LIFE IN THE BOARDROOM - mm-k.com · Welcome and introduction by Paul Norris of MM&K 2015 Survey...

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LIFE IN THE BOARDROOM BREAKFAST SEMINAR

Agenda

Welcome and introduction by Paul Norris of MM&K

2015 Survey highlights and 2016 timetable by Jonathan Brigginshaw of MM&K

The evolution of the role of the chairman and NEDs and their relationship with executive management by Richard Moon

Forum led by Damien Knight of MM&K

Closing summary by Paul Norris

Life in the BoardroomThe chairman and non-executive director survey

2015 survey highlights & 2016 timetable

Jonathan Brigginshaw

LIFE IN THE BOARDROOM BREAKFAST SEMINAR

Life in the Boardroom Survey 2015

25th anniversary

285 participants

•133 chairmanships

•593 board appointments

Market research April-May 2016

More than 200 responses

(up from 106 in 2015)

What would you like to see? Ownership-specific

Extent of shareholder involvement / activism

Importance of ESG issues and burden of related disclosure

Growing compliance burden - red tape

Conformance with full governance code in AIM companies

Practice in achieving main market type disclosure

What would you like to see? Ownership-specific

% time and cost of PE involvement in the Board and business

Tax-efficient exits for Founders

Ability/or not to raise extra capital

Mix of pay in NFP organisations vs commercial enterprises

Use of performance-related pay for top team in charities

What would you like to see? General views

“Dimensions being brought together, eg: Organisation size / sector / geography / fees”

“Explore the issue of 'independence' as currently defined by the UK Corporate Governance Code. To what extent can it be meaningfully measured / does it help boards deliver shareholder value?”

“It’s very difficult to understand the drives in a company purely from ownership”

“It’s an excellent survey for a profession which needs to remain current”

Topics you found less useful

2015 survey findings

Fees

Total fees vs turnover 2015

Cumulative total fee increases 2005-2015

AIM

FTSE 100

FTSE 250

Small Cap

Cumulative total fee increases 2005-2015

AIM

FTSE 250

FTSE 100

Small Cap

CHAIR

Cumulative total fee increases 2005-2015

AIM

FTSE 250

FTSE 100

Small Cap

CHAIR

CEO Total Rem. Realised

CEOSalary

Same-incumbent fee movements 2014-2015FTSE 100

Lower

QuartileMedian

Upper

Quartile

Chairman 0% 2% 7%

All NEDs 0% 4% 11%

FTSE 250Lower

QuartileMedian

Upper

Quartile

Chairman 0% 3% 7%

All NEDs 0% 4% 11%

Small CapLower

QuartileMedian

Upper

Quartile

Chairman 0% 1% 7%

All NEDs 0% 2% 8%

AIMLower

QuartileMedian

Upper

Quartile

Chairman 0% 0% 10%

All NEDs 0% 0% 16%

Time commitments

Rising governance demands – your views

“Too much time and even more energy is being

taken up by governance processes, leaving too

little time for conceptual thinking and strategy.”

“Some stability in regulation and legislation would be most welcome. Most NEDs need some

catch up time if we are to provide the support owed

to our companies.”

Time commitments - Chairmen

£10m-£30m

£100m-£300m

£1,000m+

Turnover bands:

Time commitments - NEDs

Turnover bands:

£10m-£30m

£100m-£300m

£1,000m+

Do NEDs receive sufficient training to cope with rising governance demands?

2016 timetable

23 June – EU referendum

July – Invitation to participate via email

Sept – Questionnaire submission deadline

December – Full report published

The evolution of the role of the chairman and NEDs and their relationship with executive management

Richard Moon

LIFE IN THE BOARDROOM BREAKFAST SEMINAR

Forum

Damien Knight

LIFE IN THE BOARDROOM BREAKFAST SEMINAR

Format of forum

• Audience views on a number of subjects

• Short introduction to each subject

• I’ll pose some questions

• But please express whatever views you wish

• Chatham House rules

Please introduce yourself by describing the ownership sector(s) in which you hold appointments

Subjects

1. Evolution of NED role and reward

2. Executive pay simplification

3. Engaging with investors

1. Evolution of NED role and reward

Cumulative total fee increases 2005-2015

AIM

FTSE 250

FTSE 100

Small Cap

CHAIR

CEO Total Rem. Realised

CEOSalary

Time commitments - NEDs

Turnover bands:

£10m-£30m

£100m-£300m

£1,000m+

Questions

1. What is the experience of the audience in the changing demands of the role?

2. Is the existing board model still fit for purpose?

3. Despite the statistics from our survey, is there a growing gap between what NEDs are expected to do and how they are paid?

4. How could the fee model be improved?

•2. Executive pay simplification

• Investment Association (ex ABI) Working Group initiated September 2015

• Members:

• Nigel Wilson, L&G Chairman

• Russell King, Rem Co chair, Aggreko and Spectris

• Helena Morrisey, CE0 Newton IM and Chair of IA

• Edmund Truell, Chairman Strategic Advisory Board of Lancashire and London Pensions Parnership

• David Tyler, Chairman, J Sainsbury and Hammerson

Investment Association Working Group

• Started with 50-60 stakeholder interviews

• Produced an Interim Report in April

• Now conducting 20-25 round table discussions in May

• Final report “early summer”

Interim Report

• The current approach to executive pay in UK listed companies is “not fit for purpose”. Poor alignment of interests between executives shareholders and the company

• Pay comparisons, remuneration consultants and plan complexity have driven disproportionate rises in executive pay

• Clear on some solutions:─ better reporting of incentive targets

─ better engagement of fund managers and companies remuneration committees should be more accountable

─ total fees to rem co advisers should be disclosed

• LTIPs are seen as the main problem, but the Working Group is less clear on the structural solution, and so is consulting on alternative long-term alignment structures.

• Alternatives offered are:

─ Restricted shares (ie shares with no performance conditions)

─ Shares grants based on performance at grant (eg deferred bonus)

• Share options not mentioned! (common in AIM companies)

• Strong encouragement for flexibility:

─ Remuneration committee discretion to flex down or up!

─ Design of plan and choice of measures to fit company business and strategy

Ironic situation:

─ Over-reliance on relative TSR LTIPs was encouraged by ABI “best practice”

─ Moving to fit for purpose design and measures will increase complexity and possibly lead to higher levels of performance payout.

Questions

1. What does “fit for purpose” mean to you?

2. Is issuing restricted shares going to improve alignment?

3. What are your views on share options?

3. Shareholder engagement

?

Questions

1. How well is the dialogue going?

2. What are the barriers and how could the dialogue be improved?

3. How can trust be improved (both ways) between shareholders and non-executive directors?

4. Are there lessons that can be learned from each other by companies with different ownership models?

LIFE IN THE BOARDROOM BREAKFAST SEMINAR

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