Director Remuneration Policy - MM&K · PDF file Director Remuneration Policy Looking back...

Click here to load reader

  • date post

    22-May-2020
  • Category

    Documents

  • view

    4
  • download

    0

Embed Size (px)

Transcript of Director Remuneration Policy - MM&K · PDF file Director Remuneration Policy Looking back...

  • Director Remuneration Policy Looking back but moving forward

    Jeremy Edwards and Kathy Hood

    Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. © 2014 Baker & McKenzie LLP

  • Agenda • Policy recap and key issues to consider • Observations and trends• Observations and trends • Initial reactions to companies’ policies • Evolving practice• Evolving practice • Developments • Questions for tables to considerQuestions for tables to consider

    © 2014 Baker & McKenzie LLP 2

  • Policy report | recapPolicy report | recap

  • Policy overview | recap

    Companies have now prepared their first remuneration policies under the new regime

    Forward-looking policy; disclose details of all aspects of the company’s policy on remuneration and loss of office payments

    What is it? Covers current, previous and future directors (including non- executive directors)

    What is it?

    Subject to a binding shareholder vote every 3 years (or earlier if propose to change the policy or if the annual remuneration report is voted against)

    Prescriptive regulatory requirements

    © 2014 Baker & McKenzie LLP DM Ref: 6027466

    4

  • Policy overview | recap

    Binding nature of the policy

    • Cannot make changes to the policy without shareholder approval, though can include some scope for discretion within the policy

    • Can make payments to directors only if they are within the scope of the policy, unless p y y y p p y, the payment is specifically approved by shareholders

    • If a payment is made which is outside the scope of the policy: • Payment will be void and held on trust by the director for the benefit of the companyPayment will be void and held on trust by the director for the benefit of the company • Directors who authorised the payment will be jointly and severally liable for any loss

    • Exception for payments made before (and not renewed/modified on or after) 27 June 20122012

    GC 100 guidance: Aim for policy to remain in place for 3 years

    © 2014 Baker & McKenzie LLP DM Ref: 4143183

    5

  • Policy requirements | recap

    Policy Report to include:

    Future policy table, setting out for each

    element of pay:

    Approach to recruitment

    remuneration Summary of

    service contract bli ti

    Scenario chart • Purpose & link to

    strategy • Operation • Max potential value*

    Loss of office payment policy

    obligations showing amount receivable by

    element for each executive director at Statements of

    • Malus & clawback provisions

    • Performance assessment framework

    Notice period policy

    minimum, on-target and max levels

    consideration of employees’ pay and

    conditions and shareholders’ views

    * Although no prescribed limits on pay, required to set the maximum amount that may be paid in respect of each element of pay (including salary, benefits, incentives

    and pensions) – expressed in monetary terms or otherwise

    © 2014 Baker & McKenzie LLP DM Ref: 4143183

    6

    and pensions) expressed in monetary terms or otherwise The company will then be bound by this

  • Key issues to consider

    • Voting on the policy again this year? • When might you need to do this?

    • Consider how the policy is working in practice • Did you get it right first time?

    Need/want to change the policy

    If advisory vote against annual report

    y g g • Has it been sufficiently flexible so far? Gaps identified

    / developments not originally envisaged? • Areas of weak compliance / not best practice?p p

    • Consider shareholders’ reaction to current policy • Aspects that shareholders took issue with?

    • Investors recommend disclosing the policy table every• Investors recommend disclosing the policy table every year even if the policy report is not being voted on

    © 2014 Baker & McKenzie LLP DM Ref: 4143183

    7

  • Observations and trendsObservations and trends

  • FTSE 100 survey

    • Annual FTSE 100 survey, since 2008/2009 – 129 companies this year

    • Seen a range of approaches taken to meeting the regulations • Clarity of reports and level of detail of

    di l i ddisclosures varied • Major areas of challenge for companies:

    • Flexibility and discretion – esp. recruitment and exit policies • Disclosure of performance measures and targets • Link between pay and strategy

    • Questions re whether certain regulations met – depends on strictness of interpretationQuestions re whether certain regulations met depends on strictness of interpretation • Presentation of some disclosures – can initially give one impression, but the

    detail may tell another story • Lack of clarity in some cases – a result of conflict between need for flexibility and

    © 2014 Baker & McKenzie LLP DM Ref: 6027466

    9

    Lack of clarity in some cases a result of conflict between need for flexibility and need for transparency / to meet prescriptive regulations

  • Observations and trendsObservations and trends

    Policy start date • Vast majority went for date of the AGM (over 90%)

    Policy start date

    Policy term • Approx;

    • 50% did not mention policy term • 40% expressed at least an intention to last for 3 years • 10% warned of anticipated changes within 3 years10% warned of anticipated changes within 3 years

    • Salary – Less than 10% set a monetary maximum (and some of those with

    Maximum limits Salary Less than 10% set a monetary maximum (and some of those with discretion to go higher)

    • Benefits • Variable pay, including for new recruits

    © 2014 Baker & McKenzie LLP 10

  • Observations and trendsObservations and trends Honouring previous commitments

    • Approx 60% included a statement

    g p

    Discretions

    • Incorporating discretions – approx 25% included a standalone paragraph regarding discretions

    • Discretion to make minor amendments – approx 15% included a statement to this effect E di ti ll i it ti d di ti

    Discretions

    • Emergency discretion – very small minority mentioned emergency discretion

    Performance conditions

    • Description of performance framework to include measures and weightings - commercial sensitivity opt out heavily used, particularly in relation to the annual bonus – e.g. approx: • LTIP – 55% clear weightings; 20% indication only; 20% none (5% N/A) • Bonus – 25% clear weightings; 40% indication only; 30% none (5% N/A)

    © 2014 Baker & McKenzie LLP 11

  • Observations and trendsObservations and trends Recruitment policy

    • Key area of shareholder concern • Most common concerns where policy allows payments to be made outside the

    policy / where no overall limit / where ability to grant sign on payments not related b

    p y

    to buy outs • Particular lack of clarity / transparency in some cases

    Exit policy

    • Significant variances in level of detail, e.g. considerations taken into account when exercising discretions / different scenarios

    • Broadly principles-based approach

    Exit policy

    y p p pp

    Shareholders’ views

    © 2014 Baker & McKenzie LLP 12

  • General

    • Some areas of dubious compliance with regulations (and in some cases, non-compliance)

    • Investor concerns • Practice still evolving

    • Benefit of past experience (and other reports) p p ( p ) this time round

    • Greater administrative burden – volume of disclosures + some uncertainty as to how to report and level of detail required

    • Need for careful drafting and continuous monitoring • Areas to watch: recruitment and exit policies

    © 2014 Baker & McKenzie LLP DM Ref: 6027466

    13

  • Initial reactionsInitial reactions

  • Shareholder voting

    • B&M FTSE 100 survey • AGM voting results so far – approx:

    • 83% of the companies surveyed received a 90%+ vote in favour of their policy • 10% received between 80% and 90% in favour of their policy • 7% received between 50% and 80% in favour of their policy7% received between 50% and 80% in favour of their policy

    • Not sweeping use of new voting powers – shareholders have not voted policies down in large numbershave not voted policies down in large numbers • But increased engagement and shareholder activism • Shareholder activists, e.g. PIRC and Fidelity

    • NB. dissenting votes

    © 2014 Baker & McKenzie LLP DM Ref: 6027466

    15

  • Shareholder concerns

    • Common concerns raised by shareholders and highlighted by IVIS and ISS: • Recruitment policy scope / limits • Levels of fixed pay, pensions and total pay • Lack of limits and potential increases re: fixed pay

    • General discretion of remuneration committeeGeneral discretion of