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Executive remuneration Update ...
SARA Breakfast – September 2012
www.pwc.co.za
PwC
Agenda
Latest research on CEO Total Package
Latest PwC LTI Survey
Research on the Psychology of Incentives
Latest Executive Directors Report
2
September 2012
PwC
Latest Research on CEO Total Reward
• Research on local companies Total Reward conducted by PwC and Business Leadership SA.
• Gathered information on Guaranteed package, Short Term Incentives and expected at-grant value of annualised Long Term Incentives.
• Similar information was gathered for UK, US and BRIC companies of similar size to our large local companies (market capital of GBP 10B)
3
Setptember 2012
PwC
CEO Total Reward in SA, UK, US and BRIC
4
September 2012
0
10
20
30
40
50
60
70
LTI Rmil
STI Rmil
Guaranteed Pay Rmil
PwC
CEO Pay Mix
5
September 2012
0%
LTI% of TR
STI% of TR
GP% of TR
PwC
Latest PwC LTI Survey ...
6
September 2012
PwC
Latest PwC LTI Survey ... Instruments used ...
7
February 2011
0% 5% 10% 15% 20% 25% 30% 35%
Options
Share appreciation rights
Conditional shares
Forfeitable shares
Deferred bonus award
Voluntary acquisition of shares with match
Credit purchase share ownership plan
Other
PwC
Use of performance conditions
8
February 2011
0% 5% 10% 15% 20% 25%
Options - no PCs
Options - with PCS
Share appreciation rights - no PCs
Share appreciation rights - with PCs
Conditional shares - no PCs
Conditional shares - with PCs
Forfeitable shares - no PCs
Forfeitable shares - with PCs
Deferred bonus award - no PCs
PwC
LTI performance vesting conditions ...
9
February 2011
Performance conditions Percentage
Earnings per share (EPS) / Headline earnings per
share (HEPS) 32%
Total Shareholder Return (TSR) relative to peers 22%
Strategic/non-financial criteria 15%
Return on Capital Employed (ROCE) 10%
Share price relative to peers 7%
Absolute Total Shareholder Return (TSR) 7%
Cash flow 5%
Revenue/growth 2%
PwC
Vesting periods ...
10
February 2011
0%
10%
20%
30%
40%
50%
60%
70%
80%
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Chief Executive
0%
10%
20%
30%
40%
50%
60%
70%
80%
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Top Executive (excluding CEO)
PwC
PwC Global Study on the Psychology of Incentives
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February 2011
PwC
PwC Global study on the Psychology of Incentives
12
September 2012
PwC 13
September 2012
PwC
Latest PwC Executive Directors publication ...
14
September 2012
PwC
Latest PwC Executive Directors’ Survey ...
• Fourth edition of our executive directors report released in June 2012
• Report considers:
- Prescribed officers & female representation on boards
- Holistic approach to implementation of long-term incentives
- Trends in remuneration paid to executive directors
• Data focuses on 373 JSE-listed companies and is based on publicly available information as at 30 April 2012
• Analysis by reference to market capitalisation of companies as well as four main industries – financial services, basic resources, industrial and services
• Analysis for AltX also provided
15
June 2012
PwC
Remuneration – where are we?
• Increases in remuneration levels during 2011/12 reporting period – both TGP (median 6-8%) and short-term incentives
• Varies considerably from industry to industry
• For wider based employees – TGP increases over the same period was 6.7% - 7.2%
• Focus will continue to be on variable pay – differentiating between performance awards and retention of critical skills
• STI payments to CEOs of large caps rose significantly
• Bonus capping?
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June 2012
PwC
Remuneration – Pay mix
• What is the typical reward mix?
• For large-cap companies, the best practice reward mix for on-target performance is represented in the graph alongside
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June 2012
PwC
Remuneration – Pay mix
• Actual fixed and variable pay mix – heavily weighted towards variable pay
• Actual variable pay is greater than the on-target variable pay levels
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June 2012
PwC
Variable pay – STI
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June 2012
PwC
Variable pay – LTI
• Practices in large-cap companies
• Full share-type plans remain more common than option-type plans
• Significant increase in deferred bonus plans and stand alone retention plans
20
June 2012
PwC
A governance storm or light drizzle?
Local
• Companies Act
• King III amendments
• Code for Responsible Investing in South Africa (CRISA)
• Business Leadership South Africa (BLSA)
Global
• UK
• Department for Business, Innovation and Skills (BIS)
• Capital Requirements Directive (CRD4)
• Australia
21
June 2012
PwC
Profile of an executive director
ACI status
• 16% of executive directors are ACI (up from 10%)
• Compare with 36% for non-executive directors
22
June 2012
PwC
Remuneration trends – TGP (large cap)
CEO – basic resources
• Most subdued increase from prior year
• Median level of R8,4 million (+6,1%)
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June 2012
PwC
Remuneration trends – TGP (large cap)
CEO – financial services
• Increase at all levels
• Better 2011 after a tough 2010
• Median level of R5,9 million (+9,6%)
• Noted a change in pay models in the developed economies
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June 2012
PwC
Remuneration trends – TGP (large cap)
CEO – industrial
• Experiencing mixed fortunes
• Increases at all levels but lower than in prior years
• Median level of R16,8 million (+7,3%)
• Largely affected by dual listed companies who remunerate directors in foreign currency
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June 2012
PwC
Remuneration trends – TGP (large cap)
CEO – services
• Very broad industry
• Retail sector experiencing strengthening results
• Median level of R6,18 million (+10,7%)
26
June 2012
PwC
Remuneration trends – TGP (AltX)
CEO
• Difficult economic conditions
• Upward trend with some increases exceeding market norms but these are not major shifts
• Median level of R1.53 million (+8,9%)
27
June 2012
PwC
In closing.....
• Executive remuneration levels are still cautiously rising
• Regulatory changes and economic conditions continue to raise challenges
• More change is still to come :
- Increased focus on corporate performance dictating remuneration
- Remuneration disclosure is improving but is to be more meaningful
- Shareholder activism is growing
28
June 2012
Questions?
This publication has been prepared for general guidance on matters of interest only, and does
not constitute professional advice. You should not act upon the information contained in this
publication without obtaining specific professional advice. No representation or warranty
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(Pty) Limited its members, employees and agents do not accept or assume any liability,
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© 2012 PricewaterhouseCoopers (“PwC”). All rights reserved. In this document, “PwC” refers
to PricewaterhouseCoopers Tax Services (Pty) Limited which is a member firm of
PricewaterhouseCoopers International Limited, each member firm of which is a separate legal
entity.
Martin Hopkins: +27 11 797 5535 [email protected]
