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Breakfast briefing: 2017 AGM season

What’s really happening?

4 May 2017

© 2017 Willis Towers Watson. All rights reserved.


AGM season has started…

2© 2017 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.


…and the headlines are flooding in



But is pay really falling? What is really happening?



What have we seen so far?


Reports published

Voting recommendations AGMs

willistowerswatson.com© 2017 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

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


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

7© [yyyy] Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.


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


Are companies introducing restricted stock?


• 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.


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


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



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



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


Did you rebalance quantum…

15

Vote Now

1 Towards LTI?50%

2 Towards STI?33%

3 Towards fixed pay?17%


Did you reduce pay for a new incumbent?

16

Vote Now

1 Yes23%

2 No77%


Did you reduce pension contributions?

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Vote Now

1 Yes4.2%

2 No95.8%


What have we seen from ISS and IVIS so far?


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


What is tipping the balance?Voting guidance so far in 2017

For

Contentious For

Against

ISS voting recommendation


Is everyone singing from the same hymn sheet?It has been a busy 10 months, with some key themes emerging


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


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



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%


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%


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%


What does voting look like so far?FTSE 100


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%


What does voting look like so far?FTSE 350


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2017 2016

% o

f com

pani

es


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


Historical votes for Policy - FTSE350

>90% 80-90% 70-80% 60-70% 50-60% <50%


Is voting aligned with ISS / IVIS recommendations? FTSE 350


0

5

10

15

20

25

30

35

>90% 80-90% 70-80% 60-70% 50-60% <50%

ISS

reco

mm

enda

tion


ISS Remuneration Report recommendation -2017


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


Is voting aligned with ISS / IVIS recommendations? FTSE 350


0

5

10

15

20

25

30

>90% 80-90% 70-80% 60-70% 50-60% <50%

ISS

reco

mm

enda

tion


ISS Policy recommendation - 2017


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


IVIS Policy recommendation - 2017

Blue Amber Red


And what changes does it favour?ISS recommendations – areas of contention (FTSE 100)



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)



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%


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%


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%


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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Thank you


breakfast briefing: 2017 agm season - willis towers watson5 10 15 20 25 30 35 >90% 80-90% 70-80%...

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