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110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
110519 Wb Mercer Global Er Trends
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110519 Wb Mercer Global Er Trends

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  • 1. 19 May 2011Executive Remuneration 2011:Global trendsWill Ferguson, Los AngelesMark Hoble, LondonHans Kothuis, Hong KongGregg Passin, New YorkLisa Slipp, Toronto www.mercer.com
  • 2. Today’s speakers Will Ferguson, moderator Gregg Passin Los Angeles New York +1 213 346 2240 +1 212 345 1009 will.ferguson@mercer.com gregg.passin@mercer.com Mark Hoble Photo Lisa Slipp London Toronto +44 20 7178 5725 +1 416 868 7665 mark.hoble@mercer.com lisa.slipp@mercer.com Hans Kothuis Hong Kong +852 3476 3817 hans.kothuis@mercer.comMercer 1
  • 3. Agenda Today’s landscape: Executive remuneration pressures around the world Trends in North America, Europe and Asia Pacific Panel discussion: How are global companies responding? Q&A Submit questions at any time: Use the Q&A tab on the bottom right-hand side of your screenMercer 2
  • 4. Today’s landscape: Executiveremuneration pressuresaround the world
  • 5. The changing face of executive compensationA global convergence of trends Worldwide pressures Supply and demand Heightened scrutiny Pay for performance Pay levels Clawbacks TransparencyMercer 4
  • 6. Global observations and trends – 2011Performance With recovery and heightened scrutiny and transparency, pay for performance reemerges as an area of focus Most critical challenges focus on lack of global leaders, developing leadership capabilities/skills, and lack of women executivesRemuneration Base salary Annual cash incentives LTI Pay mix – 2011 salary – Strong award leverage – Focus of delivering pay – US and Canada have increases remain for performance heavier emphasis on short- conservative with – Differentiation more alignment; practices vary and long-term incentives; distinct differences by pronounced than in salary on eligibility Europe has stronger focus geography increases on fixed pay and benefits; Asia has heaviest emphasis – Most firms target – Approaches vary by on short-term incentives base salaries at market industry and or sales and least on fixed pay median, but strive for models differentiation by individual performanceGovernance US joins other countries with say-on-payRegulation Global financial services regulation continues Mercer 5
  • 7. Trends in North America
  • 8. Top trends in the USShort-term incentives After wild ride in 2008, less volatility, and expected good performance for 2010-11 Mercer 350 (2007 – 2009) Actual STI Awarded as Percent of Target 175% Estimated 2010 Percent of 150% STI Payout Respondents 125% Maximum 11% 100% Above Target 37% 75% Target (+/-) 27% 50% Below Target 21% 75th Percentile 25% 50th Percentile 25th Percentile Below Threshold 4% 0% 2007 2008 2009 We expect to see continued steady results in 2011, although Comp Committees We expect to see continued steady results in 2011, although Comp Committees will remain sensitive to paying for performance coming out of the recession will remain sensitive to paying for performance coming out of the recessionMercer 7
  • 9. Top trends in the USLong-term incentives The LTI story over the last few years is one away from options and towards performance-based awards Average Long-Term Incentive Mix ($ Value) 2005 2010 21% 35% 41% 52% 27% 24% Stock Options Restricted Stock Performance Awards Has the market found its equilibrium, or will it continue to move in the same direction? Has the market found its equilibrium, or will it continue to move in the same direction?Mercer 8
  • 10. Top trends in the US Long-term incentives continued Most companies continue to use options, but as part of a portfolio Awards with Stock Options (68%) 30% 2008 2010 26% 25% 25% 23% 20% 20% 17%Percent of 15%Companies 15% 13% 10% 10% 9% 7% 7% 7% 7% 6% 6% 5% 5% 0% Options, Stock Options Stock Options Stock Options Restricted Performance Restricted No LTI Restricted, and and Performance and Restricted Only Shares and Aw ards Only Shares Only Performance Aw ards Shares Performance Aw ards Aw ards Mercer 9
  • 11. Top trends in the USSay on Pay SOP Vote Results as of May 13 SOP Vote Breakdown Number % % in Favor Number % 90%-100% 425 74% Pass 554 97% 70%-90% 96 17% Fail 17 3% 50%-70% 32 6% Total 571 Below 50% 17 3% Source: Mercer WRG. Vote results are reported as votes in favor as a % of the total number of votes in favor plus votes against, not including abstentions or broker non-votes.Mercer 10
  • 12. Top trends in the USSay on Pay continued ISS has an impact, but is not decisive – ISS has recommended a vote against SOP on about 12% of companies – Of the 733 votes taken where ISS has made a recommendation: All with a Pass recommendation passed 78 of 95 with a Fail recommendation passed (only 17 failed) – ISS does sway institutional voters: Average “For” Votes Votes % All Proposals 91% Proposals with ISS 94% “For” Recommendation Proposals with ISS 69% “Against” Recommendation Source: ISS. Based on companies in Russell 3000. As of May 13.Mercer 11
  • 13. Top trends in the USOther Dodd-Frank issues Tentative SEC Timeline for Dodd-Frank Implementation Topic Proposed Rules Adopt Rules Compensation committee, adviser Issued March 30, 2011 Final SEC rules expected independence: Listing standards Aug. – Dec. 2011 Final stock exchange rules expected second half of 2012 Compensation consultant conflicts: Issued March 30, 2011 Final SEC rules expected Disclosure Aug. – Dec. 2011 Clawback policies Aug. – Dec. 2011 Aug. – Dec. 2011 Disclosure on pay for performance, Aug. – Dec. 2011 Aug. – Dec. 2011 internal pay equity* and hedging policies * House sub-Committee has voted to rescind this provisionMercer 12
  • 14. Top trends in CanadaShort-term incentives Almost 2/3 of companies surveyed in late 2010 expected to pay out around or above target for 2010 performance Payout will be at maximum, 2% Uncertain, 5% Payout above target, No payout, 5% 20% Payout below target, 25% Payout around target, 44% We expect this trend to continue in 2011, given the economic recovery in Canada We expect this trend to continue in 2011, given the economic recovery in CanadaMercer 13
  • 15. Top trends in CanadaLong-term incentives More companies are using performance-based LTI plans 60 50 Regular Stock Options 40 Prevalence [ N = 60 ] Performance Share Units 30 Restricted Share Units 20 10 Performance Options Cash Long-term Incentive Plan 0 2004 2005 2006 2007 2008 2009 2010 Movement of Current S&P/TSX 60 from 2004 - 2010 We expect this trend to continue in 2011, given the focus on paying for performance We expect this trend to continue in 2011, given the focus on paying for performanceMercer 14
  • 16. Top trends in CanadaSay on Pay Say on pay, while not mandatory, continues to gain momentum in Canada As of May 13, 82 companies have adopted, or committed to adopt, a say on pay policy, either voluntarily or as a result of shareholder proposals 2010 2011 (as of May 13) % in Favor Number % of Total1 Number % of Total 90% - 100% 24 86% 29 81% 80% - 90% 4 14% 7 19% Will say on pay become mandatory in Canada? Will say on pay become mandatory in Canada? 1) Does not include companies that did not disclose voting resultsMercer 15
  • 17. Top trends in CanadaDirector voting Many consider individual voting, with or without majority voting, a better alternative to say on pay – Currently, 145 companies have adopted majority voting Slate Individual Majority Voting Voting Voting Will majority voting become a requirement in Canada? Will majority voting become a requirement in Canada?Mercer 16
  • 18. Top trends in CanadaPay for performance Pay for performance is increasingly being discussed among leading Canadian companies, raising questions such as: What is "pay" in pay for performance? How can we ensure that we are paying for Incentives? Total direct? Total performance? remuneration? Grant date fair value? Realized pay? PAY FOR PERFORMANCE What is "performance" in paying for performance? How can we demonstrate to our TSR? Financial? Balanced employees and investors that wescorecard? Individual? Absolute are paying for performance? or relative? Over what time frame? Organizations are giving more thought to what paying for performance means to them, and Organizations are giving more thought to what paying for performance means to them, and how they can deliver on this objective how they can deliver on this objectiveMercer 17
  • 19. Top trends in CanadaFocus on risk Increased focus on Risk Assessment – Already addressed by financial institutions; now being considered across other sectors – Proposed disclosure regarding risks associated with compensation Clawbacks – ~1/2 of 60 largest companies have disclosed a clawback policy, although many are primarily for SOX compliance TRIGGERS COVERAGE ENFORCEMENT Fraud / misconduct? Which elements of Tax considerations pay? Material financial Documentation restatement only? Which employees? Timing Board discretion? Clawback ConsiderationsMercer 18
  • 20. Top trends in CanadaFocus on risk Share Retention Policies – ~1/4 of 60 largest companies have disclosed share retention requirements Considerations Who CEO? CFO? NEOs? Triggers Vesting / exercise of LTIs? Departure from company? Amounts Multiple of salary? Timeframe Only until stock ownership guidelines are met? 1-2 years post departure?Mercer 19
  • 21. Trends in Europe
  • 22. Top trends in EuropeHot topics Salary freezes and salary cuts are being replaced by modest wage growth in most European markets Increases range from 2 to 3% in Western Europe and 5 to 6% in Eastern Europe for 2010, and are forecasted to be the same for 2011 Companies are increasing their focus on managing the risk of their incentive plans Increasing use of bonus clawbacks and deferrals (particularly where bonus potentials have increased) Increasing pressures to demonstrate strong link between pay and performance is likely to continue as long as economic uncertainty persists For the UK, 2011 is being dominated by governmental pressure on financial services companies Changing remuneration philosophies More companies are repositioning pay at the median, instead of the upper quartile, and using more targeted industry-specific peer groups in the war for talented executives Transparency and disclosure continues to increase, while board oversight is becoming more robust Many controversial executive pay practices have disappeared or been drastically reduced, for example perquisites and severance packages – Common practice in the UK has traditionally been 1-year severance pay and this trend is now spreading across the rest of EuropeMercer 21
  • 23. Top trends in Europe Short-term incentive payouts Target bonus levels have remained fairly stable over the past two years at an average of 50 to 80% Actual payouts versus target levels have decreased by an average of 14% across Europe from 2009 to 2010* 120% 2009 2010 102% 100% 99% 98% 100% 91% 92% 92% 87% 87%% of target actually paid 82% 80% 75% 67% 60% 40% 20% 0% UK Germ any France Italy Netherlands Spain Mercer * Based on Mercer analysis in France, Germany, Italy, Netherlands, Spain and the UK 22
  • 24. Top trends in EuropeShort-term incentive design Growing interest in deferred bonus plans (increased from 45% of companies in 2009 to 67% in 2010) Country Overall trend The percentage of organisations reporting deferral of cash Germany, Italy, and compensation for executives is significantly higher in 2010, compared Switzerland to 2009 Deferral plans now apply to almost 50% of executives United Kingdom Of these, 50% have a clawback structure and a similar proportion have a Malus arrangement Belgium and Ireland Not yet typical market practice Increasing use of clawback structures where bonus deferrals operate – Some organisations also operate a Malus arrangement, where bonus does not vest immediately and can be reduced if performance indicators fall in future years Reviewing short-term performance measures – We are seeing a wider range of financial measures, sometimes used in combination – a scorecard approach – For example, organisations are moving away from a pure focus on profit and are using measures such as cash flow and EBITDAMercer 23
  • 25. Top trends in EuropeLong-term incentive plan prevalence Moving away from stock options; increasing use of long-term cash plans – We have seen a fall in the use of share options from 33% to 25% on average across Europe and an increase by almost 50% in the use of long-term cash plans 60% 2009 53% 2010 50% 50% % of companies with plan in place 40% 33% 30% 28% 25% 19% 20% 15% 13% 10% 0% Stock Options Performance Shares Restricted Stock Long-term cash – Market intelligence suggests this trend is likely to continue, with performance shares becoming more popular than share options across Europe This is already the case in the UK with 89% of FTSE100 companies using performance share plans and just 56% using share option plansMercer * Based on Mercer analysis in France, Germany, Italy, Netherlands, Spain and the UK 24
  • 26. Top trends in Europe UK “Say on pay” “Say on pay” is well established in the UK and the relationship between boards of directors and their shareholders has grown particularly strong over the past few years – Dialogue has increased due to better communication arrangements – Shareholding bodies now have a better understanding of the differentiation between companies and consequently appreciate that what might work for one company may not work for another Since 2004, the number of blue tops has increased, as has the number of red tops. However, the number of amber tops has declined* 100% 80% Red top: Matter of serious 68% 68% concern; breach of 62% 63% 64% 60% guidelines% companies 60% Amber top: Issue for shareholder judgement 40% 30% Blue top: No areas for 28% 27% 26% 22% major concern 20% 20% 10% 10% 10% 10% 10% 12% 0% 2004 2005 2006 2007 2008 2009 Mercer * Source: Ivis Reviews 2004 - 2009 25
  • 27. Trends in Asia Pacific
  • 28. Top trends in Asia PacificPay levels Asian executive salaries could surpass those of the US within next two to three years Moderate increases in Australia and Japan Record increases in executive pay in China, India, Indonesia, Vietnam, Philippines and Malaysia due to rapid growth in industrial production and GDP, leadership shortages and inflation. In some countries, e.g. India, there is starting to emerge greater shareholder‘impatience’ with increased executive compensation at companies who do not deliver expected performance.Mercer 27
  • 29. Top trends in Asia Pacific Pay for performanceCompanies are taking a “re-look” at performance metrics, with a lengthening of vestingperiods and incentive compensation constituting an increased proportion of the mix ofpayAustralia Changes to the tax legislation have driven a move from options to performance rights or performance sharesGreater China, Options remain most prevalent vehicle, but restricted- and performance-shareIndia and Japan programs increasingly being adoptedKorea Performance shares very common, especially in the banking sectorIndia Extension of equity compensation deeper into the organization, to mid-management levels, especially at smaller organizations Grants are often dependent on performance hurdles having been metSingapore Full value share awards as common as options, with performance programs becoming the norm, often tied to a value creation metric Attempts to design incentive programs that mitigate pre-payment risk Mercer 28
  • 30. Top trends in Asia Pacific GovernanceRemuneration committees are increasingly focusing on receiving objective advice andare more sensitive to shareholders’ reception of remuneration plansAustralia Proposed amendments to Corporations Act impacting disclosure, board member re- election and appointment of advisors Committees are reviewing and assessing executive compensation frameworks to ensure linkage to market, business strategy and financial performanceJapan No significant reaction to new disclosure rules on total remuneration of individual executives in excess of JPY 100 millionIndia Convergence towards IFRS-2 on expensing of stock compensation being finalized Mercer 29
  • 31. How are global companiesresponding?
  • 32. The changing face of executive compensationA global convergence of trends Worldwide pressures Supply and demand Heightened scrutiny Pay for performance Pay levels Clawbacks TransparencyMercer 31
  • 33. Q&A
  • 34. Questions and contacts Questions Will Ferguson, Los Angeles, moderator Please type your questions in the Q&A section of the toolbar +1 213 346 2240 and we will do our best to answer as many questions as we will.ferguson@mercer.com have time for. To submit a question while in full screen mode, use the Q&A Mark Hoble, London button on the bottom right-hand side of your screen. +44 20 7178 5725 mark.hoble@mercer.com To submit a question while in half screen mode, use the Q&A panel on the bottom right-hand side of your screen. Hans Kothuis, Hong Kong CLICK HERE TO ASK A QUESTION +852 3476 3817 TO “ALL PANELISTS” hans.kothuis@mercer.com Feedback Gregg Passin, New York Please take the time to fill out the feedback form at the end of +1 212 345 1009 this web briefing so we can continue to improve. The feedback gregg.passin@mercer.com form will pop-up in a new window when the session ends. Lisa Slipp, Toronto +1 416 868 7665 www.mercer.com/webcasts View past recordings and sign up for upcoming webcasts lisa.slipp@mercer.com For global insight into executive remuneration trends, visit www.mercer.com/perspectiveMercer 33
  • 35. www.mercer.com

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