EXECUTIVE REMUNERATION IN 2016 EXECUTIVE REMUNERATION RESEARCH CENTRE

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2 EXECUTIVE REMUNERATION IN 2016 EXECUTIVE REMUNERATION RESEARCH CENTRE

3 EXECUTIVE REMUNERATION STUDY 2017 WHAT IS NEW? Scope FTSE 250 added Industry/sector added Share ownership concentration added Short-term incentives Target and maximum added Weight per KPI added Pay ratio (CEO average employee) 3

4 1SAMPLE

5 SAMPLE NUMBER OF OBSERVATIONS Number of observations (CEO remuneration) CEOs 484 CFOs Belgium Netherlands Germany France UK Sweden 2015 CEO 2016 CEO 2016 CFO 5

6 SAMPLE SHARE OWNERSHIP DISPERSION % of firms in which no shareholder has more than 25% of shares 82% 61% 54% 41% 46% 41% BELGIUM NETHERLANDS GERMANY FRANCE UK SWEDEN 6

7 SAMPLE HOW LONG ARE CEOS IN THEIR CURRENT ROLE? BELGIUM NETHERLANDS GERMANY FRANCE UK SWEDEN 7

8 SAMPLE CEO PERSONAL CHARACTERISTICS Gender Male: 95% Nationality: Local CEO: 74% Age Median: 55 (Q25: 51; Q75: 59) Tenure in current role in current firm Median: 5 (Q25: 2; Q75: 9) 8

9 2REMUNERATION LEVELS & STRUCTURE

10 TOTAL CEO REMUNERATION BELGIUM - MEDIAN BEL 20 BEL MID BEL SMALL 10

11 TOTAL CEO REMUNERATION NETHERLANDS - MEDIAN AEX AMX ASCX 11

12 TOTAL CEO REMUNERATION GERMANY - MEDIAN DAX MDAX SDAX 12

13 TOTAL CEO REMUNERATION FRANCE - MEDIAN CAC 40 CAC NEXT 20 CAC MID CAC SMALL 13

14 TOTAL CEO REMUNERATION UK - MEDIAN pre-brexit FTSE 100 FTSE

15 TOTAL CEO REMUNERATION SWEDEN - MEDIAN OMXS60 15

16 CEO FIXED REMUNERATION MEDIAN 16

17 CEO FIXED REMUNERATION MEDIAN 17

18 CEO SHORT-TERM INCENTIVES MEDIAN 18

19 CEO SHORT-TERM INCENTIVES MEDIAN 19

20 CEO LONG-TERM INCENTIVES MEDIAN 20

21 CEO LONG-TERM INCENTIVES MEDIAN 21

22 TOTAL CEO REMUNERATION IN TERMS OF FIRM SIZE (MARKET CAP) 22

23 CEO REMUNERATION STRUCTURE 70% 60% 62% 53% 53% 63% 50% 40% 30% 20% 25% 25% 22% 13% 36% 34% 30% 39% 34% 25% 26% 23% 21% 16% 10% 0% Belgium Netherlands Germany France UK Sweden Fixed STI LTI 23

24 CEO REMUNERATION STRUCTURE 24

25 CEO REMUNERATION STRUCTURE 25

26 EVOLUTION CEO TOTAL REMUNERATION MATCHED SAMPLE 26% 15% 59% DECREASE STABLE INCREASE 26

27 EVOLUTION CEO TOTAL REMUNERATION MATCHED SAMPLE Bel 20 Bel Mid Bel Small AEX AMX AScX DAX MDAX SDAX CAC 40 CAC Next 20 CAC Mid CAC Small FTSE 100 1,03 1 1,01 1,05 1,15 1,11 1,14 1,13 1,11 1,13 1,2 1,28 1,27 1,3 0,8 0,9 1 1,1 1,2 1,3 27

28 3SHORT-TERM INCENTIVES

29 SHORT-TERM INCENTIVES OCCURRENCE - TARGET (% FIXED) No 9% Yes 91% 29

30 SHORT-TERM INCENTIVES SPREAD TARGET-MAX BONUS 30

31 SHORT-TERM INCENTIVES PAY-OUT: BONUS DEFERRAL Deferral in cash; 4% Deferral in cash and shares; 2% Deferral in shares; 26% No deferral; 68% Typical design: 50% deferred, over 3 yearsl 90% no additional performance conditions 31

32 SHORT-TERM INCENTIVES PAY OUT: BONUS DEFERRAL 32

33 SHORT-TERM INCENTIVES KEY PERFORMANCE INDICATORS KPI used for STI 80% 60% 40% 20% 33

34 Weight of non-financial KPIs SHORT-TERM INCENTIVES KEY PERFORMANCE INDICATORS >50% 6% 41-50% 26-40% 16-25% 16% 28% 26% 5-15% 7% No non-financial KPIs 17% 0% 5% 10% 15% 20% 25% 30% % of firms 34

35 4LONG-TERM INCENTIVES

36 LONG-TERM INCENTIVES GRANTED?

37 LONG-TERM INCENTIVES GRANTED? EVOLUTION - NETHERLANDS 120% 100% 100% 80% 75% 78% 81% 75% 78% 60% 63% 46% 46% 40% 20% 0% AEX AMX AScX

38 LONG-TERM INCENTIVES NUMBER OF GRANTS ( ) Country No grant 1 grant 2 grants 3 grants Belgium 31% 20% 16% 33% Netherlands 5% 15% 18% 62% Germany 3% 9% 24% 64% France 36% 22% 15% 27% UK 2% 0% 13% 85% 38

39 LONG-TERM INCENTIVES TYPOLOGY LTI type B NL D F UK SE Time-based options 28% 9% 2% 6% 1% 0% Performance-based options 8% 10% 4% 4% 6% 8% Nil cost options 0% 0% 0% 0% 38% 0% Time-based shares 4% 1% 1% 1% 1% 0% Performance-based shares 7% 49% 14% 37% 45% 36% Free shares 0% 0% 1% 8% 0% 3% Phantom time-based 1% 0% 5% 0% 0% 0% Phantom performance-based 3% 1% 27% 3% 1% 3% Stock appreciation rights time-based 0% 0% 3% 0% 0% 0% Stock appreciation rights performancebased 0% 1% 3% 0% 0% 0% Cash 4% 3% 42% 3% 0% 14% 39

40 LONG-TERM INCENTIVES KPIS FOR VESTING KPI used for LTI 80% 60% 40% 20% 40

41 1% 2% 7% 18% 14% 94% SHAREHOLDING REQUIREMENT? BELGIUM NETHERLANDS GERMANY FRANCE UK SWEDEN 41

42 5PAY RATIO

43 PAY RATIO CEO-CFO 1,66 1,67 1,55 FIXED REMUNERATION STI LTI 43

44 PAY RATIO CEO-AVERAGE EMPLOYEE 44

45 CEO pay ratio PAY RATIO CEO-AVERAGE EMPLOYEE Continental Europe (excl. Sweden) UK mn. 1-3 bn bn. >10 bn. Market cap (in ) 45

46 WHAT DETERMINES PAY RATIO? Higher: consumer good, consumer services Lower: telecom 46

47 6WHAT DRIVES CEO REMUNERATION?

48 WHAT DRIVES TOTAL CEO REMUNERATION?

49 WHAT DRIVES THE EVOLUTION IN TOTAL CEO REMUNERATION ( )? 49

50 WHAT DRIVES THE EVOLUTION IN TOTAL CEO REMUNERATION ( )? Standardized beta coefficient 0,6 0,562 0,5 0,498 0,4 0,3 0,2 0,1 0,067 0 Fixed remuneration Short-term incentives Long-term incentives 50

51 7WHAT CHARACTERISES CEO REMUNERATION IN THE BEST PERFORMING FIRMS?

52 SUSTAINED FINANCIAL PERFORMANCE WHAT? HOW? Criterion Return on Assets Timeframe (7y.) Average per sector 41 sectors 52

53 (HOW) IS SUSTAINED FINANCIAL PERFORMANCE RELATED TO CEO REMUNERATION? THE ANSWERS 53

54 8CEO RELATIVE PAYMENT

55 PREDICTED CEO REMUNERATION THE CONCEPT Market capitalisation Profitability Predicted CEO remuneration Industry 55

56 ACTUAL VERSUS PREDICTED CEO REMUNERATION A COUNTRY ANALYSIS 1,4 1,3 1,2 1,1 1,17 1,31 1 0,9 0,8 0,89 0,83 0,88 0,7 0,6 0,64 0,5 0,4 Belgium Netherlands Germany France UK Sweden 56

57 ACTUAL VERSUS PREDICTED CEO REMUNERATION A FOCUS ON AEX 2 1,8 1,6 1,4 1,2 1 0,8 0,6 0,4 0,2 0 A B C D E F G H I J K L M N 57

58 ACTUAL VERSUS PREDICTED CEO REMUNERATION WHAT DRIVES CEO OVERPAYMENT? 58

59 HAPPY TO CONNECT