Executive remuneration

Navigating the complex global landscape and the growing regulatory environment

26–29 October 2014

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Introduction

► In today’s session, we will cover:► The global evolution of “say on pay”► Learn about leading practices for achieving and driving business

performance► Practical examples of AXA’s ability to navigate this complex global

landscape

People and remuneration

strategy

Business challenges and

opportunity

Financial services and general regulation

Investor focus

Reputation, public perception and media scrutiny

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The recent decade demonstrates a global trend toward stronger say on pay in executive remuneration

► U.S. Securities and Exchange Commission (SEC)

► Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank)

► Sarbanes-Oxley Act (SOX)

► Minder Initiative

► Swiss Code of Obligations

► Swiss Code of Best Practice

► Directive on Corporate Governance

► Corporations Legislation Amendments Bill 2012

► FAS123R revised

► Department for Business, Innovation & Skills (BIS) regulation

► VorstAG

► German Corporate Governance Code (GCGC)

► InstitutesVergV

► 9 April 2014

► EU proposes a revision of the Shareholder Rights Directive (2007)

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Banking regulation has also continued to expand globally

Founded in the G20FSB principles, banking regulation globally has evolved to focus on sustainable risk and economic systems CRD III and CRD IV

Asset management

Banking andcapital marketsInsurance

AIFMDUCITS V

FSB principles

CRD III

CRD IVAIFMD & UCITS

FSB principles set global banking standard on approaches to remuneration including deferrals and clawbacks

Initial EU regulations

Solvency regulations have not evolved as quickly as expected; shifting insurance frameworks have resulted in a “wait-and-see” approach AIFMD: Alternative Investment Fund Managers Directive

UCITS: undertakings for the collective investment in transferable securities

FSB: Financial Stability Board CRD: Capital Requirements Directive

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Impact of conflicting stakeholder perspectives

• Organizational strategy has evolved with improving economy• Focus on compliance in 2013 may have resulted in less alignment

with business needsBusiness strategy

• Increased use of longer term incentives in balance of pay• Longer vesting/holding periods have increased time horizon• Consideration of post-employment holding requirements

Shareholder alignment

• Continued restraint on pay due to increased disclosure• Increased adoption of clawback/malus clauses• Broader focus on pay alignment with risk tolerance and appetite

Regulatory pressures

• Continued high level of focus on quantum/level of pay• Continued misinterpretation of salary vs. total pay, opportunity

and deliveryMedia and public perception

• Wider workforce needs alignment with executives• Disclosures have increased focus on broader employee base• Need for enhanced opportunity for true “value creators”

Talent market

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This is highlighted in EU’s proposed say on pay proposal

The updated Shareholder Rights Directive proposal states that shareholders of companies listed in the European Union are to be given:

i) A binding vote on executive remuneration policy every three yearsii) An annual nonbinding vote on how the policy has been implemented

► There is, however, varying impact from country to country

i) Key requirements for the executive remunerationreport

ii) Key requirements for the disclosed policy statement

Total remuneration received by each executive

How the policy links to the long-term interests of the company

Maximum amounts that can be awarded and the mix of fixed and variable pay

The relative change in over three years in remuneration Details on each remuneration element, including performance criteria for variable pay

Main contract terms, including notice periods and termination payments

Information on any reclaim of variable pay (e.g., clawback)

The ratio between the remuneration for the average executive and that for the average full-time employee below the executive level

Information about the pay decision–making process, including significant policy changes

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AXA’s ability to navigate this complex global landscape

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Legal perspective on compensation challenges

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Legal perspective on compensation challenges – recent challenges in Europe

► Clawbacks vs. illicit financial sanction of employees► Clawbacks set up in the United Kingdom, permitting to take back bonuses to bank

employees who were negligent, can be illicit in other countries.► For example, in France, bonuses, and more generally remuneration of employees,

cannot be conditioned to the employee’s good behavior. Negligence, wrong behavior and misconduct can only be sanctioned by disciplinary measures.

► Equal pay for equal work vs. differentiated reward for high talents► Principle established at the European Union level and is transposed in most

countries.► The challenge is to differentiate high performance with average performance, and

to comply with this principle. Objective criteria must be established and transparent. ► Principles of free movement of workers vs. social dumping.► There is still a problem against which the European Union seeks solutions. ► Difference of salaries and social security costs between European countries cause

social dumping. ► European Union tries to better monitor and regulate posting employees, to avoid

social dumping and to promote fair and efficient free movement of workers.

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Legal perspective on compensation challenges – works councils in Europe

► European countries: ► Staff representative bodies may be involved and disclosure of

compensation may be imposed in some countries (e.g., unions, Works Council, European Works Council, etc.).

► Examples of European countries with rules on transparency toward the staff representative bodies:► France: annual report to be delivered by the employer to the Works

Council related to the economic situation of the company that contains information related to the evolution of compensation.

► Germany: the Works Council is informed of all employees remuneration. ► Belgium: works councils and trade unions: right to information and

consultation on remuneration of executives in listed companies and autonomous public enterprises and supplementary pension schemes.

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Legal perspective on compensation challenges and mobility – key issues to consider

► Key issues to consider when moving employees across Europe:► Anticipate remuneration challenges by being well advised, considering

remuneration policies globally► Use variable pay and new flexibility opportunities to control HR costs► Use benchmarking with a peer group of companies when determining

compensation levels and structure► Consider local laws and the tax treatment of compensation► Consider pension benefits, and the timing of compensation which may

have an impact on social security charges► Remember works council and trade union requirements► Be legally sensitive to unexpected local rules► Be culturally sensitive to local cultural expectations

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Looking forward

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Longer-term implications

Focus Unintended consequences

Greater transparency in executivecompensation ► Visibility often results in increased pay

Demonstration of link between pay and performance

► Public and media perceptions often misinterpret information ► Challenge in balancing perspectives

Investor rights and engagement ► Investors are not always homogenous in their decision making► Fatigue in investors to manage the conflicting opinions

Performance focus ► Competitive disclosure of sensitive information

Average compensation ► Definition of average can be subjective ► Is a lower ratio better?

Corporate responsibility agenda ► Growing agenda resulting in difficulty keeping up to speed

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Key trends impacting remuneration policy

► Bespoke performance metrics► Increased usage of business unit

and geographic long-term incentive (LTI)

► Quantification and measurement of non-financial metrics

• s

► Demonstrate the alignment between business strategy and shareholder value

► Growing application of LTI vehicles► Quantifying metrics to connect

more with brand and customer

► Simplification in remuneration design

► Executive base salary increases being limited to those received by the wider workforce

► Continued communications to ensure alignment of reward

► Increases in pay will be linked to incentives — not fixed pay

► Clearer distinction between clawback and malus

► Increase in the number of vested long-term incentive plan (LTIP) awards

► Consideration of holding periods post termination

•

• s

► Growing application will likely reduce perceived value of awards, and will require further communication

► Increase of vesting and holding periods

Business alignment

► Improving levels of mobility and increased competition for talent

► Need to ensure that there is a globally consistent reward framework which is also market competitive

Investor focus

Regulatory requirements

Talent and workforce

Stakeholder perspectives Key trends Implications for talent and reward