The committee wants our executive directors’ remuneration to be competitive with those of directors and executives in similar positions in comparable companies.
For benchmarking purposes, we review remuneration by reference to the UK and US market depending on the relevant market or markets for particular jobs.
We look separately at three comparator groups. First, we use a select peer group of FTSE 100 companies with very substantial overseas operations. These companies are of a range of sizes around Pearson, but the method our independent advisers use to make comparisons on remuneration takes this variation in size into account. Secondly, for the US, we use a broad media industry group. And thirdly, we look at the FTSE 20-50, excluding financial services.
We use these companies because they represent the wider executive talent pool from which we might expect to recruit externally and the pay market to which we might be vulnerable if our remuneration was not competitive.
Market assessments against the three groups take account of those factors which Towers Watson’s research shows differentiate remuneration for jobs of a similar nature, such as financial size, board membership, reporting relationships and international activities.
For benchmarking purposes, comparison with practice in other organisations and consistency with survey data, the main elements of remuneration are valued as follows:
| Element of remuneration | Valuation |
|---|---|
| Base salary | Actual base salary |
| Annual incentive | Target level of annual incentive |
| Bonus share matching | Expected value of matching award based on 50% of target level of annual incentive |
| Long-term incentive | Expected value of long-term incentive award |
| Pension and benefits | Cost to company of providing pension and other benefits |
| Total remuneration | Sum of all elements of remuneration |
Note: Expected value means our independent advisers’ assessment of the awards’ net present value taking into account the vesting schedule, risk of forfeiture and their view of the likelihood that any performance target will be met.