KPMG’s Guide to Directors’ Remuneration...
Transcript of KPMG’s Guide to Directors’ Remuneration...
Highlights
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Basic salary The number of companies with a base salary freeze remains broadly similar to last year, with around 19% of executive directors not receiving a pay rise. Where increases were given, they have remained modest and were more in line with those seen across the broader employee population, with a median of between two and three percent.
Annual bonus and deferred annual bonus Annual bonus payments movements varied by role within the FTSE 100 but increased slightly in the FTSE 250. The number of zero bonus payments has increased this year, with 12% of FTSE 350 executive directors receiving no bonus.
Some form of deferral features in most annual plans. Following the trend that has developed over the last two years, this tends to be compulsory deferral and without any form of matching award.
Long term incentives The level of grants under performance share plans has remained relatively similar to last year across the FTSE 350, with median awards of 250% of base salary for directors of the FTSE 100 companies and 155% of base salary for directors of FTSE 250 companies.
Regulatory This year saw further regulatory developments in respect of remuneration and reward arrangements. Changes to the Corporate Governance Code take effect for financial years starting on or after 1 October, while a number of financial services specific regulations came into effect during the year.
Shareholders Shareholders’ support of pay policies has been received as an improvement in the level of engagement and that companies are addressing the concerns of investors, with an average vote for remuneration reports at 94%.
Summary Findings
FTSE 100 The tables below summarise median market practice in FTSE 100 companies for chief executives, finance directors and other executive directors, as reported in this guide.
Chief Executive Finance Director Other Executive
Directors
Salary increase 2% 3% 2%
Basic salary £’000s 837 485 501
Annual bonus
Maximum bonus (percentage of salary) 180% 150% 150%
Total bonus (percentage of maximum) 71% 66% 67%
Total bonus (percentage of salary) 117% 102% 115%
Most common performance measure Combination of profit
and non-financial measures
Combination of profit and non-financial
measures
Combination of profit and non-financial
measures
Deferred bonus
Maximum permitted deferral (percentage of annual bonus)1 50% 50% 50%
Typical matching ratio, if applicable 1:1 / 2:1 1:1 / 2:1 1:1 / 2:1
Deferral period 3 years 3 years 3 years
Performance share plans
1 Maximum award (percentage of salary) 300% 215% 225%
1 Actual award (percentage of salary) 291% 209% 221%
Actual gains (percentage of salary) 235% 198% 181%
Most common performance measure TSR** relative to
comparator group and EPS* growth
TSR** relative to comparator group and
EPS* growth
TSR** relative to comparator group and
EPS* growth
Share option plans
2 Actual gains (percentage of salary) 125% 31% 175%
Total earnings (£’000s)3 3,754 1,874 2,087
1 Face value of award. 2 The cash value of market value share options vested during the year. 3 Includes benefits, total bonus and cash value of PSP awards vested and share options exercised in the year. * Earnings per share ** Total shareholder return
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
FTSE 250 The table below summarise median market practice in FTSE 250 companies for chief executives, finance directors and other executive directors, as reported in this guide.
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Chief Executive Finance Director Other Executive
Directors
Salary increase 3% 3% 3%
Basic salary £’000s 481 325 300
Annual bonus
Maximum bonus (percentage of salary) 125% 120% 100%
Total bonus (percentage of maximum) 67% 65% 75%
Total bonus (percentage of salary) 95% 90% 94%
Most common performance measure Combination of profit
and non-financial measures
Combination of profit and non-financial
measures
Combination of profit and non-financial
measures
Deferred bonus
Maximum permitted deferral (percentage of annual bonus)1 50% 50% 50%
Typical matching ratio, if applicable 1:1 / 2:1 1:1 / 2:1 1:1 / 2:1
Deferral period 3 years 3 years 3 years
Performance share plans
1 Maximum award (percentage of salary) 160% 160% 155%
1 Actual award (percentage of salary) 157% 155% 155%
Actual gains (percentage of salary) 172% 140% 157%
Most common performance measure TSR** relative to
comparator group and EPS* growth
TSR** relative to comparator group and
EPS* growth
TSR** relative to comparator group and
EPS* growth
Share option plans
2 Actual gains (percentage of salary) 77% 64% 73%
Total earnings (£’000s)3 1,560 912 963
KPMG’s Guide to Directors’ Remuneration 2014 | 1
Contents
01 Introduction 2
02 The Remuneration Landscape 4
03 Market Data Overview 14
04 Chief Executive 22
05 Finance Director 30
06 Other Executive Directors 38
07
Incentives 46
Annual bonus plans 46
Deferred annual bonus plans 48
Performance share plans 51
08 Pensions 54
09 Non-executive Directors 58
10 Appendix 64
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2 | KPMG’s Guide to Directors’ Remuneration 2014
01 Introduction
Use of this guide This publication is designed to be a comprehensive guide to you as a director or policy maker to assist in remuneration planning at your company.
Where possible we have broken down the data obtained from the FTSE 350 into groupings by market capitalisation and turnover to increase the relevance to you.
We recommend that this guide is used in conjunction with other information and in consultation with your advisers to ensure the data is interpreted correctly and is relevant to your company.
While data provides a useful guide, it is important to note its historical nature, together with the personal circumstances that are attached to each role and benchmark.
01 Introduction
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG’s Guide to Directors’ Remuneration 2014 | 3
This guide analyses the latest trends in FTSE 350 directors’ pay. It covers basic
pay and incentives, and pensions. We also look at some of the wider factors that
impact the executive pay landscape and how these have changed over the year.
How KPMG can help KPMG is one of the UK’s leading advisers on employee incentives and executive compensation.
We have a multi-disciplinary team, able to advise on market practice and corporate governance, incentive plan design, tax, regulatory and accounting aspects of UK and global incentive plans.
We work regularly with clients ranging from FTSE companies and AIM listed companies to private equity-backed and larger unlisted companies, as well as multinational groups headquartered in and out of the UK. We have significant experience in advising on all of the following matters:
• Executive remuneration strategy and approach
• Executive pay benchmarking
• Remuneration committee governance and regulatory compliance
• Design and implementation of incentive plans
• Corporate transactions
• Accounting, valuations and modelling
• Ongoing operation of incentive plans
This guide is designed to provide you with a comprehensive picture of trends in market practice in remuneration for executive and non-executive directors in FTSE 350 companies.
The guide includes a detailed look at the market in terms of pay, together with information on the wider executive remuneration landscape, including analysis of shareholder activism and trends in new long term incentive plans (LTIPs).
This guide is structured to show information by position; namely chief executive, finance director, other executive directors and non-executive directors, to enable all the remuneration components of each position to be considered and discussed together.
Where we show total earnings figures we have, as far as possible based on current disclosures, followed the methodology for the single figure table for remuneration in Directors’ Remuneration Reports. Additional information on pensions and plan design for short and long term incentives, is shown separately.
This guide is based on data gathered from external data providers (see methodology appendix for more information) and covers companies with financial year ends up to and including March 2014. The analysis of long term incentive plans also includes information from shareholder communications on new plans, and amendments to existing plans put forward for approval at AGMs until 31 August 2014.
01 Introduction
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
4 | KPMG’s Guide to Directors’ Remuneration 2014
02 The Remuneration Landscape
Summary 2014 has been an interesting year for those interested in the executive pay debate, which these days includes politicians, the press and the general public, as well as shareholders, executives and non- executive directors.
The new disclosure and voting regulations took effect for financial year ends commencing on or after 1 October 2013, meaning that, for the first time, shareholders had a binding vote on pay policy.
The new measures were introduced to address perceived failings in the corporate governance framework for executive pay, and in particular there was a stated aim to boost transparency so that what people are paid is clear and easily understood. It is worth noting that one issue which the new regulations do not address is quantum.
When looking at the disclosures made during 2014, it is questionable as to whether there have been any significant improvements in transparency. The majority of companies already had a good level of disclosure, and this is reflected in the levels of shareholder support seen in previous years. For the 2014 reporting season the average vote in favour of the remuneration policy and the annual report on remuneration are both at 94%. However, we have seen an increase in shareholder pressure in a number of key areas and a new development this year saw over 30 companies issuing clarification statements following the publication of their annual report. This is viewed, at least by some commentators, as a positive sign that there is an improvement in the level of engagement and that companies are listening to the concerns of investors.
Within this new environment, we have seen base salary increases remain at a modest level, while annual bonus plans continue to pay out at a high level for the majority of companies. There is something of a split between the FTSE 100 and FTSE 250 when we look at vesting under long term incentive plans, with FTSE 250 companies seeing an increase in payouts across all roles, while the picture is mixed for the FTSE 100. The clarity of the link between pay received and performance delivered remains a key focus for both shareholders and companies.
02 The Remuneration Landscape
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KPMG’s Guide to Directors’ Remuneration 2014 | 5
Directors’ Remuneration Report 2014 was a demanding year for companies as they reviewed remuneration polices and engaged in shareholder consultation to ensure that they had an approved remuneration policy before the financial year-end. Although the new regulations are one of the biggest new initiatives in the executive remuneration world, the question remains as to whether they have promoted change in the approach to pay amongst companies. An overview of the key themes from the reporting season is shown below.
Remuneration policy
• The majority of policies had an effective date from the date of the AGM
• A number of companies expressly stated that they anticipated changing their policy within a three year period
• A majority of policies did not incorporate a base salary maximum
• The overwhelming majority of companies did not consult with employees on executive reward
• Companies utilised the flexibility to put general statements about performance measures rather than specifically committing to a particular approach
• A significant number of companies retain additional discretion to pay more in recruitment situations (see chart below)
Statement of recruitment principles on variable pay
02 The Remuneration Landscape
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Pay in line with existingFTSE 250 policy
RemCo discretion- no variable pay cap disclosed
FTSE 100 RemCo discretion - variable pay cap disclosed0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
6 | KPMG’s Guide to Directors’ Remuneration 2014
Annual remuneration report
• Generally improved disclosure on annual bonus performance measures with more information on measures and weightings
• Limited information on specific targets with many companies relying on the exemption for commercially sensitive information. Few companies provide an indication of when the targets will cease to be commercially sensitive and therefore when they will be disclosed
• Only a small percentage of companies provide information over and above the minimum requirements of the regulations in relation to disclosing the relative importance of spend on pay, i.e. the requirement to disclose total remuneration costs and distributions to shareholders
• Only a small number of companies use employees as a whole when disclosing the percentage change in CEO pay. Most companies have chosen an alternative comparator group, if employees as a whole is deemed unsuitable. Some companies are using a senior management comparator group, which does not seem in keeping with the intention of the regulations.
The shareholder perspective While much attention has been focused on the new regulations, this was largely a compliance exercise, ensuring that the relevant information is disclosed and the applicable methodology followed. From a shareholder perspective, while there may be some new and different information, the key concerns for them remain:
• The link between remuneration policy and company strategy
• The performance achieved and the quantum of pay delivered by reference to this
• Alignment with long term sustained success
Therefore the way in which messages about pay are communicated is very important.
The need for companies to better understand their shareholder base and tailor their consultation approaches accordingly has been another key theme of the 2014 reporting year.
There were only two companies across the FTSE 350 that received a majority vote against their remuneration reporting (one against the annual remuneration report, and the other for both policy and annual report). Our research however shows that the number of FTSE companies that received a significant vote against (defined as 20% or more) has increased. In other words, although a majority vote in favour is received, there are issues which shareholders will expect to see addressed, and where they are not shareholders are willing to vote against.
It is also becoming evident that in many instances, remuneration committees and their boards may need to accept that not all shareholders will be in agreement with their approach to rewarding executives.
02 The Remuneration Landscape
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KPMG’s Guide to Directors’ Remuneration 2014 | 7
Percentage of companies with a significant vote against (significant = 20%+)
Remuneration report
Remuneration policy
FTSE 250
FTSE 100
0% 2% 4% 6% 8% 10% 12% Percentage of significant votes against
Actual votes against policy and remuneration report (companies with a significant vote against)
30%
25%
20%
35%
55%
50%
45%
40%
FTSE 350 companies with significant votes against (20%+)
Remuneration report
Remuneration policy
For those companies seeing a significant vote against this was typically due to a combination of factors rather than just one single issue. The common issues seen were a combination of those which we have seen in previous years – significant base pay increases, quantum of bonus with limited disclosure on the performance achieved, exercise of discretion. The two biggest issues which have arisen as a direct consequence of the new regulations, were discretionary powers and the statement of recruitment principles.
02 The Remuneration Landscape
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’
’
8 | KPMG’s Guide to Directors’ Remuneration 2014
Regulation Companies across all sectors, and particularly in the financial services sector, face an increasing amount of regulation in respect of remuneration and reward arrangements for senior employees. There have been a number of developments during the year and a brief overview is provided below.
Main market listed companies’ regulation
Corporate Governance Code Review
• Changes to the Corporate Governance Code take effect for periods commencing on or after 1st October 2014
•The revised Code now requires companies to include clawback and/or malus provisions that would enable the company to recover sums paid or withhold the payment of any sum, and to specify the circumstances in which it would be appropriate to do so. If a company does not have such polices in place then it must explain why
•The Code now contains a provision that where there has been a significant vote against an AGM resolution, companies should set out, when announcing the results of voting, how they intend to go about engaging with shareholders in order to address their concerns. This applies to all resolutions, not just those on remuneration
•The consultation on changes to the Code had included the possibility of seeking to deter executive directors from sitting on remuneration committees. There was little support for this and the proposal was dropped
IMAs Review of the Principles of Remuneration
•The Investment Affairs division of the ABI merged with the Investment Management Association (IMA), and in October 2014 published revised Principles of Remuneration together with some guidance following the first reporting season under the new regulations
• A number of areas of concern were highlighted. These include the gearing of variable pay, low threshold performance levels in long term incentive plans, the length of performance periods and retrospective changes to performance conditions
• Some forward-looking guidance was also provided for 2015, in particular the expectation that there will be more detailed retrospective disclosure of performance targets
•The Principles also set out the IMAs view on role-based allowances which have been introduced by a number of financial services organisations. They consider these to be “against the spirit of simplicity, clarity and pay for performance” and made clear that companies which use such allowances should clearly explain why they are necessary
02 The Remuneration Landscape
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KPMG’s Guide to Directors’ Remuneration 2014 | 9
Financial services regulation
Capital Requirements Directive (CRD)
• CRD IV, which from 1 January 2014 enhanced CRD III, affects all banks, building societies and certain investment firms (albeit a lesser number than within scope of CRD III). Variable remuneration for the first time is limited for in-scope employees to 100 percent of fixed remuneration with an increase to 200 percent subject to a shareholder vote. The rules with regard to deferral and payment in shares, share-linked or alternative non-cash instruments are unaffected; however, a wider category of capital instruments may be available to use
Alternative Investment Fund Managers Directive (AIFMD)
• AIFMD, which is a remuneration regulation coming into effect for the first performance year following regulator authorisation, affects hedge funds, private equity firms and real estate sector managers. AIFMD imposes a deferral and payment in fund units (or similar instruments) requirement to employees (or partners) whose activities have a material impact on the risk profile of the manager or its alternative investment funds. The setting up of a remuneration committee is also recommended as good-practice, despite the fact a number of fund managers will seek to disapply this requirement on the grounds of size under the proportionality principle
Other regulations
• UCI TS V (Undertakings in Collective Investments in Transferable Securities) directive came into force on 28 August 2014 and EU member states are expected to complete the transition by 18 March 2016. The directive will for the first time introduce remuneration regulation to managers of UCITS funds (i.e. funds marketed to EU retail investors that meet the investor protection requirements). The proposed regime is broadly similar to AIFMD albeit the remuneration committee should include employee representatives
• In addition, firms whic h are MIFID authorised under the Markets in Financial Instruments Directive will need to apply the general principles based MIFID remuneration rules to their relevant staff population
New and amended plans The number of long term incentive plans taken to shareholders in 2014 has decreased slightly compared to last year as the following graph shows. Within this, there has been an increase in the use of umbrella plans, where multiple types of incentives plans (e.g. performance shares, share options, annual bonuses and deferred bonuses) are put forward to shareholders for approval under one umbrella plan.
02 The Remuneration Landscape
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10 | KPMG’s Guide to Directors’ Remuneration 2014
New and amended long term incentive plans by FTSE350 companies
Num
ber o
f new
/am
ende
d pl
ans
200
150
Amended Plans
New Plans100
50
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
For those companies introducing new plans, few took an approach which differs significantly from that which has been prevalent in recent years. The majority are performance share plans (PSPs), and few FTSE 350 companies now have a market value option plan in place for executive directors.
New plans introduced by FTSE 350 companies in 2014
New plans introduced by FTSE 350 companies in 2014
Performance share plans 28
Umbrella plans 3
Other long term incentive plans 3
Total plans introduced by FTSE 350 companies 34
02 The Remuneration Landscape
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4%
KPMG’s Guide to Directors’ Remuneration 2014 | 11
The following chart shows that, despite criticism of TSR as a measure, the majority of new plans still incorporate this as a performance condition, either on its own or in conjunction with another measure. Use of EPS also remains common.
FTSE 350 use of performance conditions in new plans
8%
29%
24%
8%
16%
14%
11%
8%
8%
11%
TSR and other
TSR, EPS and other
TSR and EPS
EPS and other
Profit
TSR
EPS
Other
We have seen an increase in the use of ‘other’ measures which are more business/ company specific. In a small number of cases these include non-financial metrics such as customer service.
The small degree of change in LTIP design in recent years seems at odds with the criticism levelled against such plans. It remains difficult for companies to identify performance measures which are relevant for the business, and which shareholders will support. Companies are still nervous of taking a substantially different approach.
Looking ahead The temptation for financial year 2014 will be to view it as a quieter year, with less scrutiny of disclosures and no need to worry about pay structures as long as they are within the approved policy. However, shareholders have clearly demonstrated a willingness to vote against the annual remuneration report if they believe that the implementation of the policy in a given year (for example level of bonus payments or selection of performance measures) is not appropriate. The warning shots that we have seen in 2014 are a clear signal that while shareholders may have approved a policy, the levels of discretion and flexibility which these approved policies contain will only be acceptable while trust on both sides of the debate is high. If this trust is lost through decisions which are made during the year, then shareholders are likely to require more tightly prescribed policies at the next vote. The consequence of a majority vote against the annual remuneration report is an automatic policy vote the following year. This is not a situation which any company will want to find itself in.
02 The Remuneration Landscape
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12 | KPMG’s Guide to Directors’ Remuneration 2014
02 The Remuneration Landscape
As companies prepare for next year, while it is true that if no policy changes are made there is no requirement to put this to a vote, there still needs to be consideration of the messages and rationale as decisions are made. Shareholders will undoubtedly scrutinise the annual remuneration report to ensure that they are comfortable that the quantum received is commensurate with the performance delivered in the same way as would have been the case prior to the new regulations. In particular, any exercise of discretion will need to be carefully explained.
As previously highlighted, a key concern amongst shareholders is to see reward linked to long term sustained success, with the focus typically on performance and vesting periods, together with any additional holding requirements. Although these are obviously important, there are other key areas which significantly impact pay outcomes and relate to the recruitment and exit of executives. During the last 12 months, over half of the FTSE 100 had a change in executive director and almost a quarter had a change in CEO - the highest levels in the last 5 years. This means that the pay outcomes for the year are impacted by: • The deal agreed on recruitment in terms of buy-out of awards which are lost, and any
additional bonus or LTIP awards which are made (and which may have special terms)
• Terms agreed with a departing executive, particularly in respect of pension, bonus (including any deferred awards) and outstanding unvested LTIPs
Both of these typically involve the exercise of discretion by the remuneration committee, rather than the application of hard and fast rules. It is therefore essential that these decisions are given the same care and attention as the selection of performance conditions or design of an LTIP, and that the decisions made can be explained and justified to shareholders.
Even though we have seen a considerable amount of regulatory change in the last 12 months there is still further change anticipated, and this creates uncertainty. This is particularly the case in financial services, but there will also be a general election in 2015 which may lead to a change in government. This could bring about a different approach to executive pay, leading to further changes in the requirements. For example, the idea of publication of pay ratios could be revisited, together with the issue of employee consultation and how the wider employee population should be taken in to account when setting executive reward.
From a pay perspective we anticipate that base pay will continue to increase at a moderate rate, broadly in line with other employees, and the emphasis on selection of performance measures and actual targets set for annual bonus and long term incentive plans will be key areas for remuneration committee debate. The question around the effectiveness of incentive plans will continue, and this is largely driven by the attaching performance conditions. Finding measures which are clearly linked to the strategy of the business and over which participants have a strong line of sight remains the difficult task for remuneration committees, as evidenced by the lack of significant change in LTIP design despite a widely held belief that many plans are not effective.
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KPMG’s Guide to Directors’ Remuneration 2014 | 13
As with the last reporting year, it is important that companies consider the way in which messages around pay are expressed, rather than viewing disclosure as a pure compliance exercise. Directly referencing decisions to the market is a red flag for investors, so companies may wish to consider the value of an individual from a different perspective. This could include factors such as:
• Talent (and scarcity)
• Ownership – the extent to which an individual is an owner of the company as well as the broader ownership structure)
• The performance of the company
• The ability of the company to generate profit
All of these factors are relevant to an individual’s value (together with others), and communicating in this way rather than referring to market practice may help to improve the quality of the discussion with shareholders.
02 The Remuneration Landscape
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14 | KPMG’s Guide to Directors’ Remuneration 2014
03 Market Data Overview
Summary Overall we have seen little change in fixed remuneration in 2014 compared to last year, while movement in variable remuneration differs by sector and by FTSE index.
03 Market Data Overview
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KPMG’s Guide to Directors’ Remuneration 2014 | 15
Following an increase in total earnings in 2013 across all roles, 2014 shows a mixed picture.
Total earnings for FTSE 100 CEOs increased whereas other executives decreased compared
to last year. On the other hand, FTSE 250 companies continued the trend from last year, with
total earnings increases across all roles.
Total earnings The following table summarises the median basic salary, total cash and total earnings in the year for all the chief executive, finance director and other executive directors (2013 data in parentheses). Analysis includes all companies in the sample, regardless of changes in the executive teams during the financial year.
Basic salary (£’000s)
Total cash (£’000s)
Total earnings (£’000s)
FTSE 100
Chief Executive 837 (851) 1,862 (1,734) 3,754 (3,217)
Finance Director 485 (510) 999 (1,104) 1,874 (1,948)
Other Executive Directors 501 (522) 1,045 (1,133) 2,087 (2,291)
FTSE 250
Chief Executive 481 (465) 949 (914) 1,560 (1,286)
Finance Director 325 (309) 624 (554) 912 (773)
Other Executive Directors 300 (279) 566 (555) 963 (767)
03 Market Data Overview
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16 | KPMG’s Guide to Directors’ Remuneration 2014
Remuneration mix The chart below shows the remuneration mix between fixed and variable for FTSE 350 CEOs. This is based on median total earnings received during the year.
FTSE 250 CEO
Fixed
Variable
FTSE 100 CEO
0% 20% 40% 60% 80% 100%
The following chart shows the median short term: long term remuneration mix for CEOs, also based on total earnings received in the year.
FTSE 250 CEO
Short term
Long term
FTSE 100 CEO
0% 20% 40% 60% 80% 100%
The chart below shows the median remuneration mix for CEOs split by sector.
Property, construction & engineering
Natural resources & energy
High Tech
Fixed Industrial goods & services
Variable
Finance
Consumer goods & services
Chemical & pharmaceutical
0% 20% 40% 60% 80% 100%
The chart below shows the median short term: long term remuneration mix for CEOs split by sector.
03 Market Data Overview
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Property, construction & engineering
Natural resources & energy
High Tech
Short term Industrial goods & services
Long term Finance
Consumer goods & services
Chemical & pharmaceutical
0% 20% 40% 60% 80% 100%
KPMG’s Guide to Directors’ Remuneration 2014 | 17
In accordance with the single figure methodology followed in Directors’ Remuneration Reports this year, deferred awards paid out in future financial years are included as short term incentives. It should be noted that the impact of the variable remuneration cap for some financial services organisations will not be picked up in the data until the next financial year.
The charts below show the median remuneration mix for CEOs split by pay elements.
CEO remuneration mix FTSE 100
7%
20%
23%
43%
6%
Basic salary
Total bonus
Realised LTIP gains
Pensions
Other fixed pay
CEO remuneration mix FTSE 250
03 Market Data Overview
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23%
41%
5% 6%
24% Basic salary
Total bonus
Realised LTIP gains
Pensions
Other fixed pay
18 | KPMG’s Guide to Directors’ Remuneration 2014
Base salary In light of the new disclosure regulations and the introduction of binding policy votes, it is no surprise that salary increases have remained modest - in the range of 2% to 3% - and broadly similar to last year. 19% of executive directors did not receive a pay increase and, with certain specific exceptions, companies have remained cautious in their approach, continuing to take into account the increase given to the broader employee population and the wider economic environment.
The chart below shows the prevalence of basic salary freezes for the last four years.
2014
2013
2012
2011
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Perc
enta
ge o
f com
pani
es
Chief Executive Finance Director Other Executive Directors
Salary differentials by reference to role The table below shows the internal ratio between the salaries of the finance director and other executive director positions as a percentage of the chief executive’s salary. These percentages remain broadly consistent with the previous two years.
FTSE 350 internal ratio of finance director and other executive directors’ salaries expressed as a percentage of the chief executive’s salary.
Lower Quartile Median Upper
Quartile
FTSE 100 Finance Director
Other Executive Directors
Finance Director
Other Executive Directors
58%
55%
60%
55%
63%
62%
64%
62%
71%
70%
72%
74% FTSE 250
03 Market Data Overview
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KPMG’s Guide to Directors’ Remuneration 2014 | 19
Annual bonus plans Movements in total bonus payments compared with the previous year differ depending on market listing and role. Within the FTSE 100, total annual bonus payments have increased slightly for the CEOs but fallen slightly for the finance director and other executive directors. Within the FTSE 250, bonus payments have increased for all directors. The percentage of FTSE 350 CEOs with a zero bonus in 2014 is 12%.
The charts below show the median total bonus payouts made in FTSE 100 and FTSE 250 companies.
FTSE 100 (‘000s) Total bonus payments
£1,200
£1,000
£800
£600
£400
£200
0
£961 £905
£580 £525£509£487 2014
2013
Chief Executive Finance Director Other Executive Directors
FTSE 100
FTSE 250 (‘000s) Total bonus payments
03 Market Data Overview
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£500
£450
£400
£350
£300
£250
£200
£150
£100
£50
£0
£459
£385
£290 £261
£234£233
2014
2013
Chief Executive Finance Director Other Executive Directors
FTSE 250
20 | KPMG’s Guide to Directors’ Remuneration 2014
03 Market Data Overview
Around a third of companies paid their directors bonuses of over 80% of the maximum opportunity. Around a fifth of companies paid bonuses of less than 30% of maximum. The majority of companies paid bonuses of at least 60% of the maximum opportunity.
Deferred bonus plans Deferral of at least part of the bonus is now required by the majority of companies. The median maximum bonus deferral within the FTSE 350 is 50%. Please see the Incentives section for more details.
Long term incentive plans Performance share plans continue to be the most commonly used form of long term incentive plan.
The charts below show the median actual value of performance share plan awards vesting in the year as compared to 2013.
FTSE 100 (‘000s) median actual value of performance share plan awards vesting in the year
£2,000 £1,791 £1,781
£1,800
£1,600 £1,360
£1,400 £1,154
£1,200 £952
£1,000 £738 2014£800
£600 2013
£400
£200
£0 Chief Executive Finance Director Other Executive
Directors FTSE 100
FTSE 250 (‘000s) median actual value of performance share plan awards vesting in the year
£900 £833
£800
£700
£600
£816
£485 £500 £447 £418
£370£400
2014 £300
2013 £200
£100
£0 Chief Executive Finance Director Other Executive Directors
FTSE 250
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KPMG’s Guide to Directors’ Remuneration 2014 | 21
The following chart shows the median actual value of performance share plan awards vesting in the year in the FTSE 350 across different sectors.
FTSE 350 CEO only (‘000s) median actual value of performance share plan awards vesting in the year across different sectors
03 Market Data Overview
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Chemica
l &
pharm
aceuti
cal
Consum
er go
ods
& servi
ces
Finan
ce
Indust
rial go
ods
& servi
ces
Media &
e-bu
siness
Natural
resou
rces
& energ
y
Prope
rty, co
nstruc
tion
& engin
eerin
g
£1,600
£1,440 £1,368 £1,347£1,400
£1,197 £1,211 £1,200
£1,061£1,002 £1,004
£1, 000 £915 £901 £872 2014 £767£800 2013£694£668
£600
£400
£200
£0
22 | KPMG’s Guide to Directors’ Remuneration 2014
04 Chief Executive
Summary This section provides information on the remuneration for the role of chief executive. This role represents the lead executive director at each company, so actual job titles included are chief executive officer, managing director, executive chairman and CEO, president and CEO.
04 Chief Executive
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KPMG’s Guide to Directors’ Remuneration 2014 | 23
The level of total earnings for both FTSE 100 and FTSE 250 CEOs has increased
when compared to data from 2013. This appears to be primarily driven by annual
bonus payments.
The table below shows median total earnings for FTSE 100 and FTSE 250 companies. The methodology used to calculate these figures can be found in the appendix.
Median total earnings
Basic salary (£’000s) Total cash (£’000s) Total earnings (£’000s)
FTSE 100 837
481
1,862
949
3,754
1,560FTSE 250
Basic salary As mentioned in the overview, basic salary increases have remained low, with around a quarter of companies operating a pay freeze at board level. The table below shows increases in the FTSE 100 and FTSE 250 in the latest reported financial year, compared with the previous year’s figures.
Basic salary increases
Lower Quartile Median Upper Quartile
Chief Executive 2014 2013 2014 2013 2014 2013
FTSE 100 0% 1%
0% 2%
2%
3%
3%
3%
3% 3%
4% 6%FTSE 250
04 Chief Executive
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24 | KPMG’s Guide to Directors’ Remuneration 2014
Salary position and pay comparator groups There is an assumption that the size of a company is highly correlated with basic salary levels for executive directors. The data below, showing basic salary levels by market capitalisation and turnover bands, supports this assumption. Many companies therefore use market capitalisation as a key factor when comparing salary levels, but the volatility in the stock markets has shown that this can lead to unintended consequences. For example if pay is benchmarked to a group of peer companies selected by market capitalisation in one year, subsequent falls in market capitalisation for the company concerned will then mean it appears out of line with current peers.
Turnover is generally a less volatile indicator and therefore a prudent approach would be to consider both when looking at salaries and form a view as to the appropriateness of the data.
Basic salary by market capitalisation
Chief Executive
Market Capitalisation Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
>£10bn 953 988 1,083
FTSE 100 £5bn - £10bn
<£5bn
694
553
765
634
850
752
All FTSE 100 697 837 980
>£2bn 444 542 665
FTSE 250 £1bn - £2bn
<£1bn
441
395
510
451
569
494
All FTSE 250 416 481 576
FTSE 350 All FTSE 350 447 550 750
Basic salary by turnover
Chief Executive
Turnover Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
>£15bn 944 1,009 1,100
FTSE 100 £5bn - £10bn
<£5bn
751
579
832
707
978
790
All FTSE 100 697 837 980
>£1.5bn 500 567 760
FTSE 250 £500m - £1.5bn
<£500m
451
381
498
425
583
479
All FTSE 250 416 481 576
FTSE 350 All FTSE 350 447 550 750
04 Chief Executive
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KPMG’s Guide to Directors’ Remuneration 2014 | 25
Basic salary by sector within the FTSE 350
Chief Executive
Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
Chemical & pharmaceutical 471 518 784
Consumer goods & services 507 650 835
Finance 402 489 678
Industrial goods & services 454 532 611
High Tech 420 500 756
Natural resources & energy 435 561 939
Property, construction & engineering 457 484 607
All FTSE 350 447 550 750
Annual bonus plans Nearly all of the companies in the FTSE 100 and FTSE 250 operate annual bonus plans for their executive directors, making it the most common incentive arrangement.
The tables overleaf show the following information for the FTSE 100 and the FTSE 250:
• The maximum potential bonus
• The total bonus paid as a percentage of salary
• The total bonus paid as a percentage of the maximum
• The total bonus paid in 2014 and in 2013
When compared to last year’s report, maximum bonus opportunity has remained at the same level across the FTSE 100 and the FTSE 250. Total bonus payments have increased from the levels in 2013 in the FTSE 100 as well as the FTSE 250.
More than 40% of the FTSE 250 paid their CEO a bonus in excess of 80% of the maximum, while for the FTSE 100 this was around 30%. Less than a fifth overall of CEOs received a bonus of less than 30% of the maximum. The majority of companies paid bonuses of over 60% of maximum.
04 Chief Executive
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26 | KPMG’s Guide to Directors’ Remuneration 2014
Annual bonus
Chief Executive FTSE 100 FTSE 250
Lower Quartile Median Upper Quartile Lower Quartile Median Upper Quartile
Maximum Bonus Opportunity (percentage of salary)
150% 180% 200% 100% 125% 165%
Total Bonus (percentage of salary 84% 117% 150% 47% 95% 135%
Total Bonus (percentage of maximum bonus)
50% 71% 84% 41% 67% 94%
2014 Total Bonus (£’000s) 594 961 1,395 254 459 719
2013 Total Bonus (£’000s) 517 905 1,371 248 385 687
Median annual bonus by sector
Chief Executive FTSE 350
Chemical & pharmaceutical
Consumer goods & services
Finance Industrial goods & services
Media & e-business
Natural resources &
energy
Property, construction &
engineering
Maximum Bonus Opportunity (percentage of salary)
118% 150% 150% 125% 170% 150% 123%
Total Bonus (percentage of salary) 79% 100% 126% 91% 88% 100% 112%
Total Bonus (percentage of maximum bonus)
71% 72% 84% 63% 51% 59% 87%
Total Bonus (£’000s) 404 621 723 461 479 562 562
Sector
04 Chief Executive
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KPMG’s Guide to Directors’ Remuneration 2014 | 27
The chart below shows the distribution of total bonuses (as a percentage of maximum bonus opportunity) for the FTSE 100 and FTSE 250 companies who have disclosed the maximum bonus opportunity. The percentage of maximum opportunity that has paid out has increased across the FTSE 100 and the FTSE 250.
Percentage of maximum annual bonus paid by companies Pe
rcen
tage
of m
axim
um b
onus
opp
ortu
nity
90%-100%
80%-90%
70%-80%
60%-70%
FTSE 10050%-60%
FTSE 250 40%-50%
30%-40%
20%-30%
10%-20%
0%-10%
0%
0% 10% 20% 30% 40%
Percentage of companies
Long term incentives Performance share plans
The tables below show the following information for 2014:
• The actual awards made (i.e. the face value of shares conditionally awarded) both as a percentage of salary and a monetary amount
• The maximum award as a percentage of salary where this is disclosed
Compared with 2013, the median maximum potential award has remained constant across the FTSE 350.
04 Chief Executive
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28 | KPMG’s Guide to Directors’ Remuneration 2014
Performance share plans
Chief Executive Lower
Quartile
FTSE 100
Median Upper Quartile
Lower Quartile
FTSE 250
Median Upper Quartile
Maximum Award (percentage of salary) 220% 300% 400% 110% 160% 220%
Actual Award (percentage of salary) 201% 291% 397% 104% 157% 208%
Actual Award (£’000s) 1,626 2,159 3,551 529 822 1,263
Actual Gains (percentage of salary) 115% 235% 357% 84% 172% 321%
The following table shows the same information (at median) split by sector Performance share plans by sector
Chief Executive
Sector (Median) Chemical & pharmaceutical
Consumer goods & services
Finance
FTSE 350
Industrial goods & services
High Tech Natural
resources & energy
Property, construction &
engineering
Maximum Award (percentage of salary)
Actual Award (percentage of salary)
Actual Award (£’000s)
115%
196%
912
150%
203%
1,460
190%
206%
1,186
130%
152%
832
150%
153%
1,026
200%
199%
1,276
147%
146%
672
Actual Gains (percentage of salary) 147% 168% 273% 196% 194% 177% 161%
Share options
The tables below show the following information for share options for 2014:
• The actual awards made (i.e. the face value of shares conditionally awarded) both as a percentage of salary and a monetary amount
• The actual gains made from the exercise of share options during the year both as a percentage of salary and a monetary amount
The data is shown for completeness but the sample sizes are small due to the low number of companies still operating option plans at the executive level. Therefore it would be misleading to conclude too much from this.
04 Chief Executive
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KPMG’s Guide to Directors’ Remuneration 2014 | 29
Share options
Chief Executive Lower
Quartile
FTSE 100
Median Upper Quartile
Lower Quartile
FTSE 250
Median Upper Quartile
Actual Grant (percentage of salary) 188% 449% 1,413% 100% 104% 123%
Actual Grant (£’000s) 1,715 3,374 8,470 449 525 948
Actual Gains (percentage of salary) 69% 125% 225% 29% 77% 277%
Actual Gains (£’000s) 573 1,268 1,819 189 332 1,408
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04 Chief Executive
30 | KPMG’s Guide to Directors’ Remuneration 2014
05 Finance Director
Summary This section provides information on remuneration for the role of finance director.
05 Finance Director
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KPMG’s Guide to Directors’ Remuneration 2014 | 31
Median total earnings have increased for finance directors in the FTSE 250 while
they have decreased in the FTSE 100.
The table below shows median total earnings for FTSE 100 and FTSE 250 companies. The methodology used to calculate these figures can be found in the appendix.
Median total earnings
Finance Director Basic salary (£’000s) Total cash (£’000s) Total earnings (£’000s)
FTSE 100 485
325
999
624
1,874
912FTSE 250
Basic salary The table below shows increases in the FTSE 100 and FTSE 250 in the latest reported financial year, compared with the previous year’s figures.
Basic salary increases
Lower Quartile Median Upper Quartile
Finance Director 2014 2013 2014 2013 2014 2013
FTSE 100 1% 1%
2% 3%
3%
3%
3%
4%
4% 4%
6% 7%FTSE 250
05 Finance Director
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32 | KPMG’s Guide to Directors’ Remuneration 2014
Salary position and pay comparator groups The size of a company is highly correlated with basic salary levels for executive directors. This can be seen from the tables below which show the basic salary levels by market capitalisation bands and also by turnover bands. Many companies use market capitalisation as a key factor when comparing salary levels, but the volatility in the stock markets has shown that this can lead to unintended consequences. For example if pay is benchmarked to a group of peer companies selected by market capitalisation in one year, subsequent falls in market capitalisation for the company concerned will then mean it appears out of line with current peers. Turnover is generally a less volatile indicator and therefore a prudent approach would be to consider both when looking at salaries and form a view as to the appropriateness of the data.
Data is shown here for 2014. When compared to the 2013 report the picture is mixed, which highlights the potential difficulties in following a market point too closely.
Basic salary by market capitalisation
Finance Director
Market Capitalisation Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
>£10bn 546 665 720
FTSE 100 £5bn - £10bn
<£5bn
428
400
461
439
495
463
All FTSE 100 443 485 627
>£2bn 335 361 432
FTSE 250 £1bn - £2bn
<£1bn
300
248
338
285
395
320
All FTSE 250 280 325 379
FTSE 350 All FTSE 350 303 371 461
Basic salary by turnover
Finance Director
Turnover Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
>£15bn 573 699 720
FTSE 100 £5bn - £15bn
<£5bn
477
413
491
443
622
463
All FTSE 100 443 485 627
>£1.5bn 339 406 451
FTSE 250 £500m - £1.5bn
<£500m
292
248
317
279
377
336
All FTSE 250 280 325 379
FTSE 350 All FTSE 350 303 371 461
05 Finance Director
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KPMG’s Guide to Directors’ Remuneration 2014 | 33
Basic salary by sector within the FTSE 350
Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
Chemical & pharmaceutical 311 340 428
Consumer goods & services 340 407 483
Finance 283 350 443
Industrial goods & services 299 336 404
High Tech 302 338 526
Natural resources & energy 393 439 579
Property, construction & engineering 290 335 444
All FTSE 350 303 371 461
Annual bonus plans The tables below show the following information for the FTSE 100 and the FTSE 250:
• The maximum potential bonus
• The total bonus paid as a percentage of salary
• The total bonus paid as a percentage of the maximum
• The total bonus paid in 2013 and in 2014
When compared to last year’s report, the median maximum bonus opportunity has remained broadly similar. However, median actual bonus payments have decreased slightly from the levels seen in 2013 in the FTSE 100, but we have seen an increase across the FTSE 250.
Annual bonus
05 Finance Director
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FTSE 100 FTSE 250 Finance Director
Lower Quartile Median Upper Quartile Lower Quartile Median Upper Quartile
Maximum Bonus Opportunity (percentage of salary)
150% 150% 200% 100% 120% 150%
Total Bonus (percentage of salary) 75% 102% 138% 48% 90% 118%
Total Bonus (percentage of maximum bonus)
50% 66% 81% 43% 65% 94%
2014 Total Bonus (£’000s) 343 487 744 153 290 418
2013 Total Bonus (£’000s) 359 580 756 144 233 392
05 Finance Director
34 | KPMG’s Guide to Directors’ Remuneration 2014
The following table shows the same information (at median) split by sector.
Median annual bonus by sector
Finance Director FTSE 350
Sector Chemical & pharmaceutical
Consumer goods & services
Finance Industrial goods & services
High Tech Natural
resources & energy
Property, construction &
engineering
Maximum Bonus Opportunity (percentage of salary)
100% 150% 150% 100% 150% 140% 123%
Total Bonus (percentage of salary) 67% 86% 118% 78% 85% 101% 111%
Total Bonus (percentage of maximum bonus)
57% 64% 74% 62% 58% 62% 89%
Total Bonus (£’000s) 199 307 449 287 358 431 431
The chart below shows the distribution of total bonuses (as a percentage of maximum bonus opportunity) for the FTSE 100 and FTSE 250 companies who have disclosed the maximum bonus opportunity. A third of companies in the FTSE 100 and over a quarter in the FTSE 250 paid their finance director a bonus in excess of 80% of the maximum. Less than a fifth of finance directors received a bonus of less than 30% of the maximum. The majority of companies in the FTSE 350 paid bonuses of over 60% of maximum opportunity.
Percentage of maximum annual bonus paid by companies
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90%-100%
>100%
80%-90%
70%-80%
60%-70%
50%-60%
40%-50%
30%-40%
20%-30%
10%-20%
0%-10%
0%
Perc
enta
ge o
f max
imum
bon
us o
ppor
tuni
ty
FTSE 100
FTSE 250
0% 10% 20% 30% 40%
Percentage of companies
KPMG’s Guide to Directors’ Remuneration 2014 | 35
Long term incentives Performance share plans
The tables below show the following information for 2014:
• The actual awards made (i.e. the face value of shares conditionally awarded) both as a percentage of salary and a monetary amount
• The maximum award as a percentage of salary where this is disclosed
When looking at the FTSE 250, median actual award levels have increased since the previous year. On the other hand, award levels have decreased for the FTSE 100.
Performance share plans
Finance Director Lower
Quartile
FTSE 100
Median Upper Quartile
Lower Quartile
FTSE 250
Median Upper Quartile
Maximum Award (percentage of salary) 150% 215% 300% 115% 160% 220%
Actual Award (percentage of salary) 155% 209% 291% 115% 155% 203%
Actual Award (£’000s) 715 1,055 1,597 345 538 776
Actual Gains (percentage of salary) 100% 198% 294% 75% 140% 246%
The following table shows the same information (at median) split by sector.
Performance share plans by sector
Finance Director
Sector Chemical & pharmaceutical
Consumer goods & services
Finance
FTSE 350
Industrial goods & services
High Tech Natural
resources & energy
Property, construction &
engineering
Maximum Award (percentage of salary)
Actual Award (percentage of salary)
Actual Award (£’000s)
200%
195%
684
200%
188%
740
200%
198%
703
165%
154%
511
170%
153%
626
200%
197%
859
150%
146%
641
Actual Gains (percentage of salary) 230% 204% 138% 131% 185% 107% 104%
05 Finance Director
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36 | KPMG’s Guide to Directors’ Remuneration 2014
05 Finance Director
Share options
The tables below show the following information for share options for 2014:
• The actual awards made (i.e. the face value of shares conditionally awarded) both as a percentage of salary and a monetary amount
• The actual gains made from the exercise of share options during the year both as a percentage of salary and a monetary amount
This data is shown for completeness but the sample sizes are relatively small due to the number of companies still operating option plans at the executive level. Therefore it would be misleading to conclude too much from this.
Share options
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Finance Director Lower
Quartile
FTSE 100
Median Upper Quartile
Lower Quartile
FTSE 250
Median Upper Quartile
Actual Grant (percentage of salary) 139% 198% 295% 99% 103% 218%
Actual Grant (£’000s) 661 922 1,512 342 386 740
Actual Gains (percentage of salary) 20% 31% 143% 29% 64% 161%
Actual Gains (£’000s) 98 128 826 91 171 739
KPMG’s Guide to Directors’ Remuneration 2014 | 37
05 Finance Director
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38 | KPMG’s Guide to Directors’ Remuneration 2014
06 Other Executive Directors
Summary This section provides information on remuneration for the role of other executive directors. Other executive directors include a variety of roles with different responsibilities, including functional and divisional directors.
06 Other Executive Directors
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KPMG’s Guide to Directors’ Remuneration 2014 | 39
Other executive directors include a variety of roles with different responsibilities, including
functional and divisional directors. We have seen total earnings in the FTSE 250 increase
when compared to last year, while they have fallen in the FTSE 100.
The table below shows median total earnings for FTSE 100 and FTSE 250 companies. The methodology used to calculate these figures can be found in the appendix.
Median total earnings
Other Director Basic salary (£’000s) Total cash (£’000s) Total earnings (£’000s)
FTSE 100 501
300
1,045
566
2,087
963FTSE 250
Basic salary The table below shows increases in the FTSE 100 and FTSE 250 in the latest reported financial year compared with the previous year’s figures.
Basic salary increases
Lower Quartile Median Upper Quartile
Other Director 2014 2013 2014 2013 2014 2013
FTSE 100 0% 0%
2% 2%
2%
3%
3%
3%
4% 5%
5% 6%FTSE 250
06 Other Executive Directors
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40 | KPMG’s Guide to Directors’ Remuneration 2014
Salary position and pay comparator groups The size of a company is highly correlated with basic salary levels for executive directors. This can be seen from the tables below which show the basic salary levels by market capitalisation bands and also by turnover bands. Many companies use market capitalisation as a key factor when comparing salary levels, but the volatility in the stock markets has shown that this can lead to unintended consequences. For example if pay is benchmarked to a group of peer companies selected by market capitalisation in one year, subsequent falls in market capitalisation for the company concerned will then mean it appears out of line with current peers. Turnover is generally a less volatile indicator and therefore a prudent approach would be to consider both when looking at salaries and form a view as to the appropriateness of the data.
When compared to the 2013 report it is difficult to identify trends across the different size bands; this reflects the differing nature of the roles included within this category of executives.
Basic salary by market capitalisation
Other Director
Market Capitalisation Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
>£10bn 526 609 691
FTSE 100 £5bn - £10bn
<£5bn
419
328
458
350
513
489
All FTSE 100 352 501 600
>£2bn 280 336 381
FTSE 250 £1bn - £2bn
<£1bn
253
213
313
259
345
311
All FTSE 250 247 300 347
FTSE 350 All FTSE 350 277 346 501
Basic salary by turnover
Other Director
Turnover Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
>£15bn 549 632 693
FTSE 100 £5bn - £15bn
<£5bn
504
321
536
350
671
431
All FTSE 100 352 501 600
>£1.5bn 291 337 413
FTSE 250 £500m - £1.5bn
<£500m
278
211
323
256
345
311
All FTSE 250 247 300 347
FTSE 350 All FTSE 350 277 346 501
06 Other Executive Directors
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KPMG’s Guide to Directors’ Remuneration 2014 | 41
Basic salary by sector within the FTSE 350
Finance Director
Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
Chemical & pharmaceutical 288 325 432
Consumer goods & services 300 452 546
Finance 300 348 419
Industrial goods & services 243 321 407
High Tech 213 277 525
Natural resources & energy 336 405 546
Property, construction & engineering 273 351 504
All FTSE 350 277 346 501
Annual bonus plans The tables below show the following information for the FTSE 100 and the FTSE 250:
• The maximum potential bonus
• The total bonus paid as a percentage of salary
• The total bonus paid as a percentage of the maximum
• The total bonus paid in 2013 and in 2014
When compared to the 2013 report, maximum bonus opportunity has remained broadly flat, although median maximum bonuses have slightly decreased in the FTSE 250.Total bonus payments have shown to reduce slightly at the median in the FTSE 100, while the FTSE 250 has increased from the levels in 2013.
Annual bonus
06 Other Executive Directors
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FTSE 100 FTSE 250 Other Director
Lower Quartile Median Upper Quartile Lower Quartile Median Upper Quartile
Maximum Bonus Opportunity (percentage of salary)
130% 150% 200% 100% 100% 150%
Total Bonus (percentage of salary) 80% 115% 151% 58% 94% 122%
Total Bonus (percentage of maximum bonus)
46% 67% 84% 47% 75% 93%
2014 Total Bonus (£’000s) 352 509 845 158 261 399
2013 Total Bonus (£’000s) 311 525 911 149 234 368
42 | KPMG’s Guide to Directors’ Remuneration 2014
The following table shows the same information (at median) split by sector.
Median annual bonus by sector
Other Director FTSE 350
Sector (Median) Chemical & pharmaceutical
Consumer goods & services
Finance Industrial goods & services
High Tech Natural
resources & energy
Property, construction &
engineering
Maximum Bonus Opportunity (percentage of salary)
110% 150% 150% 100% 150% 123% 120%
Total Bonus (percentage of salary) 90% 100% 134% 90% 114% 83% 60%
Total Bonus (percentage of maximum bonus)
75% 67% 85% 75% 84% 58% 60%
Total Bonus (£000s) 390 302 505 240 348 321 321
The chart below shows the distribution of total bonuses (as a percentage of maximum bonus opportunity) for the FTSE 100 and FTSE 250 companies who have disclosed the maximum bonus opportunity. Approximately 50% of other executives in the FTSE 100 are receiving 70% or above of the maximum bonus opportunity.
Over a third of companies in the FTSE 350 paid their other directors a bonus in excess of 80% of the maximum, and in the FTSE 250 this reaches above 90%. Around a quarter of other directors in the FTSE 100 and less than a fifth of finance directors in the FTSE 250 received a bonus of less than 30% of the maximum. The majority of companies paid bonuses of over 70% of maximum.
Percentage of maximum annual bonus paid by companies
90%-100%
80%-90%
70%-80%
60%-70%
50%-60%
40%-50%
30%-40%
20%-30%
10%-20%
0%-10%
0%
Perc
enta
ge o
f max
imum
bon
us o
ppor
tuni
ty
FTSE 100
FTSE 250
0% 10% 20% 30% 40%
Percentage of companies
06 Other Executive Directors
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KPMG’s Guide to Directors’ Remuneration 2014 | 43
Long term incentives Performance share plans
The tables below show the following information for 2014:
• The actual awards made (i.e. the face value of shares conditionally awarded) both as a percentage of salary and a monetary amount
• The maximum award as a percentage of salary where this is disclosed
The data show that the actual awards have increased at the market median across the whole FTSE 350.
Performance share plans
Other Director Lower
Quartile
FTSE 100
Median Upper Quartile
Lower Quartile
FTSE 250
Median Upper Quartile
Maximum Award (percentage of salary) 155% 225% 325% 120% 155% 200%
Actual Award (percentage of salary) 153% 221% 318% 116% 155% 188%
Actual Award (£’000s) 725 1,052 1,724 329 448 635
Actual Gains (percentage of salary) 99% 181% 286% 114% 157% 242%
The following table shows the same information (at median) split by sector.
Performance share plans by sector
Other Director
Sector Chemical & pharmaceutical
Consumer goods & services
Finance
FTSE 350
Industrial goods & services
High Tech Natural
resources & energy
Property, construction &
engineering
Maximum Award (percentage of salary)
Actual Award (percentage of salary)
Actual Award (£’000s)
150%
132%
511
180%
175%
766
200%
187%
688
150%
142%
524
180%
158%
631
200%
195%
1,002
160%
146%
400
Actual Gains (percentage of salary) 195% 158% 178% 188% 286% 122% 178%
06 Other Executive Directors
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44 | KPMG’s Guide to Directors’ Remuneration 2014
Share options
The tables below show the following information for share options for 2014:
• The actual awards made (i.e. the face value of shares conditionally awarded) both as a percentage of salary and a monetary amount
• The actual gains made from the exercise of share options during the year both as a percentage of salary and a monetary amount
Data is included for completeness but the sample sizes are relatively small due to the number of companies still operating option plans at the executive level. Therefore it would be misleading to conclude too much from this.
06 Other Executive Directors
Share options
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Other Director Lower
Quartile
FTSE 100
Median Upper Quartile
Lower Quartile
FTSE 250
Median Upper Quartile
Actual Grant (percentage of salary) 134% 170% 251% 67% 102% 119%
Actual Grant (£’000s) 753 973 1,534 229 322 531
Actual Gains (percentage of salary) 21% 175% 383% 48% 73% 100%
Actual Gains (£’000s) 104 1,013 1,799 119 173 281
KPMG’s Guide to Directors’ Remuneration 2014 | 45
06 Other Executive Directors
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07 Incentives
Summary This section of the survey discusses trends in incentives, specifically the structure of incentives and performance conditions attached to incentives. Market data relating to quantum and payouts for each executive director role is contained in the previous sections.
Annual bonus plans Annual bonus plans continue to be a key element of the remuneration mix. In recent years, the pressure to align annual bonuses paid with performance has led to an increase in the number of performance measures used.
65% of FTSE 350 companies now use three or more performance measures. However, we have also seen this year, an increase in the number of companies with a single measure - 48 companies in the FTSE 350 compared to 17 the previous year. This perhaps reflects a desire by companies to increase the simplicity of their annual plans.
07 Incentives
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KPMG’s Guide to Directors’ Remuneration 2014 | 47
Number of measures in annual bonus plans
Pe
rcen
tage
of c
ompa
nies
100%
80%
60%
FTSE 10040%
FTSE 250
20%
0% One Two Three+
Performance conditions in annual bonus plans
The chart overleaf illustrates performance measures typically used in FTSE 100 and FTSE 250 companies. The totals are greater than 100 percent given the frequent use of multiple performance measures.
The most common combination of performance measures is some form of profit measure in conjunction with a non-financial metric.
This use of a combination of measures fits with good practice and helps to ensure that a balanced approach is taken; focus on a single measure can be considered in some instances to have driven unwanted behaviour. However, from a shareholder perspective, there is a need to ensure the financial performance of the business justifies the payment of bonuses and the use of discretion to make payments has been an area of criticism. For those companies using a combination of measures, consideration should be given to the relationship between the measures and whether there should be a minimum level of financial performance before any payment is made. In addition, the proportion of the bonus attaching to each measure is an important point for discussion.
07 Incentives
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48 | KPMG’s Guide to Directors’ Remuneration 2014
Performance conditions in annual bonus plans
Profit
Non-financial
Personal objectives
Other financial targets
Cashflow
EPS
Operational and divisional
Revenue
Return on Capital / Equity / Assets
Cost
EBITDA
TSR
100%80%40% 60%20%0%
FTSE 250
FTSE 100
Percentage of companies
Deferred annual bonus plans Corporate governance and the need to take account of risk in setting remuneration has driven the need for a deferred element to pay. Deferred annual bonus plans (DABs) remain a key tool in remuneration planning, although some have been criticised for complexity.
A deferred annual bonus plan involves the voluntary or compulsory deferral of some or all of an annual bonus into company shares, which are then restricted for a period of time (deferred shares). Some live plans provide for matching shares, which typically vest to the extent that performance conditions are met over the performance period, most commonly three years. However this type of matching arrangement is becoming less common, and this is reflected in the high proportion of plans which now have compulsory deferral rather than voluntary.
The following chart shows the different types of plan which are currently in operation for the FTSE 100 and the FTSE 250.
07 Incentives
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KPMG’s Guide to Directors’ Remuneration 2014 | 49
Type of live DAB plans in FTSE 350
Perc
enta
ge o
f com
pani
es
100%
82% 83%
80%
60%
FTSE 10040%
FTSE 250 16%20%
8% 9% 2%
0% DAB with performance DAB with non-performance DAB with no
related matching shares related matching shares matching shares
Compulsory vs voluntary deferral
The table below shows the type of deferrals made under these plans by FTSE 100 and FTSE 250 companies.
FTSE 100 FTSE 250
Voluntary deferral
Compulsory deferral
Combination of voluntary and compulsory
Voluntary deferral
Compulsory deferral
Combination of voluntary and compulsory
Percentage of plans 2% 84% 14% 6% 89% 6%
Deferral periods
The chart overleaf shows the length of deferral period used by FTSE 100 and FTSE 250 companies who have disclosed this information. The most common deferral period remains at 3 years.
07 Incentives
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50 | KPMG’s Guide to Directors’ Remuneration 2014
Deferral periods
Perc
enta
ge o
f com
pani
es w
ith D
ABs
100%
80%
60%
FTSE 10040%
FTSE 250
20%
0% Deferral: 1 year Deferral: 2 year Deferral: 3 year Deferral: > 3 year
Matching ratios
The chart below shows the maximum performance-related matching share award in FTSE 350 companies where a match is deferred. As shown from the chart on the previous page, less than 15% of FTSE 350 companies have performance related matching shares.
Matching ratios: FTSE 350
07 Incentives
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8%
42%
4%
29%
17%
< 1:1
1:1
1.5:1
2:1
>2:1
KPMG’s Guide to Directors’ Remuneration 2014 | 51
Performance share plans Performance share plans continue to be the most commonly used form of long term incentive plan.
Information relating to awards for each executive director role is contained in the previous sections. The following section provides data relating to the use of performance conditions.
Performance conditions
The use of some form of TSR measure, either as a single measure or in conjunction with another approach, continues to be the most popular measure across the FTSE 350.
The following charts show the measures that are currently in use. ‘Other’ measures include profit, cashflow, share price targets and return on capital.
Performance share plans: FTSE 100
11%
22%
10%
10% 7%
32%
9%
Pure TSR
TSR and other
Pure EPS
EPS and other
EPS and TSR
EPS, TSR and other
Other
Performance share plans: FTSE 250
07 Incentives
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31%
12%
9% 15%
14%
8%
12%
Pure TSR
TSR and Other
Pure EPS
EPS and Other
EPS and TSR
EPS, TSR and Other
Other
52 | KPMG’s Guide to Directors’ Remuneration 2014
07 Incentives
The use of TSR as a performance measure
Of those companies using TSR as a performance measure, the majority do so on a comparative basis. The traditional ranking approach against a peer group remains the most common methodology. However, a number of companies measure outperformance against an index, particularly in the FTSE 250. A small number of companies use absolute TSR. This is more common in the FTSE 250.
TSR targets
FTSE 100
FTSE 250100%
80%
60%
40%
20%
0%Combination of
Ranked and IndexRanked TSR Absolute TSRIndex TSR
Perc
enta
ge o
f com
pani
es w
ith P
SPs
Relative TSR performance for maximum award
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The table opposite shows the level of performance required for full vesting under the plan, reflecting that companies are continuing to follow best practice with full vesting not occurring below the upper quartile.
FTSE 100 FTSE 250
>90th percentile 0% 0%
90th percentile 5% 5%
76th - 89th percentile 24% 9%
75th percentile 71% 84%
<75th percentile 0% 2%
KPMG’s Guide to Directors’ Remuneration 2014 | 53
07 Incentives
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08 Pensions
Summary This section provides information on the pension arrangements of executive directors and their role in the total remuneration mix.
08 Pensions
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KPMG’s Guide to Directors’ Remuneration 2014 | 55
Pension value as a percentage of total earnings is relatively low at around 5%, but they do make up a significant amount of the fixed remuneration. The chart below shows the median pension values as a percentage of base salary. Those values reflect those included in the single figure table.
Median pension values for all schemes as percentage of base salary
Perc
enta
ge o
f com
pani
es
FTSE 250
20%
15%
10%
5%
0% Chief Executive Finance Director Other Executive
Directors
35%
30%
FTSE 10025%
Defined contribution plans remain the most popular pension arrangements across the FTSE 350, while participation in defined benefit schemes continues to diminish.
The following charts show that the use of cash in lieu of pension is also prevalent, but more prominent across the FTSE 100.
FTSE 100 pension arrangements
08 Pensions
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60%
The
perc
enta
ge o
f com
pani
es o
pera
ting
plan
s 50%
40%
30%
20%
10%
0%
Defined benefits plans
Defined contribution plans
Cash in lieu of pension plans
Chief Executive Finance Director Other Executive Directors
56 | KPMG’s Guide to Directors’ Remuneration 2014
FTSE 250 pension arrangements
The
perc
enta
ge o
f com
pani
es o
pera
ting
plan
s
140%
120%
100%
80%
60%
40%
20%
0%
Defined benefits plans
Defined contribution plans
Cash in lieu of pension plans
Chief Executive Finance Director Other Executive Directors
It is worth noting that a number of companies operate more than one pension arrangement at executive level, as shown by the table below. This is often due to a combination of differing new hire policy and existing/ legacy pension arrangements.
FTSE 350 use of more than one pension scheme
Use of more than one scheme
Chief Executive 16%
FTSE 100 Finance Director 14%
Other Executive Directors
Chief Executive
23%
11%
FTSE 250 Finance Director 14%
Other Executive Directors 13%
08 Pensions
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KPMG’s Guide to Directors’ Remuneration 2014 | 57
The following table shows the median values for each type of pension scheme in the FTSE 100 and FTSE 250.
Median pension values for different schemes
08 Pensions
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Cash in lieu of pension plans (£’000s Median)
Defined contribution plans (£’000s Median)
Defined benefit plans (£’000s Median)
Chief Executive 191 212 86
FTSE 100 Finance Director 115 91 59
Other Executive Directors 94 72 76
Chief Executive 103 63 106
FTSE 250 Finance Director 58 40 60
Other Executive Directors 61 43 31
58 | KPMG’s Guide to Directors’ Remuneration 2014
09 Non-executive Directors
Summary This section provides information on remuneration for the role of non-executive director.
Fee increases Traditionally, non-executive director (NED) fees were not reviewed annually; it was more common to review fee levels every two or three years. As we have noted previously, anecdotal evidence suggests that some companies have begun to conduct annual reviews in line with the practice for executive directors. However, this still appears to be minority practice.
Over recent years there has been increased scrutiny of non-executive directors and a growing level of responsibility for those in the role. However, in spite of the increasing responsibilities, and similar to executive directors, companies are sensitive to fee increases. More than half of the FTSE 350 companies froze fee levels for the chairmen and other non-executive directors.
09 Non-executive Directors
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KPMG’s Guide to Directors’ Remuneration 2014 | 59
Unchanged fee (percentage of companies)
Non-executive chairman Other non-executive director
FTSE 100 61% 65%
FTSE 250 48% 52%
Where increases have been given these often reflect the fact that reviews are not carried out on an annual basis, and as such these may be higher than those for executives.
The following tables show the fee increases for the FTSE 100 and FTSE 250 for companies which did increase fee levels. The figures are based on matched samples of individuals as a percentage of base fees. The level of fee increase is lower than seen in 2013 for the FTSE 100 non-executive chairmen but has increased for the other directors. Similar increases are seen for all non-executive directors across all the FTSE 250 companies.
Lower Quartile Median Upper Quartile
FTSE 100 Non-executive chairman
Other non-executive directors
Non-executive chairman
Other non-executive directors
3%
3%
3%
3%
4%
8%
5%
5%
7%
9%
9%
11% FTSE 250
Non-executive chairman The chairman is responsible for the leadership of the board, ensuring effectiveness in all aspects of its role and setting its agenda. The chairman has ultimate responsibility for the board and so has a role distinct from that of the other non-executive directors. In some companies this may be close to a full-time role. Consequently there is typically a significant fee differential between the chairman and other non-executive directors.
The following tables show the total non-executive chairman fees broken down by market capitalisation and turnover, inclusive of any committee fees and irrespective of time commitment. As would be expected, those chairing the largest companies are paid significantly more than those in companies in lower bands.
Chairman fees by market capitalisation
Market capitalisation Lower Quartile (£’000s)
Median (£’000s)
Upper Quartile (£’000s)
FTSE 100
>£10bn
£5bn-£10bn
<£5bn
All FTSE 100
>£1.5bn
£500m-£1.5bn
<£500m
All FTSE 250
456
300
214
284
166
89
113
134
600
315
270
351
219
161
143
173
688
370
305
500
265
186
217
225
FTSE 250
09 Non-executive Directors
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Chairman fees by turnover
Turnover Lower Quartile (£’000s)
Median (£’000s)
Upper Quartile (£’000s)
FTSE 100
>£10bn
£2.5bn-£10bn
<£2.5bn
All FTSE 100
>£2.5bn
£500m-£2.5bn
<£500m
All FTSE 250
456
275
221
284
192
165
83
134
550
315
300
351
264
190
145
173
669
315
331
500
275
250
185
225
FTSE 250
Deputy chairman and senior independent director Most companies now identify a senior independent director (SID) which generally attracts an additional fee. The SID is responsible for leading the non-executives in their review of the chairman’s performance as well as being available to shareholders so as to gain a balanced understanding of the issues and concerns they may have.
In recent years we have seen the number of deputy chairman positions on boards reduce with the SID in a number of organisations fulfilling duties which in the past may have been carried out by the role of deputy chairman.
Based on information disclosed, where a company has a deputy chairman the role is still more likely to attract a higher premium than the role of SID. If the two roles are combined and the deputy chairman is also the SID then it is standard practice that no additional fee is paid for the SID role.
There is insufficient data available to run separate quartile analysis for the FTSE 100 and FTSE 250. However, the table below shows fees paid to the deputy chairman across the whole FTSE 350.
Deputy chairman fees
Lower Quartile (£’000s)
Median (£’000s)
Upper Quartile (£’000s)
FTSE 350 Deputy Chairman 98 120 175
09 Non-executive Directors
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KPMG’s Guide to Directors’ Remuneration 2014 | 61
The table below shows the additional fees paid to SIDs for the FTSE 100 and FTSE 250. It should be noted this is in addition to the basic non-executive directors’ fee.
Senior independent director additional fees
Lower Quartile (£’000s)
Median (£’000s)
Upper Quartile (£’000s)
FTSE 100 Senior independent director
Senior independent director
11
5
18
7
27
10FTSE 250
Other non-executive directors The following tables show the fees for non-executive directors who are not classified as being a chairman, deputy chairman and/or senior independent director. The figures are broken down by market capitalisation and turnover, and are inclusive of any committee fees and irrespective of time commitment.
Non-executive director fees by market capitalisation
Market capitalisation Lower Quartile (£’000s)
Median (£’000s)
Upper Quartile (£’000s)
FTSE 100
>£10bn
£5bn-£10bn
<£5bn
All FTSE 100
>£1.5bn
£500m-£1.5bn
<£500m
All FTSE 250
69
56
50
55
46
38
43
40
75
61
55
65
52
44
58
47
90
69
55
75
60
50
65
55
FTSE 250
Non-executive director fees by turnover
Turnover Lower Quartile (£’000s)
Median (£’000s)
Upper Quartile (£’000s)
FTSE 100
>£10bn
£2.5bn-£10bn
<£2.5bn
All FTSE 100
>£2.5bn
£500m-£2.5bn
<£500m
All FTSE 250
65
55
50
55
47
45
38
40
74
60
55
65
52
50
43
47
89
65
60
75
61
55
50
55
FTSE 250
09 Non-executive Directors
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Committee fee practice Over recent years we have seen a continuing increase in the number of companies paying additional fees for membership and chairmanship of the main board committees. This is to compensate non-executives for the increasing responsibilities and requirements attributed to their roles.
Principally this is seen with the audit and remuneration committees. In the FTSE 100 over 70% of companies disclose an additional audit committee chair fee and a remuneration committee chair fee.
The tables below show the additional fees disclosed for chairing the main committees in FTSE 100 and FTSE 250 companies.
Company size again has an influence over the level of additional fees. The audit committee still commands the highest fee, although we have seen a significant increase in the level of other committee fees over the last couple of years, in particular the remuneration committee chair fee.
It should be noted that the nomination committee is often chaired by the company chairman, and in this situation the role is unlikely to attract additional committee fees.
Committee chairmanship fees
09 Non-executive Directors
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FTSE 100: Committee chairmanship fee levels
Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
Remuneration 15 20 30
Audit 15 20 30
Nomination 10 15 20
CSR Committee 10 20 25
Risk Committee 16 27 43
Other 12 18 30
FTSE 250: Committee chairmanship fee levels
Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
Remuneration 7 10 12
Audit 8 10 15
Nomination 5 10 10
CSR Committee 7 10 12
Risk Committee 10 10 23
Other 7 12 20
KPMG’s Guide to Directors’ Remuneration 2014 | 63
Committee membership fees
FTSE 100: Committee membership fee levels
Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
Remuneration 6 11 20
Audit 8 14 20
Nomination 5 5 10
CSR Committee 5 7 9
Risk Committee 10 13 25
Other 9 12 25
FTSE 250: Committee membership fee levels
Lower Quartile (£’000s) Median (£’000s) Upper Quartile (£’000s)
Remuneration 4 5 10
Audit 4 5 10
Nomination 4 5 8
CSR Committee 6 8 11
Risk Committee 8 12 20
Other 8 12 20
Time commitment There is insufficient disclosure in companies’ annual reports with respect to the time commitment required of a chairman or NED role to perform any robust analysis. However, prior experience tells us that a chairman role typically demands around two full days a week. This will vary depending on the size of the company.
Other NED roles will require less time commitment and this is reflected in the reduced fees. However, due to increased scrutiny of boards and directors, the time commitment required by a NED has increased in recent years.
The number of board meetings will vary depending on company size and complexity. Most NEDs will be chairs or members of at least one committee as well, and these meetings will be in addition to the board meetings.
09 Non-executive Directors
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64 | KPMG’s Guide to Directors’ Remuneration 2014
10 Appendix:Methodology andAssumptions
Summary The analysis in this guide is based on the most recently published annual report and accounts of each company as of 31 June 2014, as analysed by Manifest Information Services, an independent research organisation.
Data sources Unless otherwise stated, all graphs and tables in KPMG’s Guide to Directors’ Remuneration 2014 have been created by KPMG, from data provided by Manifest Information Services. The data provided by Manifest Information Services has been further analysed by KPMG, using the methodology outlined below. In our research we have also drawn on analysis completed by IVIS (Institutional Voting Information Service).
10 Appendix: Methodology and Assumptions
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG’s Guide to Directors’ Remuneration 2014 | 65
Data sample FTSE constituents and market capitalisation figures are as at 1st March 2014 and turnover figures used for the analysis are as at the relevant reporting date for each company. All FTSE 350 investment trusts are excluded.
The positions included in the data sample are: chief executive, finance director, other executive directors and non-executive directors. Other executive director includes any main board position other than the chief executive, finance director, executive chairman and the non-executive directors. This typically includes operational directors, functional directors, chief operating officers, and executive deputy chairmen.
To enable the remuneration components of each position to be analysed they have been split in to the following categories:
• Basic salary - Annual salary received over a 12-month period as shown in the accounts (not necessarily set at annual review)
• Total bonus - Actual annual bonus paid plus any deferred portion of the annual bonus.
• Total cash - The sum of basic salary, benefits and total bonus
• Pensions - The value of all pension related benefits including payments in lieu of retirement benefits and all retirement benefits in year from participating in pension schemes
• Total earnings - The sum of total cash, the value of any share based awards vested during the year, the value of any share options vested during the year and the cash value of pension arrangements. Final figure may also include some miscellaneous payments such as special payments for pensions, one-off bonuses for particular projects and profit share
LTIP awards LTIP awards are considered for the purpose of the guide to be awards where the vesting / performance period is longer than one year and have been categorised in the guide as:
• Performance share plan – A type of long term incentive in which participants are allocated free shares or nil cost options or, more commonly, rights to shares, the vesting of which is subject to the satisfaction of performance targets over a period of more than one year
• Share option – A type of long term incentive structured as a market value option that gives a right to buy a share some time in the future at a price specified at the outset
Median and quartile points For the purposes of the survey, median information has been provided where there are four data points or more. Inter-quartile ranges have been provided where there are nine or more data points.
10 Appendix: Methodology and Assumptions
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
66 | KPMG’s Guide to Directors’ Remuneration 2014
10 Appendix: Methodology and Assumptions
© 2014 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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Editors: Caroline Johnson 020 7694 1296 [email protected]
Ilias Nanas 020 7311 4841 [email protected]
© 2014 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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Oliver for KPMG l OM022711A l November 2014 www.kpmg.co.uk