PART 3

ARE YOU READY TO RUMBLE?

CEO PAY FOR PERFORMANCE

- 2017 FTSE100 PROXY SEASON –

21 June, 2017

INTRODUCTION

This is DirectorInsight’s third release of the 2017 FTSE 100 CEO Pay for Performance report. The previous

report “Are you ready to rumble Part 2” contained an analysis for 76 companies in the FTSE 100. This report

provides an analysis for 86 companies in the FTSE 100 as well as their CEO pay and financial performance. Using

a total shareholder return (TSR1) as the key financial performance metric, over a one, three and five year

period. It tracks changes in CEO’s compensation packages, their relative positioning against other FTSE 100

companies, and what the value of a 100 sterling investment is over a period of 3 years.

As the 2017 AGM season has begun to settle, the market is still witnessing some back and forth between

Investors and Issuers. So far 76 out of the 86 companies have held their AGM’s. 16 of these companies,

representing 21.05%, had more than 10% of votes cast against their remuneration reports. The influence of

Proxy advisors on these remuneration votes’ outcomes cannot be overemphasized. Notably this year,

Shareholders of WM Morrisons Supermarket Plc were advised by ISS to oppose its pay report. ISS concerns

were that a long-term share award for David Potts, Morrisons' chief executive, was increased from 240% of his

salary to 300% and performance targets were reduced. Shareholders responded accordingly and voted against

the remuneration report by 48.11%. There have also been times where Shareholders have discounted proxy

advisory firms’ recommendations. In a report before Tesco’s annual meeting this year, Pensions & Investment

Research Consultants (PIRC), advised shareholders to oppose the remuneration report, arguing that a 179%

increase in benefits for CEO Dave Lewis was “not considered appropriate”. PIRC also added that the long-term

incentive plan awarded during the year was also excessive, at more than 200% of salary. The proxy advisory

firm again took issue with the ratio of the chief executive’s pay to the pay of the average Tesco employee. It

estimated that the ratio was an “objectionable” 294 to 1. Despite these concerns, Shareholders supported the

remuneration report by 90.61%.

DIRECTORINSIGHT’S CEO PAY FOR PERFORMANCE TRACKER

The table below captures 86 companies in the FTSE 100 that have released their 2016 annual reports. Total

CEO Realised Compensation2 has been ranked against their peers in the index, as well as their respective 2016

TSR. The pay for performance analysis conducted by DirectorInsight shows that there is still a significant

misalignment between pay and performance in the FTSE 100 companies.

On a one year basis, 31.40% of the companies display negative misalignment

On a three-year basis, we find a proportion of 29.07% displaying a negative misalignment

On a five-year basis, 24.42% display negative misalignment.

1 TSR is defined here as the total return of a stock to an investor. It combines annual changes in share price (adjusted share price), dividends paid and expressed as an

annualized percentage. 2 Pay as used in this study refers to the Total figure comprising Base Salary, Benefits, Pensions, Cash Component of Annual Incentives, and Shares that vested in the year as

well as Options exercised in the year.

From the previous Analysis, which covered 76 Companies in the FTSE 100, the highest earning CEO was Sir

Martin Sorrell of WPP. This relative ranking has not changed with the now added 10 companies. The added

companies have also given an interesting angle to the analysis.

Provident financial Plc’s CEO earned a pay of GBP 6.9M in 2016 which is ranked 84th

percentile among the 86

companies. The TSR for the company was -12% for the financial year 2016 which is ranked 19th

percentile. From

2014 to 2016, pay decreased by 6% and TSR had a negative change of 70% over the period. From the table, we

see that GBP 100 invested in the company in 2014 will be worth GBP 197 in 2016. Vodafone’s CEO, Vittorio

Colao, had a Total Pay of GBP 6M was ranked 80th

percentile in the 86 companies. In 2016, the company’s TSR

was -6% which was ranked 25th

percentile among peers. Pay for the CEO grew by 107% from 2014 to 2016,

while the change in TSR was 5%. The table shows that GBP 100 Invested in Vodafone in 2014 and will be worth

GBP 90 in 2016.

Burberry has been under executive compensation scrutiny for some years now. In 2014, 52.68% of the

company’s shareholders did not back its compensation report. For the 2015 financial year, the CEO had his pay

decreased by 75% after the company faced declining revenues and profit for the year. The CEO of Burberry

(Christopher Bailey) received a total pay of GBP 1.9M, which positioned him at 22nd

percentile among the 86

companies. The company’s 2016 TSR was 29% (ranked 76th percentile). From 2014 to 2016, Pay decreased by

76% while TSR increased by 19%.

In our previous analyses, we saw that companies with relative conservative policies had a higher return for

shareholders. Capita Plc, one of the added companies seems to deviate from this. In 2016, Capita Plc’s CEO pay

in the amount of GBP 800,000 was bottom quartile along with the company’s TSR. Over a three period (2014-

2016) the company had a TSR performance of -44%. GBP 100 invested in Capita Plc in 2014 will be worth GBP

59 in 2016. This is the lowest relative investment return over a 3 year period currently in our FTSE 100 pay for

performance study. The company shares the spot with Rolls Royce Holding and Standard Chartered Plc.

FTSE 100

2016 2014-2016 2014-2016 Remuneration Report AGM Vote Outcomes

Total Realized

Compensation

in Million GBP

Compensation

Ranking 2016 TSR

Ranking of

Performance

Growth

2014-2016

TRC

Δ 2014-

2016 TSR

Compensation

Ranking

Ranking of

Performance

Total Realized

Compensation

(million GBP)

3Y TSR Compensation

Ranking

Ranking of

Performance

Current value

of GBP 100

invested in

2014

For %

Against %

WPP plc

41.4 100 20% 64 -2% 19% 55 67

152.6 43% 100

65 143

79.21 20.79

RELX PLC

12.7 99 24% 70 138% -2% 93 50

33.7 74% 97

90 174

92.88 7.12

Prudential plc

12.1 98 10% 50 -9% -4% 49 44

34.0 32% 98

58 132

88.86 11.14

Sky plc

11.6 96 -8% 21 137% -18% 92 31

24.7 30% 93

57 130

91.06 8.94

Reckitt Benckiser

Group plc

9.9 95 12% 54 -45% -2% 23 47

43.8 58% 99

78 158

87.38 12.62

BP p.l.c.

9.3 94 55% 89 -8% 67% 50 91

32.6 26% 96

52 126

97.05 2.95

TUI AG

9.2 93 0% 32

N/A(Due to Merger

-7% N/A(Due to

Merger 41

11.4 24% 51

46 124

*NA

Unilever PLC

8.2 92 16% 57 26% 6% 66 53

22.6 46% 91

67 146

98.14 1.86

Shire plc

8.0 91 0% 33 73% -59% 78 8

20.4 66% 87

81 166

93.22 6.78

Randgold Resources

Limited

7.8 89 56% 92 84% 40% 83 81

18.3 73% 84

87 173

97.84 2.16

Imperial Brands PLC

7.8 88 3% 38 195% -25% 94 27

13.9 76% 70

92 176

94.69 5.31

CRH plc

7.7 87 47% 88 217% 43% 97 82

12.9 101% 62

98 201

82.31 17.69

HSBC Holdings plc

7.4 86 32% 79 42% 36% 67 79

18.7 19% 86

44 119

96.47 3.53

AstraZeneca PLC

6.9 85 0% 35 88% -32% 84 21

18.4 41% 85

63 141

61.17 38.83

Provident Financial

6.9 84 -12% 19 -6% -70% 51 3

24.3 97% 92

96 197

95.57 4.43

Anglo American plc

6.3 82 287% 100 76% 293% 79 100

13.1 -3% 63

20 97

95.05 4.95

London Stock

Exchange Group plc

6.3 81 8% 46 392% -34% 99 20

11.8 90% 56

94 190

98.56 1.44

Vodafone

6.0 80 -5% 25 107% 5% 87 51

13.8 -10% 69

16 90

28-07-2017

Taylor Wimpey plc

5.8

79 -20% 8 -4% -46% 52 11

17.5 57% 80

76 157

98.14 1.86

Barratt Developments

plc

5.7 78 -21% 7 1% -60% 57 5

15.9 51% 77

70 151

98.25 1.75

Wolseley plc

5.7 76 38% 80 1% 27% 58 71

14.7 56% 72

75 156

98.11 1.89

British American

Tobacco p.l.c.

5.2 75 27% 73 4% 14% 61 59

13.2 61% 64

79 161

92.05 7.95

Mondi plc

5.1 74 29% 75 -2% 25% 56 70

15.3 74% 75

88 174

98.92 1.08

Compass Group PLC

4.8 73 31% 77 -23% 15% 36 61

16.5 67% 78

84 167

94.33 5.67

Intertek Group plc

4.8 72 27% 74 101% 52% 86 87

9.5 17% 36

43 117

96.76 3.24

Lloyds Banking Group

plc

4.6 71 -10% 20 -75% -7% 7 43

32.3 -16% 95

11 84

97.92 2.08

Legal & General Group Plc

4.4 69 -2% 26 6% -18% 62 29

12.7 29% 59

55 129

93.17 6.83

Hikma Pharmaceuticals PLC

4.3 68 -17% 14 59% -83% 76 2

9.5 63% 37

80 163

97.93 2.07

National Grid

4.1 67 6% 44 -15% -16% 44 32

11.2 39% 50

59 139

31-07-2017

Diageo plc

3.9 66 17% 58 -30% 22% 35 68

11.7 15% 53

38 115

94.82 5.18

Aviva plc

3.8 65 -1% 29 113% -12% 89 35

9.9 21% 39

45 121

97.70 2.30

Ashtead Group plc

3.8 64 44% 85 -44% -10% 24 39

14.8 118% 73

99 218

71.84 28.16

Intercontinental Hotels Group plc

3.8 62 45% 87 -45% 13% 21 58

13.3 100% 65

97 200

96.42 3.58

GlaxoSmithKline plc

3.7 61 22% 67 -31% 32% 34 76

15.8 15% 76

40 115

96.39 3.61

Schroders plc

3.7 60 4% 42 -9% -2% 47 49

14.4 26% 71

51 126

94.74 5.26

The Royal Bank of Scotland Group plc

3.6 59 -26% 5 44% -42% 70 14

8.5 -34% 31

5 66

99.60 0.40

Barclays PLC

3.5 58 5% 43 -66% 13% 10 57

17.6 -11% 82

14 89

97.22 2.78

RSA Insurance Group

plc

3.5 56 41% 83 111% 34% 88 78

7.6 50% 27

69 150

98.78 1.22

BAE Systems plc

3.4 55 23% 68 -19% 9% 39 56

11.0 55% 45

74 155

97.25 2.75

Informa plc

3.3 54 24% 69 83% 39% 82 80

7.1 43% 23

64 143

70.77 29.23

ITV plc

3.3 53 -19% 10 -17% -35% 40 18

12.3 25% 57

49 125

94.72 5.28

St. James's Place plc

3.2 52 4% 40 117% -11% 91 37

10.5 51% 43

71 151

99.44 0.51

Associated British

Foods plc

3.1 51 -17% 15 -56% -47% 14 10

16.7 16% 79

41 116

98.35 1.65

Direct Line Insurance Group PLC

3.1 49 -1% 27 -23% -30% 37 23

10.5 87% 44

93 187

99.32 0.68

GKN plc

3.0 48 11% 51 208% 17% 95 63

9.0 -4% 35

18 96

99.37 0.63

Smurfit Kappa Group plc

3.0 47 -18% 12 -65% -24% 12 28

18.0 13% 83

34 113

86.9 13.1

IAG

3.0 46 -25% 6 -50% -46% 16 12

13.5 15% 66

39 115

87.847 12.153

Bunzl plc

3.0 45 14% 56 -43% -10% 28 38

13.7 54% 67

73 154

97.77 2.23

Tesco PLC

3.0 44 38% 81 77% 79% 81 96

7.8 -36% 30

4 64

90.61 9.50

Centrica plc

2.8 42 14% 55 4% 29% 60 73

8.5 -21% 32

9 79

86.20 13.80

Royal Dutch Shell plc

2.7 41 59% 93 -84% 54% 2 90

22.3 26% 90

50 126

93.20 6.80

BHP Billiton plc

2.7 40 76% 98 -39% 99% 30 98

10.1 -15% 40

12 85

98.90 1.10

Standard Life plc

2.6 39 1% 36 -4% -15% 53 33

9.7 15% 38

37 115

97.47 2.53

Smith & Nephew plc

2.6 38 3% 39 -44% -38% 25 17

12.8 50% 60

68 150

98.85 1.15

Next Plc

2.5 36 -29% 2 -43% -60% 26 6

11.1 5% 47

26 105

99.60 0.40

Old Mutual plc

2.2 35 21% 65 -12% 16% 45 62

8.7 25% 33

47 125

72.03 27.97

Persimmon plc

2.1 34 -8% 23 -32% -42% 32 15

7.2 68% 25

85 168

90.19 9.73

Croda International

plc

2.1 33 7% 45 46% -4% 71 45

5.7 40% 19

62 140

97.36 2.64

Worldpay Group plc

2.1 32 -12% 18

NA(IPO) NA(IPO) NA(IPO) NA(IPO) 3.2 NA(IPO) 6

NA(IPO) NA(IPO) 98.59 1.41

Hammerson plc 2.1 31 -1% 30 -49% -25% 18 26 7.4 27% 26 53 127 99.41 0.59

Kingfisher

2.1 29 9% 49 43% 17% 68 64

5.5 0% 17

23 100

98.82 1.18

Hargreaves Lansdown

plc

2.0 28 -17% 13 -74% 6% 8 52

11.1 -3% 46

22 97

89.98 10.02

BT Group

2.0 27 -19% 11 -62% -28% 13 24

12.7 6% 58

28 106

12-07-2017

Wm Morrison

Supermarkets PLC

1.9 26 60% 94 51% 84% 73 97

4.9 3% 16

24 103

51.89 48.11

Coca-Cola HBC AG

1.9 25 25% 71 57% 54% 74 88

5.6 7% 18

33 107

20/6/2017

Merlin Entertainment

1.9 24 0% 31 47% -12% 72 34

4.0 30% 12

56 130

13-07-2017

Burberry

1.9 22 29% 76 -76% 19% 5 65

11.7 7% 55

31 107

13-07-2017

Rio Tinto plc

1.8 21 68% 95 -67% 77% 9 93

11.4 7% 52

32 107

91.79 8.21

Rolls Royce Holdings

plc

1.7 20 18% 62 -42% 48% 29 86

5.9 -44% 20

2 56

98.78 1.22

Sage Group plc

1.7 19 11% 52 -56% -8% 15 40

7.1 75% 24

91 175

90.90 9.10

Dixons Carphone plc

1.6 18 -27% 4

N/A(Due to Merger

-100% N/A(Due to

Merger 0

3.3 40% 9

61 140

94.28 5.72

Standard Chartered PLC

1.6 16 18% 61 -37% 44% 31 84

7.6 -44% 29

3 56

86.78 13.22

Pearson plc

1.5 15 18% 63 -17% 25% 41 69

4.5 -29% 13

6 71

34.59 64.51

Royal Mail

1.5 14 9% 48 -16% 30% 42 75

4.7 -7% 15

17 93

20-7-2017

Smiths Group plc

1.4 13 56% 90 -77% 79% 4 94

11.2 6% 49

27 106

97.82 2.18

Whitbread PLC

1.3 12 -12% 17 -83% -42% 3 16

10.3 7% 42

29 107

21/6/2017

J Sainsbury

1.3 11 1% 37 -47% 29% 20 74

6.3 -21% 22

10 79

05-07-2017

intu properties plc

1.3 9 -7% 24 -12% -32% 46 22

3.9 14% 10

35 114

99.63 0.37

Glencore Plc

1.2 8 207% 99 26% 208% 65 99

3.2 -3% 7

21 97

98.24 1.76

Antofagasta plc

1.1 7 44% 86 235% 46% 98 85

2.6 -10% 5

15 90

99.88 0.12

Fresnillo PLC

0.9 6 73% 96 15% 70% 63 92

2.5 67% 4

82 167

99.86 0.14

easyJet plc

0.9 5 -40% 1 -85% -54% 0 9

22.3 -27% 89

8 73

92.06 7.94

Capita PLC

0.8 4 -54% 0 -48% -61% 19 4

4.0 -44% 11

- 56

90.30 9.70

Admiral Group plc

0.7 2 17% 60 68% 9% 77 55

1.4 71% 3

86 171

94.92 5.08

Micro Focus

International plc

0.3 1 39% 82 1042% -2% 100 46

0.7 201% 2

100 301

85.65 14.35

Convatec Group Plc

0.2 0 NA(IPO) NA(IPO) NA(IPO) NA(IPO) NA(IPO) NA(IPO)

0.2 NA(IPO) 0

NA(IPO) NA(IPO) 97.94 2.06

The following charts show a company’s relative degree of alignment for CEO pay and TSR performance over a 1,

3, and 5 year period, against other FTSE 100 companies that are included in this pay for performance analysis.

The companies that are situated within the grey area are considered companies that have a strong connection

between pay and performance. The companies above and below the grey area, show a pay for performance

misalignment at this stage. Our first and second reports captured 50 and 76 companies respectively. The

analysis has now been expanded to a total of 86 companies in the FTSE 100.

With DirectorInsight’s Pay for Performance

alignment, approximately 31.40% of the 86

companies in the FTSE 100 show a

misalignment. Most companies again

maintained their negative misalignment with

the added companies. Sky, Tui, Taylor

Wimpey, and Imperial Brands, are examples

of companies that continue to show a

misalignment. National Grid, Vodafone

Group Plc and Provident Financial Plc are

newly added companies that are also

displaying negative misalignment.

Interestingly enough, of the added

companies, Burberry and Kingfisher show a

relative conservative policy. BHP Billiton, Rio

Tinto, and Glencore also maintained their

relative positive misalignment.

DirectorInsight’s Pay for Performance study

finds that over a three-year period (2014-

2016) 29.07%, display negative misalignment.

WPP, Prudential Plc, Reckitt Benckiser,

AstraZeneca, Vodafone, Lloyds Banking Group,

RBS, and Smurfit Kappa are examples of

companies that maintained negative

misalignment between pay and performance

from the one year study.

RELX, Provident Financial Plc, Taylor Wimpey,

Barratt Developments Plc, have also improved

on their degree of alignment. In the study over

one year, these companies displayed negative

misalignment. Over the three years study

(2014-2016), they displayed alignment

between pay and performance relative to the

other companies. CRH, Bae Systems, Informa

plc, St James Plc, Persimmon, and Croda,

Hammerson, are displaying relative positive

misalignment. This differs from the alignment

that was displayed in the one year study

Analysis for Pay for Performance on a five-

year period (2011-2016) also highlights some

changes. We note that Prudential, Reckitt

Benckiser, Unilever, AstraZeneca, Lloyds

Banking Group and Vodafone, consistently

display negative misalignment over one,

three and five years’ period of study. WPP

displays alignment between pay and

Performance over a 5 year period(2011-

2016). However, Some companies have

shifted their relative degree of alignment.

Shire Plc, Randgold and Diageo Plc, were

displaying relative alignment between pay

and performance in the three-year study.

Currently, they display negative

misalignment between pay and

performance. Wolseley plc, British American

Tobacco p.l.c., Mondi plc, Compass Group

Plc, Intertek Group Plc, Schroders and GKN,

are also examples of companies that

consistently displayed alignment between

pay over all periods of study i.e. One year,

Three Years(2014-2016), and Five

years(2011-2016)

APPENDIX

Our methodology on total realised compensation explained

The realised compensation includes all realised components of compensation in the year of interest. It is

defined as the sum of total indirect compensation realised and total direct compensation realised for one year.

It consists of base salary + benefits + other compensation + bonus + deferred cash bonus + deferred share

bonus + value of performance/restricted shares vested + value of performance/restricted options exercised.

Total realised pay is calculated based on performance indicators that have been met during the performance

period. Most companies clearly disclose the performance period and vesting period, and the percentage that

will be paid in the next year. For example, for shares that will vest on March 31, 2016 but where the

performance period ends at December 31, 2015, shares are included in realised compensation for the financial

year 2015. When the company doesn’t disclose the average share price over the last quarter, we use the

company year-end share price to calculate the value of the vested multiyear share packages. In line with UK

practices, adjustments are usually made in the following year when the company disclose the exact share price

on which the shares vested. For options, we calculate realised pay when the options have actually been

exercised. In the event there were two CEOs in a year for a company, for example due to a change in CEO, we

explored the companies on individual basis and annualized compensations depending on the issue at hand to

make the total realized compensation as realistic as possible.

Total Shareholder Return (TSR)

Total shareholder return is defined as the total return of a stock to an investor. It combines annual changes in

stock price and dividends paid and are expressed as an annualised percentage. This will be calculated over one

year (1Y), three year (3Y) and five year (5Y) period. The growth in 3 yr and 5 yr TSR is calculated by the

percentage points of difference between latest year and 3/5 year prior.

Please note that all figures have been rounded up in the table outlining the CEO pay for performance analysis.

Investment return of 100 sterling

This figure looks to calculate how much an 100 sterling company investment would be worth over a period of

time by indexing the TSR over multiple years.

Pay for performance Analysis

We conducted a study on CEO realised compensation to determine degree of alignment relative to peers in

the FTSE 100 on a 1, 3, 5 years basis. The degree of alignment is determined by subtracting the compensation

rank from the performance rank within a scope of +20 or -20. Results obtained on either side determine a more

generous or a conservative remuneration policy. Therefore for the three and five years’ study, the percentile

rank is calculated by the Total Realised Compensation over the period subtracted from the sum of the period

TSR performance.

Definition of financial years

FTSE 100 companies have different year end dates. The most common year end dates are displayed below;

31/12, 31/3, 31/7 and 30/9. The main rule applied is that in a specific year, financial year end dates until 31/3 is

reported as financial year of the previous year. All financial year end dates after 31/3 are reported as the year

in which the financial year ends.

This article is produced by:

Edna Frimpong, Governance Research Analyst

Aniel Mahabier, CEO DirectorInsight

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