunity from 110% to 150%
• Added LTI headroom of up to 250% of salary for ‘outstanding’ external hires (200% policy max)
• Increased CEO shareholding requirement (200% - 250%)
• Introduced a two year post-vesting holding period on LTIP awards
• Reduced pension (30% to 25%)• Reduced base salary for new hire
• Increased CEO shareholding requirement (200% - 250%)
• Introduced a two year post-vesting holding period on LTIP awards
• Reduced pension (30% to 25%)• Reduced base salary for new hire
• Increased shareholding guidelines (200% to 250%)
• Increased bonus deferred• Introduced a 2 year holding period• Reduced CEO pension opportunity
(40% to 25%)
• Increased shareholding guidelines (200% to 250%)
• Increased bonus deferred• Introduced a 2 year holding period• Reduced CEO pension opportunity
(40% to 25%)
• Increased maximum opportunity for bonus from 115% to 150%
• Increased maximum opportunity for bonus from 115% to 150%
Has anyone increased quantum?
GKN
Bunzl – rebalancing
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Are companies introducing restricted stock?
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• ISS AGAINST - maximum award limits are being considerably reduced, but decreased quantum is not considered a sufficient offset for the greater certainty of awards
• IVIS AMBER
New LTIP• Reduction in maximum award levels to 175% of salary for the CEO and to
200% of salary for the CFO, from 400% of salary• Pre-grant performance tests have been introduced. Underpins to apply. • The deferral period has been extended• Retention period after vesting has been extended from 6 months to 12
months.
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Are companies demonstrating longer term thinking?
5
32
5
12
3
14
Increasedlevel
Increasedtime
horizon
Introduced Increase Introduce Introduce Increase
Deferral on bonus Holding period on LTI Shareholdingguidelines
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Aberdeen Asset Management 21:1
Aviva 2:1 (vs. Group ExCo)
BAE Systems 52:1
BHP Billiton30:1 (e.g. N. America, they disclose ratio in each major
region)
BP 71:1
Legal & General 94:1
Mitchells & Butlers 44:1
SSE 46:1
Standard Life 61:1
Is executive pay getting fairer?CEO Pay Ratios
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Your experience
• Did you• leave overall pay quantum unchanged this year?• reduce overall quantum?; or• increase overall quantum?
• Did you rebalance quantum• Yes, towards LTI?• Yes, towards STI?• Yes, towards fixed pay?• No
• Did you reduce base pay for a new incumbent?• Yes• No
• Did you reduce pension contributions?• Yes• No
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Did you…
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1. Leave overall pay quantum unchanged this year?70.4%
2. Reduce quantum?14.8%
3. Increase quantum?14.8%
Vote Now
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Did you rebalance quantum…
15
Vote Now
1 Towards LTI?50%
2 Towards STI?33%
3 Towards fixed pay?17%
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What have we seen from ISS and IVIS so far?
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34%
42%
47%
56%
19%
3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2016
2017
ISS
For Contentious For Against
37%
41%
55%
41%
8%
19%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2016
2017
IVIS
Blue Amber Red
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What is tipping the balance?Voting guidance so far in 2017
For
Contentious For
Against
ISS voting recommendation
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Is everyone singing from the same hymn sheet?It has been a busy 10 months, with some key themes emerging
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BEIS enquiry
LGIM
ISS guidelines
Glass Lewis
BEIS Select Committee
Norges
• Worker representation • RemCo chair accountability • CEO pay ratio• P4P, quantum, disclosure• Post-exit share holding
KEY THEMES• Larger share holdings• Restricted / deferred
shares• Pension reductions • Investor accountability • Diversity agenda
Blackrock
HermesGC 100
PLSA voting guidelines
FRC stewardship report
Gender pay reporting
July Aug Sept Oct Nov Dec Jan Feb March April
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Your experience
• If you interacted with ISS this year, did you find them• Helpful and constructive?• Non-committal?; or• Difficult to engage?
• If you also consulted with shareholders, did you• Make material changes to policy as a result of their feedback?• Make minor changes to policy as a result of their feedback?• Make no changes?
• Was your remuneration committee particularly influenced by external attention to executive pay this year? • Yes – and more conservative in their decision making• Yes – and more attention paid to rationale for changes• No
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If you interacted with ISS this year, did you find them…
22
Vote Now
1 Helpful and construction18%
2 Non-committal41%
3 Difficult to engage41%
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If you also consulted with shareholders, did you…
23
Vote Now
1 Make material changes to policy as a result of their feedback0%
2 Make minor changes to policy as a result of their feedback57%
3 Make no changes43%
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Was your remuneration committee particularly influenced by external attention to executive pay this year?
24
Vote Now
1 Yes – and more conservative in their decision making27%
2 Yes – and more attention paid to rationale for changes58%
3 No15%
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What does voting look like so far?FTSE 100
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2017 2016
% o
f com
pani
es
Overall vote for Policy
Historical votes for Policy - FTSE100
>90% 80-90% 70-80% 60-70% 50-60% <50%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2017 2016
% o
f com
pani
es
Overall vote for Remuneration Report
Historical votes for Remuneration Report -FTSE100
>90% 80-90% 70-80% 60-70% 50-60% <50%
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What does voting look like so far?FTSE 350
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2017 2016
% o
f com
pani
es
Overall vote for Remuneration Report
Historical votes for Remuneration Report -FTSE350
>90% 80-90% 70-80% 60-70% 50-60% <50%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2017 2016
% o
f com
pani
es
Overall vote for Policy
Historical votes for Policy - FTSE350
>90% 80-90% 70-80% 60-70% 50-60% <50%
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Is voting aligned with ISS / IVIS recommendations? FTSE 350
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0
5
10
15
20
25
30
35
>90% 80-90% 70-80% 60-70% 50-60% <50%
ISS
reco
mm
enda
tion
Overall vote for Remuneration Report
ISS Remuneration Report recommendation -2017
For Contentious For Against
0
5
10
15
20
25
30
35
>90% 80-90% 70-80% 60-70% 50-60% <50%IV
IS re
com
men
datio
nOverall vote for Remuneration Report
IVIS Remuneration Report recommendation -2017
Blue Amber Red
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Is voting aligned with ISS / IVIS recommendations? FTSE 350
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0
5
10
15
20
25
30
>90% 80-90% 70-80% 60-70% 50-60% <50%
ISS
reco
mm
enda
tion
Overall vote for Policy
ISS Policy recommendation - 2017
For Contentious For Against
0
2
4
6
8
10
12
14
16
18
>90% 80-90% 70-80% 60-70% 50-60% <50%IV
IS re
com
men
datio
n
Overall vote for Policy
IVIS Policy recommendation - 2017
Blue Amber Red
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And what changes does it favour?ISS recommendations – areas of contention (FTSE 100)
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Your experience
• What do you consider to be the optimum voting outcome in relation to policy (what percentage in favour)?• 90%+• 80%+• 70%+• 50%+
• Do you think the voting advisors (ISS / IVIS) are getting• More influential?• Less influential? • No change
• Do you think future AGM seasons will be• More controversial (more changes made, more variation in voting outcomes)• Equally conservative• More conservative (fewer changes made, more shareholder friendly)
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What do you consider to be the optimum voting outcome in relation to policy (what percentage in favour)?
31
Vote Now
1 90%+57.1%
2 80%+39.3%
3 70%+3.6%
4 50%+0.0%
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Do you think the voting advisors (ISS/IVIS) are getting…
32
Vote Now
1 More influential57.7%
2 Less influential7.7%
3 No change34.6%
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Do you think future AGM seasons will be…
33
Vote Now
1 More controversial (more changes made, more variation in voting outcomes)35%
2 Equally controversial27%
3 More conservative (fewer changes made, more shareholder friendly)38%
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Concluding observations
• Overall, a fairly conservative season – so far
• Some high profile reductions in quantum - and lower pay for new hires
• No public scalps taken so far – but some behind the scenes scalps
• Acknowledgment of investor pressure driving changes to pension
• Greater, more tactical use of give and take
• Caution among rem cos – driven by uncertainty in the market, shareholder and / or government reaction
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Any questions?
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