September 2013

Board pay in the Eurotop 100
Insight and analysis on levels, design and trends
Contents
Introduction	

3

Analysis of Actual Total Direct Compensation
(TDC) in the last financial year	

4–9

Analysis o...
Board pay in the Eurotop 100

Introduction
•• Top pay in quoted companies all over Europe
is subject to increasing institu...
Analysis of Actual TDC in the last financial year

CEO actual TDC versus market capitalisation

Actual TDC (thousands)

Ma...
Analysis of Actual TDC in the last financial year

Eurotop 100 pay levels
The table below shows pay levels for the CEO and...
Analysis of Actual TDC in the last financial year

CEO actual TDC levels by country
The highest pay levels are found in Sw...
Analysis of Actual Totalin the last financial year
TDC Direct Compensation (‘TDC’) in the last financial year

% of 79 com...
Analysis of Actual TDC in the last financial year

CEO average pay mix by country
%

Incentive pay is most significant in ...
Analysis of Actual TDC in the last financial year

Short-term incentive (STI) design
Profit/income is the most prevalent p...
Analysis of incentive design and shareholding guidelines in the last financial year

Long-term incentive (LTI) design
Most...
Analysis of incentive design and shareholding guidelines in the last financial year

Long-term incentive (LTI) design
Perf...
Developments on the horizon

European corporate governance developments
There has been a fresh round of EU and national in...
Developments on the horizon

European corporate governance developments
Improved disclosure and more shareholder ‘say on p...
Additional analysis and contact

The full Board pay in the Eurotop 100 report includes
•• CEO and Other Executive Director...
Additional analysis and contact

Country

Contact name

Email

Phone

UK and Ireland

Karin Richter

karin.richter@towersw...
Appendices

Eurotop 100 Company List
Company

Country

Market capitalisation
(€ m)

Sector

A P MOLLER - MAERSK A/S

Nordi...
Appendices

Eurotop 100 Company List
Company

Country

Market capitalisation
(€ m)

Sector

ELECTRICITE DE FRANCE

France
...
Appendices

Eurotop 100 Company List
Company

Country

Market capitalisation
(€ m)

Sector

REPSOL YPF

Spain

21,770

Oil...
Appendices

Composition of the Eurotop 100
The majority of constituents in the Eurotop 100 are headquartered in UK, France...
Appendices

Points to consider when interpreting the analysis
•• The analysis covers a total of 97 companies that
have pub...
Appendices

CEOs who have been excluded from analysis of actual TDC
Company

Incumbent

Reason for exclusion

Anglo Americ...
Appendices

Definition of elements covered by this report
Pay element
Base salary

The annual base salary received for the...
Appendices

Towers Watson’s LTI valuation methodology
In general terms, the reported LTI value represents
the fair/expecte...
Appendices

Deferred bonus matching shares

Input assumptions

•• We assume that executives seek to maximise
their reward ...
About Towers Watson
Towers Watson is a leading global professional services
company that helps organisations improve perfo...
Remunerations des patrons Etude Towers Watson 2013
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Remunerations des patrons Etude Towers Watson 2013

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Remunerations des patrons Etude Towers Watson 2013

  1. 1. September 2013 Board pay in the Eurotop 100 Insight and analysis on levels, design and trends
  2. 2. Contents Introduction 3 Analysis of Actual Total Direct Compensation (TDC) in the last financial year 4–9 Analysis of incentive design and shareholding guidelines in the last financial year 10–11 Developments on the horizon 12–13 Additional analysis and contact 14–15 Appendices 16–24 2 towerswatson.com
  3. 3. Board pay in the Eurotop 100 Introduction •• Top pay in quoted companies all over Europe is subject to increasing institutional investor and public scrutiny. Legislators and regulators have been active in many jurisdictions and are intervening in the determination, disclosure and voting regimes on pay, not just at the top. •• Meanwhile, the pressure on companies to perform and to deliver growth and returns to shareholders is exacerbating the commercial challenge of attracting and retaining senior leaders to run quoted companies. Most of the Eurotop 100 are international and the talent pools – in some industries more than others – are borderless. •• All these factors make the role of the decision makers on executive pay even tougher. On the one hand, boards, remuneration committees and their internal advisors are all seeking to make good business-based decisions. On the other, they must work within an often prescriptive regulatory and legal framework. Increasingly, and in many markets, it is essential to have the support of diverse institutional shareholders and voting guidance services who will not all agree on ‘the right answer’. •• We think, in order to make good decisions, it is important to start with some reliable facts. •• For this reason this report summarises compensation levels, incentive design practices and emerging remuneration trends for Executive Directors in the Eurotop 100. •• We present an analysis of remuneration levels and incentive design practices observed in the last financial year, followed by changes to pay levels and incentive design practices observed going forward, plus a summary of European corporate governance developments. Where relevant, we have highlighted and commented on sector and country differences. •• Our analysis covers 97 companies within the Eurotop 100 which have published their remuneration reports as at 30 June 2013. This list and composition of companies is included in the appendices, together with details of the LTI valuation methodology supporting our analysis. •• We hope that you find this report interesting and useful. Should you have any questions or comments please contact your usual Towers Watson consultant. Key facts Base salary •• Median base salary levels for the last financial year were approximately €1.28 million for the CEO and €807,000 for Other Executive Directors. •• Median base salary increases received in the last financial year were 1% to 2% for Executive Directors. 40% of companies froze base salary for the CEO. Annual bonus •• The median actual bonus received for performance in the last financial year was 111% of base salary for the CEO and 88% of base salary for Other Executive Directors. •• Median target and maximum bonus opportunity levels for the CEO, where disclosed, were 100% and 180% respectively for the last financial year. Similar levels were also observed for Other Executive Directors. •• 47% of companies required executives to compulsorily defer bonus, and typically, 50% of bonus paid. •• Profit/income, other non-financial measures and individual measures were the most prevalent measures on short-term incentive plans. Long-term incentives (LTI) •• In the last financial year, most companies made awards of performance shares. TSR was the most common performance metric attached to long-term incentive plans. •• For awards granted in the last financial year, the median LTI expected value for the CEO was 152%. Actual Total Direct Compensation (TDC) •• Median actual TDC levels for the last financial year were approximately €5.1 million for the CEO and €3 million for Other Executive Directors. Shareholding guidelines •• Almost half of companies have shareholding policies. At median, guideline levels are 275% of base salary for the CEO and 200% of base salary for Other Executive Directors. Board pay in the Eurotop 100 3
  4. 4. Analysis of Actual TDC in the last financial year CEO actual TDC versus market capitalisation Actual TDC (thousands) Market capitalisation has some influence on actual TDC levels. €20,000 €18,000 €16,000 y = 3201.4ln(x) - 28641 €14,000 2 R = 0.4145 €12,000 €10,000 €8,000 €6,000 €4,000 €180,000 €160,000 €140,000 €120,000 €100,000 €80,000 €40,000 €20,000 €0 €0 €60,000 €2,000 Market capitalisation (millions) I UK I Spain I Italy I Germany I France I Switzerland I Benelux I Nordics The above analysis of actual TDC includes only those CEOs that have served in position for the full financial year and where information is disclosed in order to derive actual TDC. Market capitalisation figures are as at 1 July 2013 and sourced from Datastream. 4 towerswatson.com
  5. 5. Analysis of Actual TDC in the last financial year Eurotop 100 pay levels The table below shows pay levels for the CEO and Other Executive Directors in the Eurotop 100 for the last financial year. Chief Executive Officer Other Executive Directors Average LQ Median UQ Average LQ Median UQ €1,453,893 €1,140,433 €1,279,567 €1,549,971 €873,735 €666,333 €806,933 €967,892 3% 0% 1% 4% 4% 0% 2% 4% Actual bonus (% of base) 118% 50% 111% 159% 103% 59% 88% 132% Target bonus (% of base) 110% 78% 100% 145% 103% 67% 100% 110% Maximum bonus (% of base) 186% 149% 180% 225% 178% 120% 175% 200% Actual total cash €3,127,924 €1,901,085 €2,795,000 €3,900,000 €1,780,805 €1,079,601 €1,477,943 €2,255,614 Actual TDC €5,464,325 €3,671,680 €5,106,372 €7,062,648 €3,171,779 €2,227,583 €2,998,328 €3,806,954 Base salary Base salary % increase •• Statistics are company weighted and independently arrayed. •• Not all companies have disclosed target bonus, maximum bonus and LTI awards. The above analysis is only based on information where disclosed. •• The analysis of actual TDC includes only those incumbents that have served in position for the full financial year. •• Definitions for each of the elements in the table and details of our LTI valuation methodology are included in the appendices (see page 16). Board pay in the Eurotop 100 5
  6. 6. Analysis of Actual TDC in the last financial year CEO actual TDC levels by country The highest pay levels are found in Switzerland, Spain and Germany. 5,505 (SMI) Switzerland 7,635 (n=8) 2,375 (IBEX 35) Spain 7,215 (n=5) 4,975 (DAX 30) Germany 6,305 (n=15) 3,005 (FTSE 100) UK 5,705 (n=21) 2,365 (MIB) Italy 4,130 (n=4) 2,265 (AEX 25) Benelux 3,965 (n=5) 3,465 (CAC 40) 3,785 (n=14) France €9,000 €8,000 €7,000 €6,000 €5,000 €4,000 €3,000 €2,000 €0 €1,000 1,880 (OMX 30) 1,910 (n=7 ) Nordics Median actual TDC (thousands) I Country index median I Eurotop median The above analysis of actual TDC includes only those CEOs that have served in position for the full financial year and where information is disclosed in order to derive actual TDC. 6 towerswatson.com
  7. 7. Analysis of Actual Totalin the last financial year TDC Direct Compensation (‘TDC’) in the last financial year % of 79 companies The distribution of CEO actual TDC 12 10 8 6 4 2 13+ 12.5–13 12–12.5 11.5–12 11–11.5 10.5–11 9.5–10 10–10.5 9–9.5 8.5–9 8–8.5 7.5–8 7–7.5 6.5–7 6–6.5 5.5–6 5–5.5 4.5–5 4–4.5 3.5–4 3–3.5 2.5–3 2–2.5 1.5–2 <1 1–1.5 0 Actual TDC (EUR millions) The distribution is perhaps more ‘normal’ than we might expect from a pay distribution curve. Board pay in the Eurotop 100 7
  8. 8. Analysis of Actual TDC in the last financial year CEO average pay mix by country % Incentive pay is most significant in the German, UK and Swiss companies. 100 31% 50% 31% 42% 17% 49% 34% 19% 90 46% 80 12% 70 45% 36% 25% 60 69% 30% 50 13% 22% 40 37% 30 20 38% Spain (n=5) Benelux (n=5) 41% 33% 28% 24% 28% 10 0 Germany (n=15) UK (n=21) I Base salary % 8 towerswatson.com Switzerland (n=8) France (n=14) I Actual bonus % I LTI expected value % Italy (n=4) Nordics (n=7)
  9. 9. Analysis of Actual TDC in the last financial year Short-term incentive (STI) design Profit/income is the most prevalent performance measure on STI plans. STI performance measures – % of 89 companies Profit/income measure 62% Other financial measure 60% Other non-financial measure 58% Individual 53% Cashflow 31% Sales/revenue 25% Return on measure 21% 0 10 20 30 40 50 60 70 % 96 out of the 97 Eurotop companies analysed operate an STI plan. The above analysis is based on 89 out of the 96 Eurotop companies that have disclosed performance measures for the primary STI plan in operation. Board pay in the Eurotop 100 9
  10. 10. Analysis of incentive design and shareholding guidelines in the last financial year Long-term incentive (LTI) design Most companies operate at least one LTI plan with one or two performance measures to be met for awards to vest. Number of LTI plans in operation – % of 97 companies 14 companies do not operate an LTI plan for Executive Directors. I 14% No plan I 50% 1 plan I 30% 2 plans I 6% 3 plans Number of performance measures on LTI plans – % of 124 plans These include restricted shares, share matching plans, stock options and plans with pre-grant performance conditions. I I 20% None 13% 3 measures I I 28% 1 measure 9% 4 measures The above analysis is based on 83 out of the 97 Eurotop companies that operate an LTI plan for executives. A total of 124 LTI plans are operated across the 83 companies. 10 towerswatson.com I I 28% 2 measures 2% 5+ measures
  11. 11. Analysis of incentive design and shareholding guidelines in the last financial year Long-term incentive (LTI) design Performance share plans are the most common LTI vehicle. LTI plan types in operation – % of 83 companies This is the most prevalent LTI vehicle in most countries. % 70 66% 60 50 40 These are most common in the Nordics and UK companies. 30 25% 20 These are most common in the French and Swiss companies. 24% These are most prevalent in the German, French and Italian companies. 24% Limited use of restricted shares. 10 7% 0 Performance shares/units Share matching plans Stock options/ units Long-term cash Restricted shares/ units The above analysis is based on 83 out of the 97 Eurotop companies that operate an LTI plan for executives. Board pay in the Eurotop 100 11
  12. 12. Developments on the horizon European corporate governance developments There has been a fresh round of EU and national initiatives relating to senior pay and more interventions are awaited. Financial services: pay caps proposed in banking and some investment funds General industry: disclosure and voting reforms proposed; diversity and non-financial reporting New disclosure and voting regime Changes proposed on pay limits, differentials, disclosure and voting Fiscal, disclosure, voting and option changes proposed Pay practice restrictions; information and voting changes Financial services – 20% variable pay cap Improved disclosure proposed 12 towerswatson.com
  13. 13. Developments on the horizon European corporate governance developments Improved disclosure and more shareholder ‘say on pay’ is one of the pre-dominant themes. Board Executives EU Belgium France Germany Italy Netherlands Spain Sweden Switzerland UK Pay policy Shareholder Proposed Advisory Proposed Advisory (binding vote proposed) Binding Advisory Binding Advisory (high level policy) Proposed (Binding) Binding (new) Actual/realised pay Proposed Shareholder Proposed Advisory vote Advisory (Binding on aggregate pay) Advisory Our research* suggests that a potentially major shift is occurring in investor views on the most effective/ appropriate way to link pay to performance. Driven by increasing scepticism of effectiveness of incentives st pay... ot ju N t also weal th ..bu . Flows of pay governed by performance measures ffe c pt sce ing as fe of Stocks of executive shareholdings in company/longer time horizons/other holding conditions •• Tailoring of performance measures encouraged/less prescriptive views of •• Relative performance in c Driv e nb yi nc re Type of performance ss e Leverage •• Acceptance of high leverage accompanied by high performance conditionality of pay m nb i cis y ept e f f i n c r e a s i n g s c i ve s e cti t ve n e s s o f i n c e n en •• More generic performance measures/ more prescriptive investor views on these o icism i ve tiv Link to performance Dr e n ti v e s •• Some preference for less leverage/ allowing share price to do work of linking pay/wealth to performance •• Absolute performance * We have recently completed a study of leading investors’ views on the changing environment for executive pay in the UK. Close to 30 institutions took part, and participants included both corporate governance specialists and fund managers. Board pay in the Eurotop 100 13
  14. 14. Additional analysis and contact The full Board pay in the Eurotop 100 report includes •• CEO and Other Executive Directors’ actual total direct compensation levels by sector •• CEO actual total direct compensation by company (line-by-line) •• CEO average pay mix by sector •• Further details of short-term incentive performance measures •• Short-term incentive deferral analysis •• Long-term incentive performance measures •• Long-term incentive performance periods •• Analysis of shareholding guidelines •• 2013 base salary increases •• Changes to short-term incentive design •• Changes to long-term incentive design Our database covers over 1000 companies across 14 countries in Europe In addition to the analysis included in this report, we can also provide you with analysis for pan-European sectors or bespoke peer groups tailored to your specific requirements on a line-by-line and/or aggregate basis (for example, by industry, by different markets and/or by company size). Executive Directors’ Compensation Incentive Design and Shareholding Guidelines Non-executive Directors’ Compensation •• Financial year and/or forward-looking base salary increases •• Actual and/or target total direct compensation levels* •• Actual and/or target total remuneration levels* •• Realised pay levels •• Analysis of realised pay versus target/maximum pay opportunity •• Analysis of pay mix* •• Pay differentials by sector and/or country* •• Leverage analysis* •• Pay versus performance analysis* •• Short-term incentive performance measures and relative weightings •• Short-term incentive deferral analysis •• Long-term incentive vehicles •• Long-term incentive performance measures, relative weightings and performance targets •• Long-term incentive performance periods, vesting arrangements and holding periods •• Analysis of forward-looking amendments to short and long-term incentive plans and details of new plans •• Analysis of shareholding guidelines •• Base/fixed fee levels •• Chairmanship and membership fees for board committees (for example, audit, remuneration, nomination) •• Attendance fees and travel allowances •• Other incentives and benefits In addition to this we can provide analysis of special recruitment awards, termination arrangements, executive contracts and severance arrangements. * This analysis includes long-term incentive expected values based on the Towers Watson valuation methodology. 14 towerswatson.com
  15. 15. Additional analysis and contact Country Contact name Email Phone UK and Ireland Karin Richter karin.richter@towerswatson.com +44 20 7170 3577 Sonia Padda sonia.padda@towerswatson.com +44 20 7170 2927 Laurent Nguyen laurent.nguyen@towerswatson.com +33 1 53 93 13 14 Gerald Joliy gerald.joliy@towerswatson.com +33 1 53 93 13 38 Ralph Lange ralph.lange@towerswatson.com +49 69 1505 5144 Stephanie Schmelter stephanie.schmelter@towerswatson.com +49 69 1505 5168 Hans Muench hans.muench@towerswatson.com +41 43 488 4466 Maike Wehage maike.wehage@towerswatson.com +41 43 488 44 09 Sven Slavenburg sven.slavenburg@towerswatson.com +31 88 5433183 Bram van Oenen bram.van.oenen@towerswatson.com +31 88 543 3037 Manuel Montecelos manuel.montecelos@towerswatson.com +34 91 590 3986 Cristina Martin cristina.martin@towerswatson.com +34 91 590 3087 Edoardo Cesarini edoardo.cesarini@towerswatson.com +39 06 367361 Leonardo Mansueto leonardo.mansueto@towerswatson.com +39 02 6378 0190 Anders Tapper anders.tapper@towerswatson.com +46 8 506 417 10  Peter Skoog peter.skoog@towerswatson.com +46 8 506 417 23 Bram van Oenen bram.van.oenen@towerswatson.com +31 88 543 3037 Noemie Tack noemie.tack@towerswatson.com +32 2 678 1511 France Germany Switzerland Netherlands Spain Italy Nordics Belgium Board pay in the Eurotop 100 15
  16. 16. Appendices Eurotop 100 Company List Company Country Market capitalisation (€ m) Sector A P MOLLER - MAERSK A/S Nordics 23,961 Industrials ABB LIMITED Switzerland 38,846 Industrials ASML HOLDING Benelux 27,139 Technology/Telecoms AXA France 36,787 Banks/Insurance AIR LIQUIDE France 29,581 Basic Materials ALLIANZ Germany 51,659 Banks/Insurance ANGLO AMERICAN UK 21,030 Basic Materials ANHEUSER-BUSCH INBEV Benelux 111,187 Consumer Goods/Services ASTRAZENECA UK 46,082 Health Care ATLAS COPCO AB Nordics 22,209 Industrials BASF Germany 63,099 Basic Materials BG GROUP UK 44,924 Oil and Gas BHP BILLITON * UK 112,564 Basic Materials BMW Germany 43,441 Consumer Goods/Services BNP PARIBAS France 52,684 Banks/Insurance BP UK 101,309 Oil and Gas BT GROUP UK 29,225 Technology/Telecoms BANCO BILBAO VIZCAYA ARGENTARIA Spain 36,197 Banks/Insurance BANCO SANTANDER Spain 54,588 Banks/Insurance BARCLAYS UK 42,751 Banks/Insurance BAYER Germany 68,116 Basic Materials BRITISH AMERICAN TOBACCO UK 76,991 Consumer Goods/Services CENTRICA UK 21,700 Utilities CHRISTIAN DIOR France 23,161 Consumer Goods/Services CREDIT SUISSE Switzerland 33,124 Banks/Insurance DAIMLER Germany 49,961 Consumer Goods/Services DANONE France 36,510 Consumer Goods/Services DEUTSCHE BANK Germany 33,038 Banks/Insurance DEUTSCHE POST Germany 23,319 Industrials DEUTSCHE TELEKOM Germany 39,687 Technology/Telecoms DIAGEO * UK 56,686 Consumer Goods/Services E.ON Germany 24,934 Utilities EADS France 32,329 Industrials Diageo and BHP Billiton have been excluded from the analysis as the 2012/13 remuneration report were not published at the time of this analysis. Market capitalisation figures are as at 1 July 2013 and sourced from Datastream. 16 towerswatson.com
  17. 17. Appendices Eurotop 100 Company List Company Country Market capitalisation (€ m) Sector ELECTRICITE DE FRANCE France 32,660 Utilities ENEL Italy 22,944 Utilities ENI Italy 58,038 Oil and Gas ERICSSON ‘B’ Nordics 28,954 Technology/Telecoms GDF SUEZ France 36,144 Utilities ASSICURAZIONI GENERALI Italy 21,360 Banks/Insurance GLAXOSMITHKLINE UK 95,150 Health Care GLENCORE XSTRATA* UK 43,326 Basic Materials HSBC HOLDINGS UK 151,123 Banks/Insurance HEINEKEN Benelux 28,642 Consumer Goods/Services HENKEL AG & COMPANY KGAA Germany 28,684 Consumer Goods/Services H&M HENNES & MAURITZ AB Nordics 43,675 Consumer Goods/Services HERMES INTERNATIONAL France 26,466 Consumer Goods/Services ING GROEP Benelux 27,401 Banks/Insurance IBERDROLA Spain 25,073 Utilities IMPERIAL TOBACCO GROUP UK 25,965 Consumer Goods/Services INDITEX Spain 60,831 Consumer Goods/Services INTESA SANPAOLO Italy 20,195 Banks/Insurance KONINKLIJKE PHILIPS ELECTRONICS NA Benelux 20,722 Industrials L’OREAL France 77,503 Consumer Goods/Services LVMH France 64,712 Consumer Goods/Services LINDE Germany 26,513 Basic Materials LLOYDS BANKING GROUP UK 53,341 Banks/Insurance MUNCHENER RUECKVERSICHERUNGSGESELLSCHAFT Germany 25,698 Banks/Insurance NATIONAL GRID UK 31,889 Utilities NESTLÉ Switzerland 163,373 Consumer Goods/Services NORDEA BANK Nordics 35,748 Banks/Insurance NOVARTIS Switzerland 147,510 Health Care NOVO NORDISK Nordics 67,210 Health Care ORANGE* France 19,204 Technology/Telecoms PERNOD-RICARD France 23,321 Consumer Goods/Services PRUDENTIAL UK 32,878 Banks/Insurance RECKITT BENCKISER UK 39,472 Consumer Goods/Services Data for Glencore reflects pre-merger data reported by Glencore International. Data for Orange reflects data reported by France Telecom. Market capitalisation figures are as at 1 July 2013 and sourced from Datastream. Board pay in the Eurotop 100 17
  18. 18. Appendices Eurotop 100 Company List Company Country Market capitalisation (€ m) Sector REPSOL YPF Spain 21,770 Oil and Gas COMPAGNIE FINANCIERE RICHEMONT Switzerland 35,725 Consumer Goods/Services RIO TINTO UK 61,048 Basic Materials ROCHE HOLDING Switzerland 163,818 Health Care ROLLS-ROYCE HOLDINGS UK 25,560 Industrials ROYAL BANK OF SCOTLAND GROUP UK 36,941 Banks/Insurance ROYAL DUTCH SHELL UK 158,755 Oil and Gas SABMILLER UK 59,736 Consumer Goods/Services SAP Germany 67,668 Technology/Telecoms SANOFI France 106,330 Health Care SCHNEIDER ELECTRIC France 31,503 Industrials SIEMENS Germany 70,260 Industrials SOCIETE GENERALE France 21,105 Banks/Insurance STANDARD CHARTERED UK 41,543 Banks/Insurance STATOIL Nordics 51,060 Oil and Gas THE SWATCH GROUP Switzerland 22,119 Consumer Goods/Services SWISS RE Switzerland 21,182 Banks/Insurance SYNGENTA Switzerland 27,862 Basic Materials TELEFONICA Spain 45,506 Technology/Telecoms TELENOR Nordics 23,798 Technology/Telecoms TELIASONERA Nordics 21,851 Technology/Telecoms TENARIS Italy 18,499 Basic Materials TESCO UK 31,422 Consumer Goods/Services TOTAL France 89,128 Oil and Gas UBS Switzerland 50,777 Banks/Insurance UNICREDIT Italy 21,080 Banks/Insurance UNILEVER UK 87,133 Consumer Goods/Services VINCI France 23,370 Industrials VIVENDI France 19,370 Consumer Goods/Services VODAFONE GROUP UK 106,550 Technology/Telecoms VOLKSWAGEN Germany 71,419 Consumer Goods/Services VOLVO Nordics 21,895 Industrials ZURICH INSURANCE GROUP Switzerland 29,604 Banks/Insurance Market capitalisation figures are as at 1 July 2013 and sourced from Datastream. 18 towerswatson.com
  19. 19. Appendices Composition of the Eurotop 100 The majority of constituents in the Eurotop 100 are headquartered in UK, France and Germany. A broad array of sectors is represented. Composition by country I 19% France I 15% Germany I 6% Italy I 6% Spain I 11% Switzerland I 28% UK I 10% Nordics I 5% Benelux Composition by industry I 10% Basic Materials I 26% Consumer Goods/Services I 6% Health Care I 11% Industrials I 7% Oil and Gas I 10% Technology/Telecoms I 7% Utilities I 23% Banks/Insurance Market capitalisation (€ m) Revenues (€ m) LQ 25,317 16,367 Median 36,144 30,803 UQ 58,887 56,837 Market capitalisation figures are as at 1 July 2013 and sourced from Datastream. Revenue figures are sourced from annual reports and Datastream. Board pay in the Eurotop 100 19
  20. 20. Appendices Points to consider when interpreting the analysis •• The analysis covers a total of 97 companies that have published their remuneration report as at 30 June 2013. It should be noted that because we have excluded data points for some CEOs in many cases our analysis is based on 79 Eurotop 100 companies. •• Due to the differing regulatory and governance environments across countries, disclosures on compensation arrangements differ widely, in particular with respect to the pay of Other Executive Directors (excluding CEO) and disclosure of long-term incentive awards. As such we are unable to derive the actual TDC figures for all executives covered in the Eurotop 100. •• Furthermore, the analysis of actual TDC includes only those incumbents that have served in position for the full financial year. •• As a result, we have excluded 19 CEOs from the analysis of actual TDC. These are listed on page 21 with reasons for exclusion. •• The aggregated compensation data presented for Other Executive Directors is company weighted. •• Compensation data is presented in Euros. The exchange rates used to convert data are outlined below: 2012 average conversion rates to Euros EUR 20 towerswatson.com CHF GBP USD AUD HKD SEK DKK NOK 0.8296 1.2329 0.7781 0.8055 0.1002 0.1148 0.1343 0.1337
  21. 21. Appendices CEOs who have been excluded from analysis of actual TDC Company Incumbent Reason for exclusion Anglo American Mark Cutifani New appointment; data pro-rated. AP Moller - Maersk A/S Nils S. Andersen Data needed to derive actual TDC not disclosed. Assicurazioni Generali Mario Greco New appointment; data pro-rated. AstraZeneca Pascal Soriot New appointment; data pro-rated. Barclays Anthony Jenkins New appointment; data pro-rated. Christian Dior Sidney Toledano Data pro-rated due to change in financial year end. Compagnie Financiere Richemont Johann Rupert Data needed to derive actual TDC not disclosed. Deutsche Bank AG Jürgen Fitschen, Anshuman Jain New appointment; data pro-rated. EADS Thomas Enders New appointment; data pro-rated. EDF Henri Proglio Data pro-rated due to change in remuneration arrangements during financial year. Hermes International Patrick Thomas Data not comparable; remuneration package based on percentage of group’s consolidated income before tax and revenues. Novo Nordisk Lars Rebien Sørensen Data needed to derive actual TDC not disclosed. Repsol Antonio Brufau Niubó Data needed to derive actual TDC not disclosed. SABMiller Alan Clark New appointment; data pro-rated. Swiss Re Michel M. Liès New appointment; data pro-rated. Telenor Jon Fredrik Baksaas Data needed to derive actual TDC not disclosed. Tenaris Paolo Rocca Data needed to derive actual TDC not disclosed. Vivendi Jean-François Dubos New appointment; data pro-rated. Zurich Insurance Group Martin Senn Data needed to derive actual TDC not disclosed. Board pay in the Eurotop 100 21
  22. 22. Appendices Definition of elements covered by this report Pay element Base salary The annual base salary received for the last financial year, as reported in the emoluments table. Base salary % increase The percent increase in the annual base salary reported for the last financial year. Actual bonus The total annual bonus earned for the last financial year (including bonus deferred without additional performance conditions). Actual bonus (% of base) Actual bonus (as defined above) expressed as a percent of annual base salary received for the last financial year. Target bonus (% of base) The percent of annual base salary paid as an annual bonus/incentive for target/on-budget, or expected performance, under the annual bonus/incentive plan in operation for the last financial year (including deferrals). Maximum bonus (% of base) The maximum percent of annual base salary paid as an annual bonus/ incentive under the annual bonus/incentive plan in operation for the last financial year (including deferrals). Actual total cash The sum of base salary (as defined above), actual bonus (as defined above) and amount received under a profit sharing plan. The analysis excludes fees received for membership of board. LTI expected value The total expected value of all forms of long-term incentives awarded in the last financial year (including deferred bonuses with an additional performance condition), calculated at the time of grant using the Towers Watson LTI valuation methodology. LTI expected value (% of base) The LTI expected value (as defined above) expressed as a percent of annual base salary received for the last financial year. Actual total direct compensation (TDC) 22 towerswatson.com Definition The sum of actual total cash (as defined above) and LTI expected value (as defined above).
  23. 23. Appendices Towers Watson’s LTI valuation methodology In general terms, the reported LTI value represents the fair/expected value of an award as at the date of grant, taking into account the specific characteristics of the vehicle awarded (for example, share price volatility, dividend yield) and any applicable performance vesting conditions. The reported value represents the sum of the values of all types of LTI award made to an individual in the year, including performance/restricted shares, stock options, deferred bonus matching shares and longterm cash awards. Stock options •• The value of stock options is calculated using a binomial lattice model, based on a number of input assumptions (as set out below). A discount is then applied to this value to take account of any applicable performance vesting conditions. •• Our valuations are based on an expected life approach when computing the binomial value of the option. This expected life is taken as the midpoint between the vesting period and the term of the option (for example, for an option with a 3 year vesting period and a 10 year life, the expected life is 6.5 years). •• Where applicable, the relevant performance condition discount factor is determined by the type of the applicable condition: •• Relative Total Shareholder Return tests: A country-specific discount is applied to the binomial lattice value. •• Absolute share price/Total Shareholder Return tests: We value such awards by incorporating the absolute share price target into the binomial valuation model. For absolute TSR tests, an equivalent absolute share price target is calculated using a company specific dividend yield assumption. •• Internal/non-market tests: We apply a single discount factor to take account of such performance conditions. This discount factor is country-specific, based on our experience of the average proportion of shares that might typically be expected to vest, based on typical local performance condition calibration. Performance/restricted shares •• The value of performance/restricted shares represents the face value of shares (that is the number of shares multiplied by share price) as at the date of grant, less the value of dividends paid during the vesting period if participants do not receive the benefit of these, with a discount applied to take any applicable performance vesting conditions into account. •• Where applicable, the relevant performance condition discount factor is determined by the type of the applicable condition: •• Relative Total Shareholder Return tests: We consider the award’s specific vesting schedule and calculate the expected proportion of shares due to vest, assuming that all percentile ranks are equally likely to be achieved. We apply an uplift factor to this value to take into account the strong correlation between relative TSR performance and share price growth. This adjustment factor is 20% if the comparator group is made up of selected sector peers, 25% if the company uses a broad index. For tests comparing the company’s TSR performance to that of an index, we apply the above methodology, assuming that the condition is calibrated such that threshold vesting is achieved for the equivalent of median performance, and maximum vesting achieved for the equivalent of upper quartile performance. •• Absolute share price/Total Shareholder Return tests: We value such awards as nil-cost options with the performance condition incorporated into the binomial valuation model as described above. •• Internal/non-market tests: We apply a single discount factor to take account of such performance conditions. This discount factor is country-specific, based on our experience of the average proportion of shares that might typically be expected to vest, based on typical local performance condition calibration. •• Where there is no defined maximum award size and awards are expressed as a ‘target’ number of shares with the potential for the actual vesting number to be higher or lower based on performance levels, the value is more simply the face value of this target number of shares as at the date of grant. Board pay in the Eurotop 100 23
  24. 24. Appendices Deferred bonus matching shares Input assumptions •• We assume that executives seek to maximise their reward opportunity and will therefore elect to defer the maximum amount of bonus allowable. Deferred bonus matching share awards are then valued as performance share awards (see previous page). •• Please note that deferrals not subject to further performance conditions are included as part of the annual bonus and are not valued as part of long-term incentives. •• Some plans have a feature (sometimes known as malus) under which deferred shares can be clawed back in the event of a downturn in business performance. Typically, this malus condition is only likely to be applied in extreme circumstances and we do not take this into account in the valuation. However, in cases where a malus condition can be considered a true long-term performance condition, the deferred award is valued as performance shares and included in long-term incentive value. •• In order to calculate values for long-term incentive awards, it is necessary to make a number of input assumptions. These assumptions are based on a consistent approach for all companies in order to result in valuations which can be compared on a like-for- like basis. The principal assumptions and the methodology to derive them are set out below. Co-investment plans •• Similar to deferred bonus matching plans, we assume that executives seek to maximise their reward opportunity and will therefore elect to co-invest the maximum amount. Co-investment matching share awards are then valued as performance share awards (see previous page). Long-term cash bonus •• Consistent with other types of long-term incentive award, long-term cash bonuses are valued at date of grant (not payout). The value represents the target/expected payout level. Share price volatility •• Share price volatility assumptions have been calculated based on the average actual volatility experienced by each company over the threeyear period to 1 January 2012. Where this historic average is likely to be unrepresentative of future volatility levels (for example, a business restructuring), an assumption based on more detailed analysis is used. Dividend yield •• Dividend yield assumptions have been calculated based on the average actual dividend yield for each company over the one-year period to 1 January 2012. Where this historic average is likely to be unrepresentative of future dividend yield levels, an assumption based on more detailed analysis is used. Risk-free rate •• Risk-free rate assumptions have been calculated based on the yield on a zero-coupon government bond for the country in which the company is listed over the vesting period/expected share option term, as at 1 January 2012. Other award types •• For complex or unusual plan types which do not fit into the categories described above, a bespoke valuation will be applied, using consistent principles and assumption setting methodology. We also analyse the pay ‘realised’ by Executive Directors – that is to say, the remuneration from base, bonus and long-term incentives that was paid and/or vested for the financial year. Let us know if you would like access to this data. 24 towerswatson.com
  25. 25. About Towers Watson Towers Watson is a leading global professional services company that helps organisations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson 21 Tothill Street Westminster London SW1H 9LL Towers Watson is represented in the UK by Towers Watson Limited and Towers Watson Capital Markets Limited. The information in this publication is of general interest and guidance. Action should not be taken on the basis of any article without seeking specific advice. To unsubscribe, email eu.unsubscribe@towerswatson.com with the publication name as the subject and include your name, title and company address. Copyright © 2013 Towers Watson. All rights reserved. TW-EU-2013-34124b. September 2013. towerswatson.com

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