HEALTH WEALTH CAREER MERCER WEBCAST EUROPEAN EXECUTIVE REMUNERATION TRENDS 2015 MERG PULSE SURVEY HIGHLIGHTS June 25 th, 2015
TODAY S SPEAKERS Peter Boreham Senior Executive Rewards Consultant UK/Europe London +44 20 7178 6993 Peter.boreham@mercer.com Caroline Peyre Senior product manager for the Mercer's Executive Remuneration Guides - Europe Paris +33 1 55 21 38 83 Caroline.peyre@mercer.com Questions Please type your questions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for. To submit a question while in full screen mode, use the Q&A button on the bottom right-hand side of your screen. To submit a question while in half screen mode, use the Q&A panel on the bottom right-hand side of your screen. CLICK HERE TO ASK A QUESTION TO ALL PANELISTS Feedback Please take the time to fill out the feedback form at the end of this web briefing so we can continue to improve. The feedback form will pop-up in a new window when the session ends. www.mercer.com/webcasts View past recordings and sign up for upcoming webcasts MERCER 2015 11 June 26, 2015
AGENDA EUROPEAN EXECUTIVE REMUNERATION TRENDS 2015 MERG PULSE SURVEY HIGHLIGHTS Participant Profile Base Salary Reviews Short-term Incentive (STI) Programs Long-term Incentive (LTI) Programs Pay Mix and New Models Q&A MERCER 2015 2
2015 MERG PULSE HIGHLIGHTS PARTICIPANT PROFILE MERCER 2015 3
PARTICIPANT PROFILE 51 participants from 41 unique organisations have participated in the Mercer Executive Remuneration Guide Pulse Survey. Organisation Type Industry 31% Parent Retail & Wholesale, 4% Other Non- Manufacturing, 4% Life Sciences, 6% Insurance/ Reinsurance, 2% Banking/Financial Services, 2% Consumer Goods, 29% Subsidiary Energy, 8% 69% Other Non-Durable Goods Manufacturing, 10% Other Durable Goods Manufacturing, 14% Services (Non- Financial), 10% High Tech, 12% Source: Mercer Executive Remuneration Pulse Survey June 2015 MERCER 2015 4
2015 MERG PULSE HIGHLIGHTS BASE SALARY REVIEWS MERCER 2015 5 MERCER 2015 5
BASE SALARY REVIEWS 2012-2015 SALARY REVIEWS ACTUAL AND FORECASTED SALARY FREEZES 50% 45% 2012 2013 2014 2015 2016 forecast 40% 35% 30% Percentage of organisations 25% 20% 15% 10% 5% 18% 16% 14% 19% 7% 7% 8% 11% 13% 10% 8% 6% 6% 3% 3% 0% Direct Reports to CEO (Level 2) Direct Report to Level 2 (Level 3) Direct Report to Level 3 (Level 4) Source: Mercer Executive Remuneration Pulse Surveys October 2012, May 2013, June 2014, June 2015 MERCER 2015 6
BASE SALARY REVIEWS FACTORS DETERMINING INDIVIDUAL SALARY INCREASES & ACTUAL SALARY REVIEWS AWARDED IN 2015 (REPORTED BY ORGANISATIONS IMPLEMENTING SALARY INCREASES) Individual performance 85% Survey data/market benchmark/position in salary range 76% 2013 2014 2015 2016 Forecast Organization performance 61% 3,0% 3,0% 3,0% 3,0% 2,7% 2,9% 2,8% 2,6% 2,5% Inflation 2,0% 2,0% 2,0% 2,0% 2,0% 2,0% 2,0% 2,0% 2,20% Job level Other 1,0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0,0% CEO Direct Reports to CEO (Level 2) Direct Reports to Level 2 (Level 3) Direct Reports to Level 3 (Level 4) Source: Mercer Executive Remuneration Pulse Surveys May 2013, June 2014, June 2015 MERCER 2015 7
2015 MERG PULSE HIGHLIGHTS SHORT-TERM INCENTIVE (STI) PROGRAMS S MERCER 2015 8 MERCER 2015 8
SHORT-TERM INCENTIVE PROGRAMS PRIMARY DRIVERS FOR MAKING CHANGES TO STI PROGRAMS Align with guidelines from institutional shareholder / regulators or legal requirements 11% 45% Align with corporate governance best practices / industry / peer group practices 36% 44% Differentiate awards based on individual performance Retain key / top talent Reduce costs Prepare for the uncertain business outlook in 2015 Other 0% 10% 20% 30% 40% 50% Top Executives Other Executives Source: Mercer Executive Remuneration Pulse Survey June 2015 MERCER 2015 9
SHORT-TERM INCENTIVE PROGRAMS METHODS TO DETERMINE STI AMOUNT FOR 2015 Payments determined by results only remain prevalent but discretion is increasingly used Top Executives Other Executives 2014 2015 2014 2015 Payments will be determined solely by results 86% 71% 88% 74% Discretion (upward) may be used to determine actual payout 5% 13% 4% 11% Discretion (downward) may be used to determine actual payout 3% 11% 3% 11% Uncertain 7% 5% 5% 5% No. of organisations 76 38 75 38 Source: Mercer Executive Remuneration Pulse Survey June 2015 MERCER 2015 10
SHORT-TERM INCENTIVE PROGRAMS CHANGES TO THE WEIGHTING OF PERFORMANCE MEASURES IN STI PROGRAMS IN 2015 VS. 2014 Same trends for Top Executives and Other Executives. Predominance of increase of Financial measures at the Corporate level. Top Executives Other Executives Corporate (financial) 45% 36% Corporate (financial) 18% 44% 44% 11% Corporate (non-financial) 30% 70% Corporate (non-financial) 25% 63% 13% Business unit/division (financial) 30% 60% 10% Business unit/division (financial) 33% 44% 22% Business unit/division (non-financial) 10% 70% 20% Business unit/division (non-financial) 22% 44% 33% Individual 80% 20% Individual 11% 56% 33% 0% 20% 40% 60% 80% 100% Increase No Change Decrease 0% 20% 40% 60% 80% 100% Increase No Change Decrease Source: Mercer Executive Remuneration Pulse Survey June 2014 MERCER 2015 11
SHORT-TERM INCENTIVE PROGRAMS CHANGES TO THE FORM OR TIMING OF PAYOUTS UNDER STI PROGRAMS Payouts for STI programs remain mostly paid in cash. Have Made/Are Considering Making In 2014 In 2015 Awards will be fully paid in cash 69% 66% Awards will be partially paid in cash 15% 6% Portion of the award will mandatory be paid in shares or share units 11% 6% Executives can select to receive a portion of the award in shares or share units Use of mandatory deferral but the award will not be subject to the achievement of future performance goals 11% 3% 7% 9% Use of mandatory deferral and the award will be subject to the achievement of future performance goals 3% 6% Use of malus conditions (prior to vesting) 7% 6% Use of clawback (after vesting) 8% 15% Use of variable pay cap 20% 35% Source: Mercer Executive Remuneration Pulse Survey June 2014, 2015 MERCER 2015 12
PRESENTATION TITLE HERE 2015 MERG PULSE HIGHLIGHTS LONG-TERM INCENTIVE (LTI) PROGRAMS MERCER 2015 13
LONG-TERM INCENTIVE PROGRAMS PRIMARY DRIVERS FOR MAKING CHANGES TO LTI PROGRAMS Retain key / top talent Align with corporate governance best practices / industry / peer group practices 56% 52% 52% 67% Differentiate awards based on individual performance Align with guidelines from institutional shareholder / regulators or legal requirements Reduce costs Manage share usage / share reserve Respond to recent market share volatility Prepare for the uncertain business outlook in 2015 0% 10% 20% 30% 40% 50% 60% 70% Source: Mercer Executive Remuneration Pulse Survey June 2015 Top Executives Other Executives MERCER 2015 14
LONG-TERM INCENTIVE PROGRAMS ACTIONS FOR THE MEASURES AND GOAL-SETTING IN THE PERFORMANCE SHARE/UNIT OR CASH-DENOMINATED LTI PROGRAMS Have Done/ Are Considering Doing In 2014 In 2015 Use 1- or 2-year performance goal(s) followed by time-based vesting to the end of the full performance cycle 15% 8% Use a series of 1-year performance goals that are set each year, with payouts at the conclusion of the full performance cycle 14% 9% Use multi-year performance goal(s) that is (are) fixed for the duration of the performance cycle 21% 37% Use a mix of 1-year and multi-year performance goals Change measures used (e.g., add, subtract or refine) Extend performance cycle (e.g., increase from 3 to 4 years) Other 7% 9% 32% 5% 5% 9% 6% 6% Source: Mercer Executive Remuneration Pulse Survey June 2014, June 2015 MERCER 2015 15
LONG-TERM INCENTIVE PROGRAMS CHANGES TO THE WEIGHTING OF PERFORMANCE MEASURES IN PERFORMANCE SHARE/UNIT OR CASH-DENOMINATED LTI PROGRAMS IN 2015 Increase No Change Decrease No. of organisations Weighting of relative performance 3% 93% 3% 29 Weighting of absolute performance 4% 96% 0% 26 Weighting of market-based measures 4% 96% 0% 26 Weighting of financial measures 17% 83% 0% 29 Source: Mercer Executive Remuneration Pulse Survey June 2015 MERCER 2015 16
LONG-TERM INCENTIVE PROGRAMS ACTIONS THAT HAVE BEEN/WILL BE TAKEN BY ORGANISATIONS WITH RESPECT TO LTI GRANTS IN 2015 Have Done/Are Considering Doing Top Executives in 2014 In 2015 Differentiate grant sizes based on individual performance 28% 46% Use special retention grants 23% 33% Reduce participation in the LTI program 4% 20% Increase participation in the LTI program 22% 12% Other 7% 13% Have Done/Are Considering Doing Other Executives in 2014 In 2015 Differentiate grant sizes based on individual performance 36% 50% Use special retention grants 30% 31% Reduce participation in the LTI program 13% 31% Increase participation in the LTI program 26% 15% Other 11% 13% Source: Mercer Executive Remuneration Pulse Survey June 2014, June 2015 MERCER 2015 17
PRESENTATION TITLE HERE 2015 MERG PULSE HIGHLIGHTS PAY MIX AND NEW MODELS MERCER 2015 18
NEW MODELS USED TO DEAL WITH EXECUTIVE COMPENSATION IN LIGHT OF THE DIFFICULT MARKET ENVIRONMENT EUROPE 2014 2015 Strengthened the linkage between performance management and compensation 34% 51% No change related to difficult market environment 37% 26% Decreased payout for lower performance ratings 18% 20% Included more non-financial performance measures 12% 17% Increased payout for highest performance ratings 15% 14% Increased the difficulty/toughness of performance conditions 8% 14% Changed the expected distribution of performance ratings 11% 9% Introduced/strengthened malus/clawback conditions 5% 9% Increased the use of Human Capital Metrics in decision making 3% 9% Created a separate bonus pool for high performers 6% 6% Other 6% 6% Improved base salary management systems 17% 3% Introduced individual risk related factors in performance management 2% 3% Reduced the difficulty/toughness of performance conditions 8% 0% Source: Mercer Executive Remuneration Pulse Survey June 2014, June 2015 MERCER 2015 19
PAY MIX CHANGES TO THE MIX OF PAY BETWEEN BASE SALARY, ANNUAL BONUS AND LTIS SINCE 2012 Increase the weight of base salary Increase the weight of LTI Increase the weight of bonus Increase the weight of benefits 16% 15% 14% 12% 11% Percentage of organisations 10% 8% 6% 4% 2% 2% 9% 9% 8% 4% 2% 6% 5% 4% 4% 3% 5% 8% 3% 0% Europe 2012 Europe 2013 Europe 2014 Europe 2015 Source: Mercer Executive Remuneration Pulse Surveys October 2012, May 2013, June 2014, June 2015 MERCER 2015 20 20
QUESTIONS? Peter Boreham Senior Executive Rewards Consultant UK/Europe London +44 20 7178 6993 Peter.boreham@mercer.com Caroline Peyre Senior product manager for the Mercer's Executive Remuneration Guides - Europe Paris +33 1 55 21 38 83 Caroline.peyre@mercer.com Questions Please type your questions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for. To submit a question while in full screen mode, use the Q&A button on the bottom right-hand side of your screen. To submit a question while in half screen mode, use the Q&A panel on the bottom right-hand side of your screen. CLICK HERE TO ASK A QUESTION TO ALL PANELISTS Feedback Please take the time to fill out the feedback form at the end of this web briefing so we can continue to improve. The feedback form will pop-up in a new window when the session ends. www.mercer.com/webcasts View past recordings and sign up for upcoming webcasts MERCER 2015 21 June 26, 2015 21
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