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Top 100 Exec Pay Goes Down  - and Up!

The Manifest – MM&K Annual Survey of Executive Pay shows that the Shareholder Spring has clearly had an effect on remuneration committee thinking. This has been galvanized by regulatory intervention to reinforce investors actions. However, the single figure “accounting for pay” approach has created more uncertainty for shareholders. 

Total Remuneration 2013 – Key Takeaways

  • Shareholder Spring effect has reduced CEO pay awards by 7%, following a 5% reduction in the previous year.
  • Regulatory intervention has had a galvanising effect. Vince Cable’s efforts and threats of further legislation have helped in the reduction in CEO pay.
  • The accounting-based ‘Single Figure’ of total remuneration is not a true and fair view of pay. It dramatically understates the real amounts of remuneration that will be earned and should be revised.

The latest survey hows that top pay  awards have reduced for two consecutive years:  by -7% in 2013 and -5% in 2012. The findings are from research and analysis of the latest annual reports of FTSE100 companies.

Long Term Trends in Total Remuneration Awards Show Top Pay is Reducing

The graph below, of the average ‘Total Remuneration Awarded’ to CEOs of FTSE 100 companies, shows how awards topped out in 2011 and then the impact of the Shareholder Spring bringing awards down.

Total Rem Over Time











Why Does Manifest Use Total Remuneration Awarded (‘TRA’)?

The survey uses Total Remuneration Awarded or TRA as its primary pay governance measure and not the Single Figure.

TRA is a consistent measure of the value of all remuneration awarded in the year including long-term incentive awards (the largest component of executive pay), for which it uses the expected value of the award.

Total Remuneration Awarded:

  • Takes no account of share price performance;
  • Reflects the decisions of the remuneration committee in the latest year; and
  • Is what a remuneration committee can most affect in the pay governance process

What About The Single Figure?

The new Single Total Figure of Remuneration (‘Single Figure’) however tells a different story of pay which has “gone up” by 3%

That’s not too dis-similar to average earnings in the private sector, however the increase in the Single Figure would have been higher had it not been for large amounts of deferred pay in 2011 and 2012 inflating the Single Figure in prior years.

If the Single Figure, as defined in the UK government’s reforms, shows that pay has gone up – why not use the Single Figure?

Directors’ remuneration is complex, even with a Single Figure. The Single Figure is not a real figure as it includes estimates of the real amounts received. It is also inconsistent in its treatment of components of pay.

For example, the Single Figure contains an accountancy-like estimate of the expected value of the deferred bonus at the date awarded in respect of the year prior to when the deferred bonus is awarded. Shareholders and HMRC (‘the tax man’) do not think this way. Like the directors who receive the money, they look at the value when they actually get the money and look at the value of the shares at that time the pay is “Realised” not when it is awarded.

The Single Figure includes the actual amounts from LTIPs when they vest and values the shares at the time of vesting, which we think is sensible. However, it uses the same approach for options which is wrong because it does not take account of the actual gains over time.

This inconsistent treatment of executive pay is why Manifest says the Single Figure is not a true and fair view of pay and should be revised.

Although BIS consulted on the Single Figure definition, Manifest and MM&K’s believes that it was overly influenced by the International Accounting Standard’s Board views of how to measure compensation and remuneration costs, rather than looking at information from the shareholders’ point of view.

We are therefore calling on BIS revisit and revise the Single Figure definition and:

  • Include deferred bonus when it vests;
  • Include option gains when the option is exercised; and
  • Restore pensions-related disclosures

Top CEO Earnings or Total Remuneration Realised TRR

Looking at pay from the perspective of the taxman how much pay is taxable[1], is what the survey calls Total Remuneration Realised (‘TRR’). On this basis CEO pay went up by 15% in 2013.

In view of stock market performance over the previous three years, this is not surprising. It is the direct consequence of linking pay awards to stock market performance and paying a large proportion of pay in the form of company shares.

However, looking at TRR over 5 years we see a reduction in the average for FTSE 100 CEOs from £5.4 million in 2009 to £4.7 million in 2013 further evidence that shareholders focus on better remuneration is yielding positive results.

5 Year Averages of FTSE 100 CEO Pay – All Methods of Calculation

  Total Rem Awarded Total Rem Realised Single Figure of Total Rem Total Rem Awarded Total Rem Realised Single Figure of Total Rem
  £m £m £m % change of the average % change of the average % change of the average
2008 3.96
2009 3.90 5.41 4.22 -2%
2010 4.25 4.27 4.73 9% -21% 12%
2011 4.77 3.84 4.43 12% -10% -6%
2012 4.53 4.09 4.57 -5% 6% 3%
2013 4.23 4.72 4.70 -7% 15% 3%
  1. The trend of reducing TRA in 2012 and 2013 is clear. From £4.8m to £4.5m to £4.2m.
  2. The TRR of £5.4m in 2009 looks surprisingly high. However, the average LTI realised in 2009 was £3,074,000. A number of very high payouts influenced the figure (e.g. Reckitt, BG, Schroder, Tesco and Experian).
  3. Both the TRR and Single Figure went down by a similar figure in 2011, due to the increase in deferred bonus awards in 2011, of £328,000 off set by the lower amounts of LTI.

How Will Politicians Respond?

We can expect that politicians and NGOs will be quick to claim credit for this reduction in directors’ pay awards. However, the truth is that whilst their actions, and particular the regulatory response, did have a galvanising effect, the Shareholder Spring had already started the process and change was under way. Whilst the debate over the Single Figure added fuel to the fire (or possibly confusion), the truth was that fund managers already had the information they needed to take action from organisations such as Manifest[2] who have been providing comparable and insightful analysis for many years.

What Do the Single Figure Discrepancies Mean in Practice?

Using the Single Figure the top 10 FTSE100 CEOs are

Company Name Single Figure Total Rem
WPP plc Martin Sorrell  £ 29,846,000
Experian plc Donald Robert  £ 10,103,942
Prudential plc Tidjane Thiam  £   8,656,000
Schroders plc Michael Dobson  £   8,414,000
ITV plc Adam Crozier  £   8,365,000
HSBC Holdings plc Stuart Gulliver  £   8,032,000
Burberry Group plc Angela Ahrendts  £   7,995,000
BP plc Robert Dudley  £   7,951,563
Lloyds Banking Group plc António Horta-Osório  £   7,475,000
Randgold Resources Ltd Dennis Bristow  £   7,365,655

An illustration of difference between Total Remuneration Realised and the Single Total Figure of Remuneration, using hypothetical data, shows that sometimes the Single Figure can produce a higher figure, in this case because of the long-term incentive, which is counted earlier in the Single Figure than in Total Remuneration Realised (point of taxation).

  Single Figure of Total Rem Total Rem Realised Comments
Total 19.6 13.5  
LTIP 12. 7 6.4 TRR amount is £6.4m of LTIP which vested in 2013
Single Figure £12.7m is the amount that vested in 2014.
Deferred Bonus 2.1 2.3 For TRR amount is £2.3m of deferred bonus which vested in May 2013.
Single Figure £2.1 is the estimated value of the award made in 2014 in respect of 2013 performance.
Cash Bonus 2.1 2.1 SAME
Salary 1.1 1.1 SAME
Pension 0.5 0.5 SAME
Dividend Equivalent Payments 1.1 1.1 SAME

The Executive Pay Conundrum – How Should You Look At Executive Pay?

  • Pay is complex. There is also tension between what shareholders want, what is good for the company and society’s expectations.
  • There is much debate with shareholders about what they are paying for, but less about the amounts.
  • However it is the quantum (level/amounts/£$€s) that informs the political and media debate.

Paying For Performance – But Is It Really Performance?

Many companies peg their performance-based pay on stock market performance conditions such as Total Shareholder Return or Earnings per Share rather than strategic corporate performance measures.

Earnings per share, however can be artificially boosted by share buy-backs and so we wonder how many boards really understand the implications of share buy backs and the culture, ethics and behaviours this encourages over the long term.

The Problem of Share Buy-backs:

  • Increase earnings per share, the most common performance condition for variable pay.  Not all remuneration committees take account of this in setting incentive targets;
  • Boost share prices (by increasing demand with reduced supply);
  • Decrease share price volatility in the short term. When share price reduces, companies buy more of their shares, but when they go above the target range the company stops buying. Consequently, for the period of the buy-back share prices only vary in a narrow band.
  • Increase share price volatility in the long term (by increasing the ratio of debt to equity), which enhances the value of options and LTIPs;
  • Increase the leverage of debt versus equity. As tax is paid on dividends but not interest on debt this reduces the tax paid to government and increases the potential fat tail problem.

The issue of taxation of interest on debt is fundamental and the subject of much debate at European level. It is one reason why the numbers of companies on the main market is decreasing as the tax treatment of private equity businesses introduces a strong bias in their favour.

Executive Pay Data Definitions

No Single Figure will tell you all the answers. In assessing top pay it is necessary to look at:

  • Net present value of awards made in the year
  • Scenarios of future outcomes of awards made in the year, taking account of feasible changes in the share price – will the shareprice go up by 5% per annum or double in 18 months?
  • Scenarios of all historic awards including shares that are owned by the executive, with subtotals of those that are subject to future shareholder requirements and those that are unencumbered.
  • Actual payments/share values received (i.e. what the tax man looks at).
  • Potential lifetime earnings.

Total Remuneration Awarded

The Manifest/MM&K Total Remuneration Survey uses Total Remuneration Awarded as the primary basis of comparison. This is defined as the total of:

  • Salary and other fixed cash payments in the year
  • Cash bonuses paid or receivable in respect of performance in the year
  • The expected value of deferred bonuses that are awarded in respect of the year
  • The pension contribution or for defined benefit schemes the increase in the transfer value of pensions accrued (if disclosed) and benefits-in-kind provided in the year
  • The expected value of share options and other share plans awarded in the year.

Total Remuneration Realised

In some places, the basis of comparison is Total Remuneration Realised. This excludes deferred bonuses awarded in the year and the expected value of share options and other share plan awards in the year, but includes instead the amounts realised from LTIPs and deferred share schemes that vest in the year, plus gains on options exercised in the year. These amounts realised are from awards made in earlier years.

The Single Figure

The single figure is the sum of total fixed remuneration and total realisable variable remuneration (as stated below).

Total Fixed Remuneration

  • Salary and other fixed cash payments in the year
  • The value of pensions accrued (using a valuation of 20 times the increase in accrued benefit) and benefits-in-kind provided in the year

Total Realisable Variable Remuneration

  • Cash bonuses paid or receivable in respect of performance in the year plus the expected value of any deferred bonuses
  • The amounts realised from LTIPs that vest in the year
  • The realisable value of share options which have had exercise restrictions (such as performance conditions) lifted in the year.

During the post-vesting, pre-exercise period the share price can increase substantially and therefore the Single Figure will overstate the remuneration in the year in which options vest, but understate their true long-term value.


TRA and TRR use the increase in the transfer value of the accrued pension for defined benefit schemes, up until 2013. The Single Figure uses 20 times the increase in the accrued pension, as do TRR and TRA from 2013 onwards. This is a lower figure than the increase in the transfer value of the accrued pension for CEOs who are older, with long service and whose salaries have increased at faster than the standard assumptions used by actuaries in valuing pension benefits. The impact of this is difficult to quantify. (Our guess is an average of £200,000 to £300,000 in 2009 to 2012 when the average pension value was between £500,000 and £642,000; but no difference in 2013 when the average pension value had reduced to £317,000.)

More Information:

  1. The June 2014 survey analyses the latest annual reports of 574 companies. We include most of the companies with financial years ending 31st December 2013, thus making the report data the most up to date available.
  2. In this report, “2013” is used as shorthand for the latest financial year data Manifest hold for companies. Most of those companies have 31st  December year-ends.
  3. Data sourced from Manifest database as at June 2014. Data is based on public disclosures from the latest annual reports
  4. Not all directors have served a full year and nor have all companies been listed for a full financial year.

To order an advance copy of the survey please email: info@manifest.co.uk for more details.


 [1] This is not strictly true as some of pension is not paid until it is received, but this simplification may be more easily understandable and useful than a more detailed and complicated explanation.

[2] Eg FT May 10 2005, http://www.ft.com/cms/s/1/2fb60f42-c18b-11d9-943f-00000e2511c8.html#axzz36D6r9jfZ

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