Services
Hewitt New Bridge Street’s multi-disciplinary team can help on all aspects of executive pay and share plans, both in the UK and internationally, in terms of:
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Executive Pay Benchmarking
We have a number of in-house databases. One holds published Report & Accounts data on directors’ pay (both executive and non-executive) in every FTSE All-Share company. Another – our “Total Reward Survey” – is a leading pay survey that holds data on the top 5 senior grades in over 200 participating companies. We can also draw upon information in Hewitt’s Total Compensation Measurement™ database which holds pay data on many other levels within an organisation.
We present our benchmark data clearly and transparently. We explain it simply. Where possible, we allow you to get behind the numbers. This allows all interested parties (the Remuneration Committee, executives, investors etc) to take comfort that a robust approach is being adopted.
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Annual Bonus Plan Design
Annual bonuses play an increasingly important role in executive remuneration packages.
We help companies to design and implement their short-term executive incentives. In addition, we advise on Deferred Bonus Plans, where a portion of the bonus is deferred beyond the end of the financial year, typically in shares.
Annual bonuses are also important at more junior levels within an organisation. We have advised Asda on its annual bonus plan for head office, store-based and depot staff.
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Executive Long-Term Incentive Plan Design
Share-based long-term incentive plans are another key feature of the executive pay landscape and one that attracts considerable debate.
We advise on the design and implementation of all types of long-term incentive plan which can take the form of traditional share options, conditional allocations of ‘free’ shares which vest depending on company performance under a Performance Share Plan, or a Share Matching Plan, where executives invest a bonus in shares and receive extra shares from the company, usually based on performance.
Long-term incentives should not be designed in a vacuum but must, instead, take full account of the Company’s particular circumstances. For example, we advised Cairn Energy on the redesign of its long-term incentive policy following the hive-off of its Indian business.
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All-Employee Share Plan Design
We are very experienced in designing share plans for the workforce as a whole which are structured efficiently in terms of tax, accounting cost and share usage while always reflecting and reinforcing the company’s culture and objectives.
We have assisted easyJet and Scottish & Newcastle in connection with their innovative all-employee share arrangements.
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Shareholder Liaison
Liaising with shareholders is a critical aspect of executive remuneration design.
Most shareholders now have their own "best practice" guidelines which they change regularly and which can vary between investors. Therefore, you may not be able to please all of the people all of the time.
We play an integral role in presenting a client's remuneration policy to its investors. We help draft consultation letters, prepare investor presentations and accompany our clients to face-to-face meetings with their shareholders.
Forewarned is forearmed. We know which investor guidelines are key and which are more aspirational. As a result, you will know the issues before they are raised by shareholders. There should be no surprises.
Persimmon is one of the many clients we have helped navigate their way through a shareholder consultation exercise.
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Financial Modelling
The cost of a remuneration policy (particularly the accounting cost of share plans) is another key issue. Nine of our consultants are qualified accountants who can construct financial models to show the cost impact of a pay policy and provide IFRS 2 share award valuations.
Please try our Black-Scholes Calculator* to give you a broad valuation of the “fair value” of an award (excluding any impact of performance conditions).
With regard to performance conditions, almost all long-term incentive plans for executives incorporate such conditions, typically based on a company’s total shareholder return (share price growth and dividends) performance relative to a peer group or its earnings per share growth.
In order to ensure that these plans are relevant and valued by executives, companies need to provide regular, clear communication of on-going performance against their performance conditions. Remuneration Committees also generally require independent verification of performance and the extent to which awards can vest.
We currently provide a performance monitoring service for total shareholder return / share price performance conditions for over 80 companies. Further information on this service can be obtained from your usual contact at Hewitt New Bridge Street. A couple of examples of the sort of information that we provide to companies to help them communicate with their executives are.
*Disclaimer
The Black-Scholes calculator is intended for educational purposes only. The results obtained from using the calculator are not to be taken as a recommendation to buy, sell or trade any particular security of any kind.
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Implementation
Hewitt New Bridge Street has one of the largest technical implementation teams in the UK, rivalling any "magic circle" law firm. Many of our consultants are qualified lawyers. We have implemented many share plans for our clients – both in the UK and internationally – for the likes of British Energy, Kingfisher, RBS and Royal & SunAlliance.
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Communication
However well designed, a pay policy will not work if it is not understood. Effective communication is key. We help our clients explain their remuneration strategy to their executives. This can be done through a client’s intranet, simple guidance booklets, CD ROMs, one-on-one presentations to executives or at management conferences.
Regular communication is also vital. How will a plan incentivise if participants do not know how they are performing against the targets? We provide around 80 clients with clear, simple performance updates which they can use to reinforce key messages.