Executive Directors’ RemunerationMM&K/Manifest Survey Seminar Launch

Monday 10 June 2013Agenda:• 5:00pm Registration, coffee and networking• 5:30pm Chairman’s Welcome and Opening Address• 5:35pm Keynote Presentations

Survey highlights - Cliff Weight, Director, MM&KShareholder engagements and voting results - Sarah Wilson, Chief Executive, Manifest

• 6:00pm Panel Debate with Cliff WeightSarah WilsonDr Daniel Summerfield, USSchaired by Deborah Hargreaves, with contributions from the floor

• 7:00pm Seminar ends followed by drinks

Survey ResultsCliff Weight, Director,

MM&K Remuneration Consultants

Agenda• Context• Definitions• Differences of Averages and Medians• Total Remuneration Realised • Total Remuneration Awarded• Comments on BIS proposals

2

Context - Corporate Governance Changes

• Voting– Advisory vote on payments made– Binding vote on future policy

• Disclosure– Single figure of total remuneration– 5+ year history of TSR, single figure, bonus %

and LTIP % vesting– Scenario analysis of future policy – No surprises

3

Communicating Pay to Shareholders- a window on the soul of the company

4

How directors and senior managers are remunerated provides an important window on corporate governance more generally.

•A well-managed process – with a properly constituted remuneration committee which operates independently, appoints expert, professional, independent remuneration consultants to assist it, listens to shareholders and management and evaluates their inputs – is a good sign that other corporate governance will be effective.

Process

•The choice of performance measures and their relative importance in the delivery of performance-related pay is the second window on corporate governance, as they indicate what is felt to be important in the company.

Performance measures

PensionNormally entitlement is

defined in contract of service and only changes with salary

level

Long term incentiveAwards decided by the

remuneration committee

Bonus opportunityRemuneration committee sets

max. and on-target opportunity (expressed in % of salary)

DIMENSIONS OF REMUNERATION

Salary(e.g. £1m)

Key issue: valuation Face value of shares? Expected value (rule of

thumb or Black Scholes?) Modelling for the future?

Realised valueCan be further deferral of LTI after performance conditions

are met

Realised

Time 0(Jan 01)

Time 1(Dec 31)

Time 3(+ 3 yrs or more)

Time n(After retirement) ¼ tax

free at retire-ment

¾ paid as pension until death of

executive and then widow(er)s pension

until their death

Realised remuneration

Pay award decisions

Performance

Deferred(poss. matched

grant if voluntary deferment)

Performance

MM&K, Y. Chahed & L. Goh (LSE), 2011

TOTAL PAY

Note: Total reported pay is driven by decisions made at different points in time and does not necessarily reflect current market conditions. Some users (e.g. press) use realised value from prior year grants to criticise pay increases

Defined Benefit (DB = x% of final salary) Value depends on accrual

rate, which drives the x% (eg 1/30th for each year of service)

Final salary (eg highest 12months in last three years)

OR Defined Contribution(DC = y% of salary)OR Cash Salary Supplement(SS = y% of salary)

Total Remuneration Survey Definitions

Realised AwardedSalary Paid in year SameBonus Paid for year SameDeferred Bonus Value Vested in year Value DeferredLTIPs Value Vested in year Expected ValueOptions Gain on Exercise Expected ValuePensions Complicated Same

6

Total Remuneration Survey Definitions

Realised AwardedSalary Paid in year SameBonus Paid for year SameDeferred Bonus Value Vested in year Expected ValueLTIPs Value Vested in year Expected ValueOptions Gain on Exercise Expected ValuePensions Complicated Same

7

Exercise price

Option Gain

Share price

TimeVests at 3 years

Total RemunerationRealised Awarded LSE Listing

RulesBIS – single figure

Salary Paid in year Same Same Same

Cash Bonus Paid for year Same Same Same

Deferred Bonus

Value Vested in year

Value Deferred Value Deferred Value Deferred

LTIPs Value Vested in year

EV FV at award Value Vested for year

Options Gain on Exercise

EV FV at award Gain at date of vesting

Pensions ComplicatedFor DB = increase in TV of accrued pension

same Actuarial GN11 20x inc in accrued pension

EV = Expected ValueFV = Face Value 8

Top 100 Average and Median Increases, and Average of Increases

TRR Latest

TRR Previous Year % Increase

109,832 2,516,023 -96% 2,336,182 9,025,143 -74% 7,349,176 23,792,621 -69% 2,536,849 6,180,209 -59% 4,545,009 9,182,308 -51% 1,835,560 3,395,423 -46% 2,329,894 4,282,149 -46% 6,441,480 9,818,324 -34% 6,591,441 9,711,926 -32% 2,246,648 3,240,120 -31% 4,098,580 5,800,967 -29% 2,941,209 3,754,024 -22% 7,645,027 9,744,134 -22% 1,994,024 2,498,631 -20% 4,622,238 5,707,865 -19% 1,460,121 1,782,000 -18% 4,443,208 5,388,297 -18% 4,504,627 5,324,919 -15% 6,124,609 7,151,274 -14% 2,209,720 2,558,453 -14% 1,996,000 2,265,000 -12% 4,447,348 4,952,044 -10% 8,696,797 9,641,836 -10% 1,869,952 2,066,975 -10% 1,888,658 2,004,774 -6% 1,588,541 1,674,625 -5% 895,600 940,403 -5% 549,000 562,768 -2% 1,966,600 2,010,900 -2% 1,519,384 1,548,605 -2% 1,808,000 1,795,339 1% 2,851,291 2,800,783 2% 2,500,000 2,454,000 2% 373,759 358,000 4% 4,439,287 4,208,869 5% 2,268,174 2,133,357 6% 817,351 755,449 8% 3,036,158 2,796,333 9% 5,446,492 4,923,923 11% 8,337,658 7,526,992 11% 1,306,139 1,160,369 13% 3,046,465 2,601,449 17% 1,653,000 1,408,000 17% 5,277,165 4,425,682 19% 3,886,898 3,254,579 19% 2,782,811 2,295,874 21% 8,213,682 6,417,717 28% 3,492,186 2,699,773 29% 9,358,567 7,201,168 30% 4,235,260 3,157,706 34% 8,018,252 5,885,402 36% 6,650,854 4,846,845 37% 9,690,658 6,986,177 39% 3,377,163 2,360,307 43% 2,485,878 1,620,125 53% 4,591,365 2,979,269 54% 4,846,112 3,137,000 54% 3,012,788 1,899,403 59% 5,080,095 3,199,851 59% 7,960,340 4,876,024 63% 3,477,608 1,873,835 86% 6,234,928 3,323,751 88% 8,188,834 4,060,510 102% 12,162,890 5,885,277 107% 5,067,376 2,310,948 119% 3,852,128 1,737,214 122% 6,140,665 2,676,000 129% 4,410,273 1,671,984 164% 9,724,005 3,636,731 167% 4,516,814 1,618,361 179% 5,759,667 2,035,000 183% 6,376,572 1,900,554 236% 16,901,241 4,937,859 242% 8,353,092 1,935,194 332%

Increase in average 10%Median increase 8%Average of increases 30%

-200%

-100%

0%

100%

200%

300%

400%

TOTAL REMUNERATION REALISED -% INCREASES

9

2012 £4.25m2011 £3.86m

0%

2%

4%

6%

8%

10%

12%

14%

16%

<30 31-100 101-300 301-1,000

1,001-3,000

3,001-10,000

>10,001

Company Turnover £ millions

UpperQuartileMedian

LowerQuartile

Salary Increases – Latest Data

Top 100 – Average Salary2011 £849,5092012 £861,594% increase 1%Median increase 2.7%

10

CEO Salary + Bonus Awarded- Average of FTSE 100.Shift to deferred bonus results in reduction in cash bonus, but

masks future increases in deferred bonus payouts

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Deferred Bonus

Cash Bonus

Salary

188%

74%93%

168%

Deferred Bonus is value deferred in the year, on this slide11

LTIPs – How they work - Example

2009 2012 2012

AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % of Max VESTING + DIVIDENDS

62% +30%

Max £1.9m

Expected Value £1.167 m

£1,198,0001,556,000

12

LTIPs Realised

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013

FTSE

100

Inde

x

Impact of share prices on LTI payouts

2008 LTIP awards had 8% increase in share prices

13

LTIPs – Comparison of 2011 Realised and 2012 Realised

2009 2012 2012

AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % VESTING + DIVIDENDS

62% +30%

Expected Value £1.167 m 1,198,000 1,556,000

2008 2011 2011AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE

% VESTING + DIVIDENDS39% +15%

Expected Value £1.480 m 959,000 1,102,000

14

Max £1.9m

Max £2.5M

LTIPs – Comparison of 2011 Realised and 2012 Realised

2009 2012 2012

AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % VESTING + DIVIDENDS

62% +30%

Expected Value £1.167 m 1,198,000 1,556,000

2008 2011 2011AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE

% VESTING + DIVIDENDS39% +15%

Expected Value £1.48 m 959,000 1,102,000

15

Max £1.9m

Max £2.5M

+41%-21%

£849,509 £861,594

£581,481 £506,701

£794,063 £640,261

1,535,973 2,157,448

£0

£500,000

£1,000,000

£1,500,000

£2,000,000

£2,500,000

£3,000,000

£3,500,000

£4,000,000

£4,500,000

2011 2012

CEO Total Remuneration Realised - Average of FTSE 100increases by 10% to £4.25 million

LTI

Cash Bonus

Other

Pension

Salary

+40%

-19%

-13%

+1%

16LTI includes deferred bonus realised, in this slide

17

Total Remuneration

Realised AwardedMEDIAN +8% +1%AVERAGE +10% -5%

Due to payouts realised (vested) from LTIs awarded 3+ years ago

Due to Rem Com decisions in the year.Awarded = expected value of awards

SURVEY RESULTS - Summary

2011 2012£0

£500,000

£1,000,000

£1,500,000

£2,000,000

£2,500,000

£3,000,000

£3,500,000

£4,000,000

£4,500,000

£849,509 £861,594

£581,481 £506,701

£794,063 £640,261

1,535,973 2,157,448

CEO Total Remuneration Realised - Average of FTSE 100increases by 10% to £4.25 million

LTI

Cash Bonus

Other

Pension

Salary

+40%

-19%

-13%

+1%

5,896 6,268 6,2965,165

3,5674,391 4,814

5,618 6,221 6,457

4,5625,412 6,014 5,700 5,898

£0

£500,000

£1,000,000

£1,500,000

£2,000,000

£2,500,000

£3,000,000

£3,500,000

£4,000,000

£4,500,000

£5,000,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total Remuneration Awarded and FTSE 100 Index (excludes dividends)

LTIP EV

Otpions EV

Def Bonus

Bonus

Other Remuneration

Pension

Salary

FTSE100

FTSE 100 Index at 31 Dec

Moderation in Award Levels

• Total Remuneration Awarded up just 1% for FTSE 100 CEOs (Median). Average reduced by 5%.

• Is this the effect of the Shareholder Spring?• Impact of deferred bonus understates pay by

about 8%

19

FTSE 100 Average CEO Pay v. Company Size – BIGGER NOT BETTER

• Indexed data back to 1998.• Pay has increased as has turnover and since 2003 market cap. • However pay has increased much faster than the FTSE 100 index.• What might change the long term trends?• Can pay keep rising?

20

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -

50

100

150

200

250

300

350

400

450

500

Total Remuneration Awarded (EV) £

Turnover £bn

Market Capitali-sation £bn

FTSE 100 Index in 000's

CEO costs 2.7 basis points• CEO total rem = £4.5 million _______________________• Market cap = £17 billionFigures are for average The top 100 CEOs

21

= 0.027%

2121

CEO costs 2.7 basis points• CEO total rem = £4.5 million _______________________• Market cap = £17 billionFigures are for average The top 100 CEOs

22

= 0.027%

2222

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -

0.5

1.0

1.5

2.0

2.5

3.0

3.5

CEO Pay / Market Cap (bp = basis points)

BIS Proposal re 5/10 year disclosure- example

Single Figure of Total

Remuneration£000

Annual variable element award

rates against maximum

opportunity

Long term incentive vesting

rates against maximum

opportunity 2013 CEO2 4,516 83% 100%2012 CEO2 4,771 90% 0%2011¹ CEO2 2,250 93% 0%2011 CEO1 4,245 82% 100%2010 CEO1 3,958 93% 02009 CEO1 3,895 89% 67%

DISCLOSURE CONSEQUENCES

Year Salary Bonus LTI Realised

Total Remuneration

Received

Total Remuneration

Awarded

1 1 1 0 2 42 1 1 0 2 43 1 1 0 2 44 1 1 0 2 45 1 1 10 12 4Total 5 5 10 20 20Average per year

1 1 2 4 4

24

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-40%

-30%

-20%

-10%

0%

10%

20%

30%

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

Comparison of FTSE 100 index performance and av-erage Top 100 CEO Remuneration

FSTE 100 index % change

Total Remuneration Awarded

Total Remuneration Realised

Incr

ease

in t

he F

TSE

100

inde

x in

the

yea

r (%

)

CEO

Pay

in £

25

Ratio CEO to Average Employee

26

Trend Data for Total Remuneration of CEO and Average Employee

YearCEO Total

Remuneration Awarded

Average Employee Earnings

CEO as Multiple of Average Employee

2002 £2,599,551 £24,182 107

2003 £2,786,143 £24,767 112

2004 £3,087,028 £25,955 119

2005 £3,304,533 £27,254 121

2006 £3,308,814 £30,828 107

2007 £3,876,921 £25,677 151 (see note)

2008 £3,958,000 £30,994 128

2009 £3,895,000 £32,521 120

2010 £4,245,000 £34,176 124

2011 £4,770,946 £35,744 133

2012 £4,516,474 £33,967 133

% increasesCEO Total

Remuneration Awarded

Average Employee Earnings

CEO as Multiple of Average Employee

2003 7% 2% 5%

2004 11% 5% 6%

2005 7% 5% 2%

2006 0% 13% -11%

2007 17% -17% 41%

2008 2% 21% -15%

2009 -2% 5% -6%

2010 9% 5% 4%

2011 12% 5% 7%

2012 -5% -5% 0%

cumulative 02-12

74% 40% 24%

average p.a. 02-12

6% 3% 2%

The FTSE100 companies employ around six million people.The apparent 2007 drop in employee remuneration is largely caused by G4S plc entering the FTSE 100. It employs over half million people with a low average pay.

0

20

40

60

80

100

120

140

160

£0

£1,000,000

£2,000,000

£3,000,000

£4,000,000

£5,000,000

£6,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

CEO

as

Mul

itple

of A

vera

ge E

mpl

oyee

CEO Total Remuneration Awarded

Average Employee Earnings

CEO as Multiple of Average Employee

CEO Total Remuneration Awarded and Average Employee Earnings