Linking executive pay to performance the challenges for 2016 Survey results

Transcription

1 Linking executive pay to performance the challenges for 2016 Survey results

2 Linklaters Employee Incentives Practice Introduction For further information please contact: Gillian Chapman Partner Alex Beidas Partner On 16 September Linklater s Employee Incentives team together with Towers Watson hosted a conference looking at executive pay and the challenges facing companies for The conference was attended by over 80 companies. We asked the attendees a number of questions on executive pay. The responses are set out in this report. Our findings show the following key challenges for 2016: > > More disclosure of performance targets for payouts, particularly for annual bonuses, to support evidence of pay for performance > > Increased clarity of board pay and the way it is presented to shareholders > > The need for continued engagement with investors Graham Rowlands-Hempel Consultant graham.rowlands-hempel@linklaters.com

3 Survey results Section one: Pay for performance Do you think the new framework What is the lowest IVIS rating What is the lowest voting outcome What approach will you take to for executive pay introduced in your organisation would be for the advisory pay vote you highlight pay for performance 2013 is curbing executive pay? comfortable with? would comfortable with? in 2016? Yes and we can manage within the new framework 58.0 Yes and it is adversely affecting our ability to recruit and retain 5.0 No 37.0 Blue / For 12.3 Amber / Contentious For 69.2 Abstain 16.9 Red / Against 1.5 < 70 For For For 39.0 > 90 For 32.0 Bolster the Chairman s statement 40.0 Supplement required disclosure 26.0 Include an at a glance section 34.0 Since 2013, there has been increased disclosure of board pay. Companies must put their board pay policy to a binding vote. Companies appear to be more comfortable with an amber rating for board pay. An increasing number of companies are comfortable with a lower advisory vote in favour of the way the board has been paid. Companies will be looking at how to increase the evidence of pay for performance.

4 Survey results Section two: Recruitment Survey results Section three: Termination Is your shareholder-approved termination policy consistent with What is covered by your Are buy-out awards justified? Are golden hellos justified? your executive pay plans? pay policy? Yes 81.0 Yes, but very rarely 11.9 Never 7.1 Yes 48.0 Never 52.0 Yes 51.9 Not sure (but am now going to check) 40.4 No they aren t 7.7 Buyout awards 65.2 Recruitment awards (i.e. a golden hello ) 34.8 Legal fees 80.4 Outplacement fees 67.4 Repatriation expenses 52.2 Retirement gifts 21.7 Subject to a de minimis disclosure threshold 13.0 Increasingly companies are having to make payments to executives on recruitment to compensate them for the forfeit of awards. Golden hellos (ex gratia payments made on recruitment) are less common and disliked by shareholders. Payments can only be made to board members if included in the pay policy. Some companies have found that their pay policies are not wide enough to cover payments they wish to make.

5 Survey results Section four: Renewing policy Survey results Section five: Claw-back Will you put your pay policy to Why might you change Have you ever operated Do you think you will ever operate shareholders in 2016? your policy? claw-back? claw-back? Yes 31.0 No 69.0 Changing talent pool? 22.0 Changing business strategy? 67.0 A deal on the horizon? 9.0 New or different competitors? 2.0 Yes 15.0 No 85.0 Yes 71.0 No 29.0 Under the regulations, pay policies only need to be put to shareholders every three years. Most companies are expected to put them to shareholders in 2017 but some will go in Companies are looking closely at how they might change their policy when they do go to shareholders. Listed companies are now required to include an ability to claw-back pay. However, in practice (outside financial institutions) claw-back is likely to be operated rarely. Having said that it appears that many companies do think that they will at some time operate claw-back.

6 linklaters.com This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or contact the editors. Linklaters LLP. All Rights reserved 2015 Linklaters LLP is a limited liability partnership registered in England and Wales with registered number OC It is a law firm authorised and regulated by the Solicitors Regulation Authority. The term partner in relation to Linklaters LLP is used to refer to a member of Linklaters LLP or an employee or consultant of Linklaters LLP or any of its affiliated firms or entities with equivalent standing and qualifications. A list of the names of the members of Linklaters LLP together with a list of those non-members who are designated as partners and their professional qualifications is open to inspection at its registered office, One Silk Street, London EC2Y 8HQ or on and such persons are either solicitors, registered foreign lawyers or European lawyers. Please refer to for important information on our regulatory position. 7388_Stg03/10.15