Ownership & Alignment

Transcription

1 Ownership & Alignment Retaining the incentive through the governance haze Matthew Findley Robert Head

2 Introduction The importance of ownership and alignment The thickening governance haze malus and clawback post-vesting holding periods share ownership guidelines All good ideas by themselves but. Impact on perceived value The Investment Association Executive Remuneration Working Group Making the right decision

3 From the beginning Rationale behind long-term incentives Choice of performance metric Duration of performance period Investor aspirations and company preference Role of recent governance measures in filling the void

4 Malus and clawback Malus reduction/forfeiture of unpaid remuneration Clawback recovery of remuneration already paid Corporate Governance Code Financial services Recent corporate failings The emergence of broader provisions Increasing investor scrutiny Revolution or evolution? Approaches to global implementation

5 Post-vesting holding periods No sale periods Driven by Fidelity but now wider traction Prevalence within FTSE 100/FTSE 250 Interaction with remuneration policy Design issues 5 years from grant to sale or 5 + 0? Application following termination Empower the remuneration committee

6 Share ownership guidelines (1) Requirement to hold shares of a particular multiple of salary Corporate Governance Code New(-ish) say-on-pay rules GC100 December 2014 Statement Investors generally expect that reporting should follow the [GC 100] Guidance. In particular, how the remuneration committee enforces compliance with any shareholding requirements or guidelines should be disclosed... September 2013 Guidance

7 Share ownership guidelines (2) The Investment Association Executive directors and senior executives should build up significant shareholdings in companies. NAPF ISS Remuneration committees should expect executive management make a material long-term investment in shares of the businesses they manage support NAPF and pay "particular attention" in deciding whether to approve a remuneration policy include as to whether the shareholding requirement is a minimum of 200% of base salary

8 Share ownership guidelines (3) Investment Association/best practice Unvested awards Unrestricted shares Shares subject to malus/clawback/holding period X Enforcement

9 Case study Pearson Remuneration policy Principles Sustainability & affordability Pay for performance Alignment

10 Case study malus and clawback Annual and long-term incentives Potential triggers Specified, but broad, circumstances Capable of applying to all participants Approach to enforceability concerns UK International Duration Two-year clawback window post-vesting

11 Case study mandatory deferral of vested shares Principle 3-year performance test and vest 5-year hold Practice Mandatory restriction on participants ability to dispose of the 75% of vested long-term incentive shares that are released after three years (other than to meet personal tax liability) for a further two years Remaining 25% of vested shares to be subject to continuing employment over the same period

12 Case study share ownership guidelines Purpose Policy CEO: 300% of salary Other directors: 200% of salary Executive committee: 100% of salary Monitoring and application

13 Case study - shares that count Shares bought freely in the open market and held Stock options exercised and held Restricted shares released and held Restricted shares vested but held pending release under a restricted share plan All-employee plan shares acquired and held Dividends paid in shares and held Similar shares held by the executive s spouse and/or dependent children

14 Case study the deal Timing/build-up Measurement PDMR reporting and restrictions Dealing with below board PDMRs

15 Case study remuneration in action 2014 report on directors remuneration Shareholding by senior executives demonstrates commitment to sustained performance and long-term value creation and alignment with shareholders interests. David Arculus Chairman of the remuneration committee

16 Emerging from the haze Do your malus and clawback provisions remain appropriate? Should you have a post-vesting holding period? What is the right level of share ownership guidelines? Balance and understanding the role of the remuneration committee and reward 2016 AGM season pressure on annual remuneration report? 2017 AGM season area of focus Monitor/contribute to the Investment Association Executive Remuneration Working Group remunerationgroup@theinvestmentassociation.org

17 Thank you Matthew Findley Robert Head +44 (0)

18 Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) authorised and regulated by the Solicitors Regulation Authority, and by the appropriate regulatory body in the other jurisdictions in which it operates. The word partner, used in relation to the LLP, refers to a member of the LLP or an employee or consultant of the LLP or any affiliated firm of equivalent standing. A list of the members of the LLP, and of those non-members who are designated as partners, is displayed at the LLP s registered office: 30 Crown Place, London EC2A 4ES, United Kingdom. We use 'Pinsent Masons' to refer to Pinsent Masons LLP, its subsidiaries and any affiliates which it or its partners operate as separate businesses for regulatory or other reasons. Reference to 'Pinsent Masons' is to Pinsent Masons LLP and/or one or more of those subsidiaries or affiliates as the context requires. Pinsent Masons LLP 2015 For a full list of our locations around the globe please visit our websites: