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Executive Directors’ Remuneration MM&K/Manifest Survey Seminar Launch Monday 10 June 2013

Executive Directors’ Remuneration MM&K/Manifest Survey Seminar Launch Monday 10 June 2013. Agenda: 5:00pm Registration, coffee and networking 5:30pm  Chairman’s Welcome and Opening Address

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Executive Directors’ Remuneration MM&K/Manifest Survey Seminar Launch Monday 10 June 2013

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  1. Executive Directors’ RemunerationMM&K/Manifest Survey Seminar LaunchMonday 10 June 2013 Agenda: • 5:00pm Registration, coffee and networking • 5:30pm  Chairman’s Welcome and Opening Address • 5:35pm  Keynote PresentationsSurvey highlights - Cliff Weight, Director, MM&KShareholder engagements and voting results - Sarah Wilson, Chief Executive, Manifest • 6:00pm  Panel Debate with Cliff Weight Sarah Wilson Dr Daniel Summerfield, USS chaired by Deborah Hargreaves, with contributions from the floor • 7:00pm Seminar ends followed by drinks

  2. 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

  3. 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

  4. Communicating Pay to Shareholders- a window on the soul of the company • How directors and senior managers are remunerated provides an important window on corporate governance more generally.

  5. Realised remuneration Pay award decisions DIMENSIONS OF REMUNERATION Time 0(Jan 01) Salary Long term incentive Awards decided by the remuneration committee Pension Normally entitlement is defined in contract of service and only changes with salary level Bonus opportunity Remuneration committee sets max. and on-target opportunity (expressed in % of salary) (e.g. £1m) Performance Performance Time 1(Dec 31) Realised Deferred (poss. matched grant if voluntary deferment) • 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) • Key issue: valuation • Face value of shares? • Expected value (rule of thumb or Black Scholes?) • Modelling for the future? Time 3(+ 3 yrs or more) Realised value Can be further deferral of LTI after performance conditions are met 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 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 MM&K, Y. Chahed & L. Goh (LSE), 2011

  6. Total Remuneration Survey Definitions

  7. Total Remuneration Survey Definitions Share price Option Gain Exercise price Time Vests at 3 years

  8. Total Remuneration EV = Expected Value FV = Face Value

  9. Top 100 Average and Median Increases, and Average of Increases 2012 £4.25m 2011 £3.86m

  10. Salary Increases – Latest Data Top 100 – Average Salary 2011 £849,509 2012 £861,594 % increase 1% Median increase 2.7%

  11. 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

  12. LTIPs – How they work - Example Max £1.9m 1,556,000 Expected Value £1.167 m £1,198,000 2012 2012 AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % of Max VESTING + DIVIDENDS 62% +30%

  13. LTIPs Realised

  14. LTIPs – Comparison of 2011 Realised and 2012 Realised Max £1.9m Expected Value £1.167 m 1,556,000 1,198,000 2012 2012 AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % VESTING + DIVIDENDS 62% +30% Max £2.5M Expected Value £1.480 m 1,102,000 959,000 2008 2011 2011 AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % VESTING + DIVIDENDS 39% +15%

  15. LTIPs – Comparison of 2011 Realised and 2012 Realised +41% -21% Max £1.9m Expected Value £1.167 m 1,556,000 1,198,000 2012 2012 AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % VESTING + DIVIDENDS 62% +30% Max £2.5M Expected Value £1.48 m 1,102,000 959,000 2008 2011 2011 AWARD X PERFORMANCE CONDITIONS + SHARE PRICE CHANGE % VESTING + DIVIDENDS 39% +15%

  16. LTI includes deferred bonus realised, in this slide

  17. SURVEY RESULTS - Summary Due to payouts realised (vested) from LTIs awarded 3+ years ago Due to Rem Com decisions in the year. Awarded = expected value of awards

  18. 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. CEO costs 2.7 basis points = 0.027% • CEO total rem = £4.5 million _______________________ • Market cap = £17 billion Figures are for average The top 100 CEOs 21 21

  21. CEO costs 2.7 basis points = 0.027% • CEO total rem = £4.5 million _______________________ • Market cap = £17 billion Figures are for average The top 100 CEOs 22 22

  22. BIS Proposal re 5/10 year disclosure- example

  23. DISCLOSURE CONSEQUENCES

  24. Ratio CEO to Average Employee

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