EXECUTIVE REMUNERATION IN 2016

EXECUTIVE REMUNERATION RESEARCH CENTRE

© Vlerick Business School

EXECUTIVE REMUNERATION STUDY 2017WHAT IS NEW?

Scope

FTSE 250 added

Industry/sector added

Share ownership concentration added

Short-term incentives

Target and maximum added

Weight per KPI added

Pay ratio (CEO – average employee)

3

1SAMPLE

© Vlerick Business School

SAMPLENUMBER OF OBSERVATIONS

0

50

100

150

200

250

300

350

400

Belgium Netherlands Germany France UK Sweden

Num

ber

of

observ

ations

(CEO

rem

unera

tion)

2015 CEO 2016 CEO 2016 CFO

861 CEOs484 CFOs

5

© Vlerick Business School

SAMPLESHARE OWNERSHIP DISPERSION

41%

61%

46%41%

82%

54%

BELGIUM NETHERLANDS GERMANY FRANCE UK SWEDEN

% of firms in which no shareholder has more than 25% of shares

6

© Vlerick Business School

SAMPLEHOW LONG ARE CEOS IN THEIR CURRENT ROLE?

6

4 4

6

4

3

BELGIUM NETHERLANDS GERMANY FRANCE UK SWEDEN

7

© Vlerick Business School

SAMPLECEO PERSONAL CHARACTERISTICS

Gender

Male: 95%

Nationality:

Local CEO: 74%

Age

Median: 55 (Q25: 51; Q75: 59)

Tenure in current role in current firm

Median: 5 (Q25: 2; Q75: 9)

8

2REMUNERATION LEVELS & STRUCTURE

© Vlerick Business School

TOTAL CEO REMUNERATIONBELGIUM - MEDIAN

1.6

10.0

00

755.0

00

605.0

00

1.6

55.0

00

675.0

00

575.0

00

2.0

80.0

00

690.0

00

560.0

00

BEL 20 BEL MID BEL SMALL

2014 2015 2016

10

© Vlerick Business School

TOTAL CEO REMUNERATIONNETHERLANDS - MEDIAN

3.3

60.0

00

1.0

20.0

00

625.0

00

2.9

65.0

00

1.1

05.0

00

645.0

00

2.9

40.0

00

1.0

80.0

00

785.0

00

AEX AMX ASCX

2014 2015 2016

11

© Vlerick Business School

TOTAL CEO REMUNERATIONGERMANY - MEDIAN

4.7

90.0

00

2.0

10.0

00

980.0

00

3.9

60.0

00

2.0

75.0

00

1.0

90.0

00

5.5

55.0

00

2.7

65.0

00

1.4

35.0

00

DAX MDAX SDAX

2014 2015 2016

12

© Vlerick Business School

TOTAL CEO REMUNERATIONFRANCE - MEDIAN

3.5

10.0

00

2.2

70.0

00

1.7

90.0

00

330000

4.1

80.0

00

2.1

95.0

00

1.9

65.0

00

355000

4.6

15.0

00

2.4

65.0

00

2.0

65.0

00

400000

CAC 40 CAC NEXT 20 CAC MID CAC SMALL

2014 2015 2016

13

© Vlerick Business School

TOTAL CEO REMUNERATIONUK - MEDIAN

4.0

50.0

00

4.4

40.0

00

4.3

00.0

00

2.0

60.0

00

4.9

10.0

00

2.3

45.0

00

FTSE 100 FTSE 250

2014 2015 2016 2016 pre-Brexit

14

© Vlerick Business School

TOTAL CEO REMUNERATIONSWEDEN - MEDIAN

1.7

40.0

00

1.5

10.0

00

OMXS60

2014 2015 2016

15

© Vlerick Business School

CEO FIXED REMUNERATIONMEDIAN

16

© Vlerick Business School

CEO FIXED REMUNERATIONMEDIAN

17

© Vlerick Business School

CEO SHORT-TERM INCENTIVESMEDIAN

18

© Vlerick Business School

CEO SHORT-TERM INCENTIVESMEDIAN

19

© Vlerick Business School

CEO LONG-TERM INCENTIVESMEDIAN

20

© Vlerick Business School

CEO LONG-TERM INCENTIVESMEDIAN

21

© Vlerick Business School

TOTAL CEO REMUNERATIONIN TERMS OF FIRM SIZE – MARKET CAP

22

© Vlerick Business School

CEO REMUNERATION STRUCTURE

62%

53%

36%

53%

34%

63%

25% 25%

34%

25% 26%

21%

13%

22%

30%

23%

39%

16%

0%

10%

20%

30%

40%

50%

60%

70%

Belgium Netherlands Germany France UK Sweden

Fixed STI LTI

23

© Vlerick Business School

CEO REMUNERATION STRUCTURE

24

© Vlerick Business School

CEO REMUNERATION STRUCTURE

25

© Vlerick Business School

EVOLUTION CEO TOTAL REMUNERATION2014-2016 MATCHED SAMPLE

26

%

15

%

59

%

DECREASE STABLE INCREASE

26

© Vlerick Business School

EVOLUTION CEO TOTAL REMUNERATION2014-2016 MATCHED SAMPLE

0,8 0,9 1 1,1 1,2 1,3

FTSE 100

CAC Small

CAC Mid

CAC Next 20

CAC 40

SDAX

MDAX

DAX

AScX

AMX

AEX

Bel Small

Bel Mid

Bel 20

1,13

1,05

1,27

1,11

1,13

1,01

1,14

1,3

1

1,11

1,2

1,03

1,15

1,28

27

3SHORT-TERM INCENTIVES

© Vlerick Business School

DISCLOSURE ON KEY PERFORMANCE INDICATORS UNDERLYING SHORT-TERM INCENTIVES

Bel 20 Bel Mid Bel Small

Target bonus disclosed 47% 18% 11%

Maximum bonus disclosed 53% 57% 26%

Key performance indicators disclosed

75% 82% 74%

Weighting of key performance indicators disclosed

27% 17% 29%

© Vlerick Business School

SHORT-TERM INCENTIVESOCCURRENCE - TARGET (% FIXED)

Yes

91%

No

9%

30

© Vlerick Business School

SHORT-TERM INCENTIVESSPREAD TARGET-MAX BONUS

31

© Vlerick Business School

SHORT-TERM INCENTIVESPAY-OUT: BONUS DEFERRAL

No deferral;

68%

Deferral in

shares; 26%

Deferral in

cash; 4%

Deferral in cash

and shares; 2%

• Typical design: 50% deferred, over 3 yearsl

• 90% no additional performance conditions

32

© Vlerick Business School

SHORT-TERM INCENTIVESPAY OUT: BONUS DEFERRAL

33

© Vlerick Business School

SHORT-TERM INCENTIVESKEY PERFORMANCE INDICATORS

KP

I u

sed

fo

r S

TI

20%

40%

60%

80%

34

© Vlerick Business School

SHORT-TERM INCENTIVESKEY PERFORMANCE INDICATORS

0% 5% 10% 15% 20% 25% 30%

No non-financial KPIs

5-15%

16-25%

26-40%

41-50%

>50%

17%

7%

26%

28%16%

6%

% of firms

Weig

ht

of

non-f

inancia

l KPIs

35

4LONG-TERM INCENTIVES

© Vlerick Business School

LONG-TERM INCENTIVES GRANTED?

© Vlerick Business School

LONG-TERM INCENTIVES GRANTED?EVOLUTION - BELGIUM

64%

52%

22%

70%

37%

25%

65%

47%

33%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Bel 20 Bel Mid Bel Small

2014 2015 2016

38

© Vlerick Business School

LONG-TERM INCENTIVESNUMBER OF GRANTS (2014-2016)

Country No grant 1 grant 2 grants 3 grants

Belgium 31% 20% 16% 33%

Netherlands 5% 15% 18% 62%

Germany 3% 9% 24% 64%

France 36% 22% 15% 27%

UK 2% 0% 13% 85%

39

© Vlerick Business School

LONG-TERM INCENTIVESNUMBER OF GRANTS (2014-2016) - BELGIUM

0

5

10

15

No grant

1 grant

2 grants

3 grants

14

9

7

15

NU

MBER O

F F

IRM

S

40

© Vlerick Business School

LONG-TERM INCENTIVESWHAT DETERMINES THE NUMBER OF GRANTS?

41

© Vlerick Business School

LONG-TERM INCENTIVESTYPOLOGY

LTI type B NL D F UK SE

Time-based options 28% 9% 2% 6% 1% 0%

Performance-based options 8% 10% 4% 4% 6% 8%

Nil cost options 0% 0% 0% 0% 38% 0%

Time-based shares 4% 1% 1% 1% 1% 0%

Performance-based shares 7% 49% 14% 37% 45% 36%

Free shares 0% 0% 1% 8% 0% 3%

Phantom time-based 1% 0% 5% 0% 0% 0%

Phantom performance-based 3% 1% 27% 3% 1% 3%

Stock appreciation rights time-based 0% 0% 3% 0% 0% 0%

Stock appreciation rights performance-based

0% 1% 3% 0% 0% 0%

Cash 4% 3% 42% 3% 0% 14%

42

© Vlerick Business School

LONG-TERM INCENTIVESKPIS FOR VESTING

KP

I u

sed

fo

r L

TI

20%

40%

60%

80%

43

© Vlerick Business School

SHAREHOLDING REQUIREMENT?

1%

18%

7%

2%

94%

14%

BELGIUM NETHERLANDS GERMANY FRANCE UK SWEDEN

44

5PAY RATIO

© Vlerick Business School

PAY RATIO CEO-CFO

1,55

1,66 1,67

FIXED

REMUNERATION

STI LTI

46

© Vlerick Business School

PAY RATIO CEO-AVERAGE EMPLOYEE

47

© Vlerick Business School

PAY RATIO CEO-AVERAGE EMPLOYEE

14

22

45

86

28

38

51

100

0

20

40

60

80

100

120

300-1000 mn. 1-3 bn. 3-10 bn. >10 bn.

CEO

pay r

atio

Market cap (in €)

ContinentalEurope (excl.Sweden)

UK

48

© Vlerick Business School

WHAT DETERMINES PAY RATIO?

49

6WHAT DRIVES CEO REMUNERATION?

© Vlerick Business School

WHAT DRIVES TOTAL CEO REMUNERATION?

© Vlerick Business School

WHAT DRIVES THE EVOLUTION IN TOTAL CEO REMUNERATION (2014-2016)?

52

© Vlerick Business School

WHAT DRIVES THE EVOLUTION IN TOTAL CEO REMUNERATION (2014-2016)?

0,067

0,498

0,562

0

0,1

0,2

0,3

0,4

0,5

0,6

Fixed remuneration Short-term incentives Long-term incentives

Sta

ndard

ized b

eta

coeff

icie

nt

53

7WHAT CHARACTERISES CEO REMUNERATION IN THE BEST PERFORMING FIRMS?

© Vlerick Business School

SUSTAINED FINANCIAL PERFORMANCEWHAT? HOW?

Criterion

Return on Assets

Timeframe

2010-2016 (7y.)

Average per sector

41 sectors

55

© Vlerick Business School

(HOW) IS SUSTAINED FINANCIAL PERFORMANCE RELATED TO CEO REMUNERATION? THE ANSWERS…

56

8CEO RELATIVE PAYMENT

© Vlerick Business School

PREDICTED CEO REMUNERATIONTHE CONCEPT

Market capitalisation

Profitability

Industry

Predicted CEO remuneration

58

© Vlerick Business School

ACTUAL VERSUS PREDICTED CEO REMUNERATIONA COUNTRY ANALYSIS

0,89

0,83

1,17

0,88

1,31

0,64

0,4

0,5

0,6

0,7

0,8

0,9

1

1,1

1,2

1,3

1,4

Belgium Netherlands Germany France UK Sweden

59

© Vlerick Business School

ACTUAL VERSUS PREDICTED CEO REMUNERATIONWHAT DRIVES CEO ‘OVERPAYMENT’?

60

© Vlerick Business School

Xavier.baeten@vlerick.com

+ 32 9 210 98 97

www.linkedin.com/in/xavier-baeten

HAPPYTO CONNECT