scottish exhibition and conference centre - … · the secl roles included in this report are as...

Scottish Exhibition and

Conference Centre

Review of specific remuneration matters

November 2012

Contents 1 Introduction and Background .................................................................................. 1

2 Executive Summary ................................................................................................ 4

3 Current remuneration .............................................................................................. 6

4 Remuneration History ........................................................................................... 11

5 Considerations and recommendations going forward ........................................... 23

6 Comparator Data ................................................................................................... 26

6.1.1 Base Salary ............................................................................................................ 27

6.1.2 Annual bonus ........................................................................................................ 27

6.1.3 Long term incentive plan ...................................................................................... 28

6.2.1 Arms-Length External Organizations (“ALEOs”) ................................................ 28

a) CEO remuneration ................................................................................................ 29

b) Senior management team ...................................................................................... 31

6.2.2 Companies with links to Local Government ......................................................... 33

6.2.3 Chief Officials of Local Authorities ..................................................................... 34

6.3.1 Comparator arenas ................................................................................................ 34

6.3.2 Scottish Convention Centres ................................................................................. 35

6.3.3 UK Convention Centres ........................................................................................ 36

7 Current Economic and Financial Environment ..................................................... 38

Appendices Appendix 1: Historic remuneration/financial data comparison

Appendix 2: Information list

This draft report is issued by Deloitte on the following conditions. By proceeding to read this draft the reader confirms his/her understanding of, and agreement to, these conditions.

This report is in draft form and so may subsequently change. Deloitte accepts no responsibility or liability to any person for its content, nor for related oral advice and views provided in presentations, discussions, meetings or telephone conversations.

This draft report has been prepared for the exclusive use of those entities agreed by Deloitte to be Beneficiaries of the report and must be used solely for the purpose agreed by Deloitte. It must not be disclosed to any other person except to the extent expressly permitted under the terms of Deloitte’s engagement.

Disclosure of all or any part of this draft report to any other person is on the basis that, to the fullest extent permitted by law, no Deloitte Entity, including Deloitte, accepts any duty of care or liability of any kind to the recipient. No restrictions on disclosure apply where, and to the extent that, they are prohibited in particular circumstances or jurisdictions.

“Deloitte Entities” means Deloitte Touche Tohmatsu Limited (“DTTL”) and all other entities that are members of the DTTL worldwide network and each of their subsidiaries and affiliates, predecessors, successors, assignees and all partners, principals, members, owners, directors, employees, subcontractors and agents, and Deloitte Entity means any of them.

1

1 Introduction and Background

1.1 Introduction and scope

This report has been prepared for Glasgow City Council (“GCC”) to review specific aspects of the remuneration of the directors of Scottish Exhibition Centre Limited (“SECL” or the “Company”). The period under review is from 2006 to the present date. The scope of the review is as follows:

To prepare a report (the Deliverable) for GCC covering the following areas:

A. To identify the current salary, performance payments and overall packages in place for the senior

management team.

B. To set out how have these changed since 2006 and, to the extent possible based on information

supplied by GCC/SECL, to identify the rationale for such changes.

C. To suggest salary and remuneration comparators that should be considered by GCC when

considering packages for these roles.

D. To identify how salaries and performance payments compare with industry practice with specific

reference to the impact of the current economic/financial environment. For the purpose of this

review we have examined any survey data or other relevant data that we hold that we deem

relevant; reviewed remuneration data at other GCC owned Arms-Length External Organisations

(“ALEOs”) and data for other public sector bodies that GCC has supplied; and reviewed other

publicly available data applying to similar roles in the public and private sector. It is recognised that

for these purposes “industry” will not be limited to other exhibition / conference providers, although

to the extent that data in relation to packages paid to senior executives at such organisations is

available it will be identified and referenced. The scope of this report does not include operating a

private or bespoke survey.

E. To make observations on remuneration packages that will encourage long term growth of the

business. This will be based on and in the context of GCC’s assessment of what constitutes

successful and sustained growth of the business and related success factors over the medium and

longer term.

We have been supplied with information from GCC and SECL as set out in Appendix 2. This includes a

summary of extracts of minutes from the meetings of the board of SECL (the “Board”) and the

remuneration committee of SECL (the “Remuneration Committee”), together with copies of remuneration

reviews commissioned by SECL in 2006, 2009 and 2012 (the latter not finalised).

2

1.2 Overview of report content

For ease of reference, the content of the main sections of this report are set out below.

Section 2 Executive Summary.

Section 3 Sets out the current salaries of the directors of SECL; the remuneration paid/earned in the financial year ended 31 March 2012; an overview of the current remuneration policy; and summaries of the current annual bonus and long term incentive plan.

Section 4 Summarises the history and rationale behind the current remuneration policy. Two main sources of information have been used, firstly the extract minutes from the meetings of the Board and the Remuneration Committee and secondly the remuneration reviews prepared by FWB. This section also provides some commentary on the current arrangements and its rationale, based on our experience.

Section 5 Makes suggestions as to the approach SECL and GCC, as its main shareholder, may wish to consider when determining remuneration policy going forward. It summarises the strategies and goals of SECL going forward, GCC’s view of what constitutes successful and sustained growth for SECL and how these factors could be incorporate into the remuneration policy.

Section 6 Provides the comparative data (as set out in the scope of this review above).

Section 7 Provides comments on the current remuneration environment generally.

Appendices Appendix 1: Historic total remuneration and key financial data


1.3 Roles included in this report

The SECL roles included in this report are as follows:

Chief Executive Officer (“CEO”)

Operations Director

Finance Director

Commercial Director

Marketing and Sales Director

Our understanding of the roles and responsibilities of the roles are based on discussions with GCC, SECL

and the information provided to us.

SECL has provided details of the remuneration packages for each of the incumbents above for the period

subject to this review.

1.4 Background to SECL and its relationship with GCC

SECL is a private company which manages the Scottish Exhibition and Conference Centre. SECL was

incorporated in 1984 and the SECC opened in 1985.

The concept of the SECC was developed by the Scottish Development Agency (“SDA”), recognising the

success of the NEC in Birmingham and how such a concept could be applied to bring economic benefits to

Glasgow. The business was originally sponsored by the SDA as a public/private partnership.

3

The public side of the partnership reflected a view that public sector support was required to make the

project viable as well as the wider benefits for the community. The private side reflected a desire to apply

private sector commerciality and obtain the backing of private sector investors.

The original shareholders were Glasgow District Council (16%), Strathclyde Regional Council (16%),

Scottish Development Agency (34%) and the private sector (34%). However, SECL began to experience

difficulties due to over optimistic forecasts and over gearing. Ultimately and following the reorganisation of

the SDA and local government, the private shareholding was diluted to just under 10% and the major

shareholder is GCC, owning the balance of approximately 91%.

SECL has operated as a commercial private trading company, with its own board and governance

arrangements, operating with a large degree of autonomy and independence (within the agreed

governance framework).

SECL operates in 3 main markets- concerts and events; conferences and corporate meetings; and trade

and consumer exhibitions. It also operates an exhibition organising company and a ticketing business.

The business has grown over the years and a new phase of development is underway with a purpose built

concert and entertainment venue (the “Hydro”) due to open in September 2013. GCC provided a £15m

grant to the facility followed by a further £40 million through a sale and leaseback agreement to ensure its

completion and availability for use during the Commonwealth Games.

4

2 Executive Summary

During the review, we noted some key observations, which are summarised below.

1. There does not appear to be a common understanding as to whether SECL should be viewed as

an independent private company, a public sector body, or a hybrid of each. It is our understanding

that SECL considers that it is a private sector company operating on a commercial basis whilst

generating economic benefits for the area, and that GCC views SECL as a private sector company

but with a public sector purpose and public profile, operating as a strategic partner in the city to

maximise business and economic benefit. GCC is the majority shareholder as well as having

significant financial commitment and interest in the Company. Taking these factors into account, it

is more difficult to identify appropriate comparators for benchmarking purposes, although we have

suggested what these may be, dependent on decisions as to SECL’s status.

2. An agreed remuneration policy and reward strategy should be developed. This should reflect

strategic success factors for SECL from the shareholders’ perspective together with agreed

comparator groups, and related methodology and other relevant factors (e.g. local market factors),

for benchmarking purposes. Matters that should be set out include desired positioning (e.g. lower

quartile, median, upper quartile, etc.) of salary; salary plus annual incentives (and any distinction

between annual and long term incentives); and total compensation (salary, benefits, incentives and

pension) as well as how this should vary (if at all) for different levels of performance (target,

maximum, etc.).

3. When benchmarking remuneration, in order to make a meaningful comparison, total compensation

(including salary, incentives, benefits and pension provision), should be considered. Section 6

discusses comparator data in more detail.

4. We suggest that GCC and SECL jointly develop a process around communication of remuneration

strategies going forward, to ensure that the rationale behind decisions is clear and understood.

5. The current remuneration structure for the executive team at SECL comprises base salary, annual

bonus, a long term incentive, defined contribution pension and other benefits. Typically in smaller

private companies, the remuneration package for senior roles consists of salary, benefits, annual

bonus and defined contribution pension, it being less common to have long term incentive

arrangements. This does not mean there is no place for long term incentives provided these are

consistent with the agreed remuneration policy and included in total compensation.

However, simply comparing SECL to an unquoted private company of a similar size may not

provide an accurate comparison. This is due in part to the fact that SECL has a much higher public

profile, via its operation of the SECC, when compared to the profile of most companies of a

comparable size and also due to the specialised nature of the business it operates. Therefore, and

again dependent on decisions regarding SECL status, sector specific benchmark remuneration

data is likely to be required to enable meaningful comparisons to be made. Section 6 provides

more detail in this regard.

6. In setting salaries, heavy reliance has been placed on the benchmarking contained in the FWB

reports. Going forward the Remuneration Committee may find it helpful to retain the services of

independent remuneration / pay consultants with relevant experience. Section 4 provides further

detail in this regard.

7. A high proportion of performance measures for the annual and long term incentives are subjective

in nature and we suggest that in future these should be changed to be more quantitative, which

would be more reflective of market practice at these levels. For example annual bonus targets for

senior roles are typically weighted towards collective financial and operational measures, with a

part (say 15% to 30%) linked to more personal and strategic goals. Long term incentive targets for

5

senior roles are typically linked to group performance and success factors over a period of at least

three years.

8. As a private company, SECL has the freedom to set its own directors’ remuneration without regard

to the higher levels of corporate governance and scrutiny applying to quoted companies.

Balancing this however is the fact that GCC is the major shareholder in SECL and has a significant

financial commitment and interest in SECL. SECL will therefore be subject to a higher level of

public interest and scrutiny and will have to carefully consider the public perception of its

remuneration policies and reward structures.

9. The Audit Scotland report on ‘Arm’s-length external organisations (ALEO): Are you getting it right’,

published in June 2011, may provide some helpful context in relation to the status of SECL

10. GCC should consider its required success factors for SECL and taking account of this, SECL

should be asked to develop (with GCC support as required) an appropriate strategy and

governance framework to support these.

6

3 Current remuneration

3.1 Current remuneration

The remuneration for the year ended 31 March 2012 and the current base salaries for each of the relevant roles at SECL are summarised in the table below.

Financial Year 2011/12

Role Current

salary as at 16 July 2012

Salary Annual Bonus

LTIP payment

Benefits in Kind

Overall package

(excluding pension)

Pension

Employer contribution (% of salary)

CEO £193,800.00 £190,000 £47,500 (Note 1)

£38,000 £16,253 £291,753

(Note 1) 12%

Operations Director

£126,882.90 £124,395 £12,440 £24,879 £11,840 £173,554 15%

Finance

Director £107,161.20 £105,060 £11,557 £21,012 £11,840 £149,469 10%

Commercial Director

£107,482.50 £105,375 £13,172 £21,075 £11,840 £151,462 15%

Sales & Marketing Director

£122,555.04

£120,152 £13,217 £24,030 £11,727 £169,126 10%

Source: Remuneration data supplied by SECL and pension data from the FWB remuneration reports. We have not audited this information.

Note 1 - A bonus of £47,500 was awarded to the CEO during the year ended 31 March 2012, however, this amount was waived in favour of distribution to employees of SECL.

We have included a summary table of key financial data and total directors' remuneration for the years ended 31 March 2007 to 31 March 2012 in Appendix 1.

7

The table below summaries our understanding of the policy for each of the elements of the current

remuneration package of the directors of SECL.

Remuneration Summary details Performance conditions

Salary See table in Section 3.1 above for current salaries

Reviewed annually by the Remuneration Committee

Policy stated in April 2006 was to “pitch salaries at a median position”. When looking at specific roles, the Remuneration Committee extracts state “it was agreed that the Director, Finance and Director, Operations should both be placed at the top end of the recommended range for the positions”.

At the Remuneration Committee meeting on 21 April 2006, “the Committee agreed that a benchmarking review should be carried out at least every three years”.

N/A

Benefit-in-kind Life assurance (9 times basic salary), company car, private healthcare

N/A

Annual Bonus The award for “on target performance” is 20-25% of salary for the CEO and 10% of salary for all other directors

The maximum annual bonus is 30% of salary for the CEO and 20% of salary for all other directors

Personal performance targets are set for each director –see Section 3.2 for details

The targets tend to be non-financial measures and subjective in nature

2011 Long Term Incentive Plan (1 April 2011 – 31 March 2014)

The “entry level” award is 5% of salary and the award for “on target performance” is 35% of salary.

At the Remuneration Committee meeting on 2 March 2011, it was noted that “the proposed targets contained a high degree of stretch. Whilst the Committee is entitled to exercise discretion in assessing performance against the targets, the intention is that the targets should be as objective as possible”

The Committee’s view was that the “scoring matrix in the 3-year scheme was designed to provide a bonus of circa 15% per year for on target performance”. This was later increased to 20% per annum. (Remuneration Committee minutes 7 June 2006).

The maximum award per annum is 50% of salary.

Performance is assessed against annual performance targets, with the award earned for the year added to a pool to be paid at the end of three years. We have been advised by SECL that the majority of the targets are set at the start of the 3 year period.

There are a variety of performance conditions, weighted according to formulae –see Section 3.3 for details

PBT

Cost/Turnover ratio

QD2 project

Business development

Shareholder Feedback

Customer satisfaction

Staff satisfaction

Economic impact

Pension 10% to 15% of salary (employer contribution) N/A

Source: Data supplied by SECL (including extracts from minutes of meetings of the Remuneration Committee) and pension data from the FWB remuneration reports. We have not audited this information.

8

3.2 Current Annual Bonus

As shown in the table in Section 3.1, the current maximum annual bonus is 30% of salary for the CEO

and 20% for other directors. Currently, the individual targets, and therefore the level of annual bonus

received, in a year is specific to each role/individual.

The table below shows the target and maximum annual bonus available to each director of SECL for

2012/13. We have also set out a summary of the performance targets for each role.

The target awards, maximum awards and performance measures have been broadly similar over the

last three years, with only minor changes to the performance criteria. These minor changes appear to

be in response to developments in the business, for example, in 2010/11 the finance director had a

performance target of “having a staff plan for the finance team” and in 2011/12 this performance target

became “conducting a review of the finance team”.

Role Target Award (% of salary)

Maximum Award (% of salary)

Performance measured in relation to:

CEO 22-25% 30%

Maintain company direction and targets

Cultivate new opportunities and strategies

Minority shareholder interests/expectations

Relationship with GCC

Secure funding for projects (hotel on east site)

Raise SECC profile

Develop executive group and senior management

Maintain good staff relations

Monitor progress towards completion of the arena within timeline and at an acceptable final cost

Finance Director

10% 20%

Finance team structure

Microgroup responsibilities

QD2 project management

Finance management and improvements

HR and IT integration

Operations Director

10% 20%

QD2 project management

Commonwealth Games services

Capital Investment plans

Operations responsibilities

Commercial Director

10% 20%

Achievement of budget for 2012/13

Successful arena sponsorship

Outcome of microgroups


10% 20%

Meeting and exceeding budget for conferences

Meeting and exceeding budget for concerts and events

Meeting and exceeding budget for exhibitions

Source: Data supplied by SECL. We have not audited this information.

A score for each performance target is given at the end of the performance period.

The Chairman has responsibility for setting the performance targets for the CEO. The targets of the

other roles are set by the CEO.

The performance targets for the CEO are appraised annually by the Chairman. The appraisal takes

9

place with the CEO, and they both analyse the CEO’s performance against the agreed targets. The

score and assessment are then discussed by the Remuneration Committee along with the

recommendation as to whether the performance criteria were met. The performance targets for the

other roles are appraised by the CEO and the resulting scores and assessment are then proposed to

the Remuneration Committee.

3.3 Long term incentive plan

The current long term incentive plan began on 1 April 2011 and will last for a three year period. From

the information provided, the performance targets and weighting remain the same as those used in the

previous plan, which began on 1 April 2008.

The stated aim of the long term incentive plan is to reward the performance of the group, measured

against pre-defined targets and objectives.

Based on the information supplied by SECL, the performance measures and relative weighting for the

plan commencing on 1 April 2011 are as follows:

Performance

Measure Detail Weighting

Net Profit Before

Tax Excluding QD2 and exceptionals

Based on budget/business plan plus 25% 35%

Cost/turnover ratio

As per business plan

Cost: Turnover less profit plus investment income, less QD2 staff costs

Turnover: turnover plus venue related income

10%

Key milestones

based on QD2

project plan

There are a number of milestones, the major ones being:

QD2 project funding

Conclude agreements with GCC for sales and leaseback

Secure delivery of multi storey car park

Secure hotel site disposal

Finalise and activate catering appointment

Ensure no avoidable, material impact on SECC business resulting from construction

Project delivery on budget on programme on quality

15%

Business

development

Secure naming rights and secondary sponsors in line with business plan plus 25%

Develop offerings to generate business plan plus 25%

Obtain significant ticketing account (over 100,000 tickets)

Introduce new sales income stream with clear potential to deliver £250k GP annually within 3 year period

Develop and implement a sales strategy to address increased availability of Hall 4

20%

Shareholder

feedback Assessment by GCC NEDs 5%

Customer

satisfaction

Aim to maintain high levels through site development works. Target equivalent to average figures for last three years

5%

10

Staff development/

satisfaction Build on base position of previous year 5%

Overall economic

impact Based on budget/business plan activity levels plus

stretch 5%

Total 100%

Source: Source: Data supplied by SECL. We have not audited this information.

We understand that the overall economic impact measures were developed in 2002 (and updated in

2004/05) with KPMG. It is based on various “multipliers” based on the habits of different categories of

visitors to the SECC and aims to assess or quantify the impact and benefits provided to Glasgow from

the conference, exhibition and events held at SECC.

Performance against the targets is assessed annually and a score determined. The score achieved

corresponds to a percentage of salary to be added to the bonus pool. For example, if 120% of target is

achieved, 50% of salary will be added to the bonus pool. If 100% of target is achieved, 35% of salary

will be added to the bonus pool. The pool will be increased in line with RPI from the end of the relevant

financial year until the date of payment. It has also been noted that the Committee’s view was that the

expectation would be 15%, later increased to 20% per annum (Remuneration Committee minutes 7

June 2006).

As an illustration, for the year ended 31 March 2012, the final score for the first year of the 2011 LTIP

was 70. This equated to 20% of salary being added to the bonus ‘pool’.

An email from the CEO of SECL on 10 August 2012 stated that the scoring system for the 2011 LTIP

has been tightened, compared to the 2008 and 2005 LTIPs. For example, the cost/turnover ratio

missed target by one point in 2012, and a score of zero as allocated for this performance measure.

The performance targets for the long term incentive for the CEO and senior management are set and

assessed by the Remuneration Committee.

11

4 Remuneration History

4.1 Overview

The main sources of information for determining the rationale behind the remuneration arrangements at

SECL from 2006 onwards are the extracts of the minutes of meetings of both the Board and the

Remuneration Committee from August 2004 to June 2012 and the 2006, 2009 and 2012 remuneration

reviews commissioned by SECL and carried out by FWB (extracts and reports provided to us by SECL).

The Remuneration Committee meeting minutes cover many of the aspects one would expect including

discussions regarding:

remuneration policy;

structure of remuneration packages;

salary levels;

setting of performance targets;

assessing performance targets; and

quantifying the annual bonus and long term incentive payments.

For the purposes of this review, we have not summarised the content or conclusions of each meeting.

The table in Section 4.2 below aims to show the history and rationale behind the key decisions of the

Remuneration Committee with regard to the introduction of the long-term incentive arrangement; the key

changes to the annual bonus; and the salary reviews. Section 4.3 summaries the main content and

recommendations of the FWB remuneration reviews commissioned by SECL.

Finally, Sections 4.4 – 4.7 collate the history and rationale behind the current policies for each element of

remuneration, namely salary, annual bonus long term incentive and pension respectively. These sections

contain some commentary on the arrangements.

12

4.2 Remuneration Committee Key Decisions

Date of Remuneration Committee meeting Summary of decision/conclusion

August 2004 Long term incentive plan is introduced to be more in line with the private sector. We understand from SECL that this recognised the need to attract and retain senior staff during the arena development.

January – March 2005 Executive Group Bonuses Plan (the first long term incentive plan) is approved by the Board.

February 2006 FWB are appointed to perform a remuneration review and it is noted that no review has been carried out since 2000.

April – May 2006 The FWB report is discussed. A decision is made to position salary between median and “top end”. Resulting salaries are largely influenced by the remuneration report.

February 2008 A new long term incentive plan is discussed as the first one is reaching its end in March 2008. It is proposed that the performance targets are changed to increase the focus on profit and business development.

May 2008 It is suggested that the long term incentive arrangements are made contractual.

December 2008 It is proposed that directors are removed from the company’s annual bonus scheme (with a maximum award of 12% of salary) to one based on their individual performance. The Remuneration Committee minute extracts state that “targets will be set such that on target performance will generate a bonus of around 15% with a cap at 30%”. A further remuneration review by FWB is commissioned.

May 2010 CEO waives bonus. CEO receives a salary increase of 9.75% to £170,000 pa. SECL has advised that both these increases followed detailed discussion of the performance in the role and the strategic importance of the individual being retained in the role for the Company.

January 2011 CEO receives salary increase to £190,000 pa.

Source: Extract minutes of the Board and Remuneration Committee, provided by SECL.

4.3 FWB remuneration Reviews

As the Remuneration Committee minutes reflect a heavy reliance on the FWB benchmarking reports, we

feel it is appropriate to consider the content of these reports in detail.

In our experience, where detailed benchmarking exercises are carried out for private unquoted companies

such as SECL, we would typically expect the review to be carried out by specialist remuneration

consultants who collate and hold their own remuneration data. Going forward, it may be beneficial to use

the services of a more specialised remuneration consultant with access to relevant remuneration data.

The tables below summarise the main recommendations of the remuneration reviews prepared by FWB in

2006, 2009 and 2012, and also highlight the subsequent action taken by the Remuneration Committee.

13

2006 Report

Role Pre-

review

salary

Recommended

salary per the

2006 report

Summary of report comments (not

Deloitte commentary, observations or

conclusions)

Post review

salary i.e.

action

taken by

SECL

CEO £137,700 £150,000 –

£160,000

Considerably underpaid for private sector and also underpaid for public sector Role carries significant responsibilities and requires engagement with a variety of people

£155,000

Finance

Director

£94,623 £100,000 –

£110,000

The report states that “the information provided by Croner Reward does not, in FWB’s view, reflect either the local or UK market for Directors of Finance. Even a cursory glance at the recruitment pages in the Thursday edition of the FT supports this view” A range of £100,000 - £150,000 is paid to finance directors occupying substantial posts, in West Central Scotland. Examples are given of salaries of Finance Directors at Weir Group plc and Aggreko plc

£110,000*

Operations

Director

£82,820 £90,000 –

£110,000

Salman review suggests an average salary of £120,000 for the leisure and entertainment sector Croner Reward data is lower Salman review is more appropriate

£110,000

(Note 1)

Sales

Director

£71,400 £65,000 –

£80,000

FWB were the recruitment consultants for this role The appointment is recent to the report so current salary is deemed to be fair

£72,500

(Note 2)

Marketing

Director

£62,061 £80,000 –

£70,000

Role largely tactical but has less responsibility towards the wider development of projects and guiding the overall direction of the organisation than other roles

£85,000

(Note 2)

Source: 2006 FWB report and extract Board and Remuneration Committee meeting minutes from 2006

Note 1: On 21 April 2006, the Remuneration Committee agreed to position these salaries at the “top end” of

the recommended range. On 3 May 2006 the Board approved the Remuneration Committee’s

recommendations.

Note 2: On 21 April 2006, the Remuneration Committee agreed to position these salaries at median for the

market. On 3 May 2006 the Board approved the Remuneration Committee’s recommendations.

The 2006 FWB report was discussed at the Remuneration Committee meeting on 8 February 2006. It was

agreed that salaries should be positioned “at the median”, unless there are reasons not to in individual

cases. The meeting stated that salaries would require a more than average increase in order to reach the

median and that increases would be to median or 5% “whichever was higher”. It was also agreed that

salary benchmarking would be carried out every three years.

14

2009 Report

Role Pre-review salary

Recommended salary per the 2009 report

Summary of report comments Post review

salary i.e. action

taken by SECL

CEO £155,000 £150,000 - £165,000

Remuneration set at appropriate level No adjustment

Finance Director

£100,000 £95,000 - £110,000

Recent appointment to the role and salary benchmarked in current recruitment market

No adjustment

Operations Director

£118,404 £110,000 - £120,000

No rationale provided other than FWB view

No adjustment

Sales Director

£100,320 £100,000 - £120,000

FWB assisted with recruitment to this role

Salaries not changed significantly in this are but role now more senior and wider.

Bonus cap should be increased to 20%

No adjustment

Commercial Director

£100,320 £100,000 - £110,000

Individual in role has wide knowledge of business, making it difficult to obtain true comparators

No adjustment

Source: 2009 FWB report and extract Board and Remuneration Committee meeting minutes from 2009 -

2010.

The content of the 2009 report was discussed at Remuneration Committee meeting on 10 February 2009

and it was noted that a pay freeze for the executive group was appropriate at that time.

The 2009 report was subsequently discussed at Remuneration Committee meeting on 10 February 2010.

It was noted that the issues arising from the benchmarking review could “not yet be addressed” but would

be addressed at a future date.

Subsequently, the salary of the CEO was increased to £170,000 (back dated to 1 April 2010) at a

Remuneration Committee meeting on 24 May 2010 and approved by the Board on 2 June 2010. The

meeting tabled the history behind the CEO’s salary – summarised: His starting salary was initially £11,000

lower than his predecessor’s, to reflect his lack of experience in the role. At the time of appointment, it was

agreed that his salary would be benchmarked over a period of 2-3 years based on his performance. The

chairman felt that he had demonstrated his ability over the previous two years and that as he was now in

his third year, the commitment regarding his salary should be honoured. The Remuneration Committee

considered his remuneration package and concluded that it would not be sufficient if a replacement CEO

was required and therefore his salary was increased.

15

2012 Draft Report (we understand this has not yet been finalised or presented)

Role Pre-review salary

Recommended salary per the 2012 report

Summary of report comments Post review

salary i.e. action

taken by SECL

Chief Executive

£190,000 2.5% annual inflationary adjustment

In light of the ongoing recession across the UK and Eurozone, FWB could find no basis to recommend changes to salary.

TBC

Commercial Director and Company Secretary



TBC

Finance Director



TBC

Operations Director and Deputy CEO



TBC

Sales Director



TBC

Source: 2012 FWB Draft Report

The CEO provided some background on the sales and marketing roles mentioned in the FWB reports.

Originally, there were director roles for each of conference sales, exhibition and event sales and marketing.

The two sales roles were combined under a single sales director and the role was further consolidated in

May 2008 to include marketing.

Between the 2009 remuneration review and the 2012 remuneration review, the CEO’s salary had increased

to £190,000, which was £25,000 above the recommended salary in the 2009 report. The 2012 report states

that the Remuneration Committee viewed the increase appropriate to reward the CEO in excess of FWB’s

recommendations in order “to ensure his retention and motivation as he is key to both the trading

performance and in particular the development agenda.”

Commentary

We do not have access to the support and background research used by FWB in preparing their reports

and therefore cannot comment in detail on the salary ranges proposed. The general observations we

would make on the content of the 2006, 2009 and 2012 reports are as follows:

The salary data from various sources used in the reports is quoted. However, the methodology as

to how the salary range recommended is reached is unclear i.e. the weighting applied to each data

source etc. For example, in the 2006 report, FWB use both the Salman review and the Croner

Reward data when considering the salary of the operations director. It is then stated ‘the Salman

review provides a more appropriate benchmark’, however, no further explanation is given for the

reasoning behind this.

16

The reports do not appear to define the salary ranges which are being recommended. For

example, a median salary or a range of lower quartile to upper quartile salary for the role. In the

Remuneration Committee meetings in 2006, the ranges were treated as median. However, there it

is not clear in the FWB reports that salary recommendations such as ‘the Director of Finance

should earn a base salary in the range of £100,000 to £110,000’ in their 2006 report, were intended

to represent the median salary of the role.

It appears that FWB were acting under a recruitment engagement for SECL and under a

benchmarking remuneration engagement on the behalf of the Remuneration Committee. In these

circumstances the relative roles and responsibilities will need to be clear to ensure independence

is maintained.

SECL is a private company with annual turnover in the range of £12 million to just over £18 million

from 2006 to 2009 and profit before tax in the region of £227,000 - £2,376,000pa in the period

under review. The reports quote salary data and trends in the FTSE 250, and provide examples of

Aggreko plc and Weir Group plc as benchmarks for the role of finance director. For the year ended

30 December 2011, The Weir Group plc had revenue of £2,929 million and profit before tax of

£396.3 million and Aggreko plc had revenue of £1,396.1 million and profit before tax of £323.7

million. Typically, we would not see benchmarking for a company of the size of SECL referencing

data from large FTSE 250 companies. For larger unquoted private companies, it is often

appropriate to consider data and trends from the FTSE250 and FTSE SmallCap markets but this

data is treated with caution and typically discounted to account for the fact that the unquoted

private sector is not subject to the same regulatory environment.

When providing benchmark data, the initial focus is typically on the sector in which the company

operates and the size (either by market capitalisation or turnover) of the company. Other factors

such as the local market, economic climate and complexity of the business and Human Capital

factors (such as employee numbers, average salaries etc) are then considered. These factors

(particularly company size) do not appear to be referenced heavily within the FWB reports.

The data provided for annual bonus and long term incentive practice is limited. This makes “total

reward” benchmarking more difficult. It is recommended that salary levels should be considered in

the context of the remuneration package as a whole, including incentives, benefits and pension

provision.

The 2009 report is more detailed than the 2006 report in terms of its explanations of research and

reasoning behind recommendations. For example, the 2009 report analyses how different sized

companies remunerate their employees as well as considering the public sector.

4.4 Salary history and rationale

The current salaries are set out in Section 3.1.

Based on our review of the FWB reports in 2006, the extract Remuneration Committee minutes and the

salary data provided it appears that the salary decisions in 2006 were based heavily on the

recommendations in the 2006 FWB report.

The decision was taken to position the salary for most roles at “median” with a few individual roles (namely

the finance director and the operations director) “at the top end”. It was also noted that salaries would be

moved to median or increased by 5% “whichever is higher”.

In 2009 the recommendations of the FWB report were that the salaries were within the appropriate ranges

at the time, however subsequent to this the salary of the CEO was increased from £155,000 to £170,000 at

the Remuneration Committee meeting on 24 May 2010 (as detailed above).

17

Also note that increasing salary has a consequential impact on annual and long-term incentive as well as

pension contributions.

Commentary

As well as a number of different benchmark data sources, various other factors are generally taken into

account in setting salary levels, including:

an individual’s performance in the role;

the value an individual brings to the business (for example, personal connections, relevant

experience, track record);

the package as a whole;

retention factors;

local market factors;

the salary levels and recent increases of the company’s employee population as a whole;

company performance; and

the general economic climate.

We note that experience in role and individual performance have been factored into the salary for the CEO,

for example at his initial appointment, when his salary was reduced by £11,000 from that of his

predecessor to reflect his lack of experience in the role.

As a general indication of the current climate, there is more pressure on remuneration committees to justify

above market or above inflation increases in base salary and shareholders are requesting robust rationale

for why any increases are appropriate.

4.5 Annual bonus history and rationale

The annual bonus awarded in the year ended 31 March 2012 is shown in Section 3.1.

An annual bonus is offered to all employees of SECL and is not an element of remuneration for the

executive team only. The company wide scheme has a cap of 12% of salary. The directors do not

participate in the company wide scheme.

For the director level arrangements, individual targets (and therefore the level of annual bonus received) in

a year is specific to each role/individual.

The Remuneration Committee agreed, during a meeting on 14 May 2007 to increase the annual bonus for

the Executive Group from 12% to 20%, given the outstanding results for the year. At the Remuneration

Committee meeting of 29 May 2009, it was agreed that it would be preferable for the Executive Group to be

assessed against specific targets on an individual basis.

Commentary

It is difficult to benchmark or compare annual bonus arrangements in private unquoted companies as this

information is not publically disclosed. In our view, whether such a company operates an annual bonus or

not (and the potential award under any annual bonus) will vary by sector, role and individual company

practice. In our experience, there is no “normal practice” with regard to the bonuses in unquoted private

companies.

Based on data from the FTSE and our experience of unquoted companies, we note the following key points

with regard to the SECL performance targets:

18

In most companies, the primary performance measure used for an annual bonus is a profit based

one, whereas the majority of the SECL targets are non-financial.

Individual performance targets, such as those used at SECL, can be beneficial as they should drive

the specific behaviour required for a specific role or individual, however, it is common to see a

performance target applying to the board as a whole (typically a financial measure) to encourage

the board to act as a unit.

The number of performance measures per role at SECL seems to be high, which may indicate that

the scheme is overly complex.

The SECL performance measures appear to be subjective, potentially making them difficult to

assess. For example, the 2012/13 performance targets for the Operations Director include “Event

management plan in place. Additional plans to be agreed”. This could prove difficult to assess at

the end of the period without specific measureable parameters within this objective. However, the

2012/13 performance targets for the Commercial Director include an example of a measureable

objective target being “Arena sponsorship - sponsorship to get to £3m gross”.

Generally, annual bonus performance targets should be based on behaviours and objectives over

and above those responsibilities which fall within the fulfilment of the ordinary duties and

responsibilities of a role. Based on the information supplied, some of the annual performance

targets seem to be based on day-to-day roles. As an example, for the finance director in 2012/13

one performance target is to “deliver improvements” in “accounts production leading to audit

clearance”.

Generally where individual, non- financial performance measures are used, these tend to form a

limited proportion of the bonus only (for example, our review of executive directors’ remuneration,

dated September 2011, found that the annual bonus in a FTSE 250 company would typically be

weighted 80% on financial measures, 10% on business specific measures and 10% on individual

objectives).

One example would be that, in the year ended 31 March 2012, a quarter of the targets set for the CEO

were not completely met. In the email from the Chairman to the Remuneration Committee on 8 May 2012,

it was recommended that the CEO performance be noted as ‘on target’. The rationale for this appears to

be the fact that the CEO had a “very testing year”. Although the degree of flexibility arising from subjective

measures does allow for superior performance to be rewarded in difficult years, it can make the

assessment of performance under the plan less transparent to the individual in question, the rest of the

Board and the company as a whole.

As a further illustration, in a memo from the Chairman on December 2008, it was noted that for the 2008/09

financial year, “it has proved very difficult to set realistic annual targets”. It was also noted that “the wider

economic events of the last three months have left many possible financial or delivery objectives now

undeliverable or outdated”. The Chairman therefore proposed that for the 2008/09 year, he should rely on

a “more arbitrary approach” to agreeing the possible bonus for both the CEO and the Executive Deputy

Chairman.

The CEO of SECL stated in a call with Deloitte on 9 August 2012 that the annual bonus target setting

process was being refined with a move to more objective measures.

19

4.6 Long term incentive plan history and rationale

The long term incentive award earned in the year ended 31 March 2012 is shown in Section 3.1.

The first long term incentive plan commenced on 1 April 2005 (covering the period 1 April 2005 to 31 March

2008) and was introduced to make the remuneration package more reflective of that of the private sector.

Subsequently, further three year long term incentive plans where operated in 2008 (1 April 2008 to 31

March 2011) and 2011 (1 April 2011 to 31 March 2014).

The idea of introducing a long term bonus scheme was raised at a Remuneration Committee meeting on

27 August 2004. It was envisaged that a three year target could be set with clear objectives to take the

company to a certain point, covering customer care and new revenue streams. The initial concept had

been driven by the QD2 project.

The performance targets for the long term incentive were discussed at the Remuneration Committee

meeting of 7 June 2006. It was noted that the scoring of the target matrix involved an element of

subjectivity. It was agreed that each member of the Remuneration Committee should score an individual

basis, which would then be consolidated through discussion into a final figure for recommendation to the

Board.

At the Remuneration Committee meeting on 8 February 2008, the second long term incentive (the “2008

plan”) was discussed. It was stated that the previous plan had been successful and that the new plan

should be based on the business plan and have sufficient stretch built into the targets. It should reflect key

issues facing the business and incentivise the executive team. It was also noted that the financial

components should carry more weight.

It was agreed that the 2008 plan was to form part of the relevant employee contracts (Remuneration

Committee meeting on 22 May 2008). Furthermore, it was stated at the Remuneration Committee meeting

of 31 May 2011 that the 2008 plan was intended to provide a ‘golden handcuff’ function. It was noted that

the plan had “been introduced as there was no equity option available and to take account of the pension

position” (as SECL operates a defined contribution pension plan rather than a defined benefit pension

scheme).

The performance measures used in the 2005 plan were financial, development, satisfaction and economic

impact criteria, which are broadly similar to the criteria used for the 2008 and 2011 plans. However, the

weighting of the performance conditions varies slightly. Section 6 provides more details on long term

incentive practice.

Commentary

As with the annual bonus, it is difficult to benchmark or compare long term incentives in private unquoted

companies as this information is not publically disclosed. As above, whether such a company operates an

incentive or not (and the potential award under any incentive) will vary by sector, role, individual company

practice and, most importantly, the company’s strategy.

In our experience, typical long term incentives operated in private unquoted companies include “exit based”

arrangements (i.e. incentives (typically equity based) which are designed to align the executives with the

shareholders in the achievement of a realisation of their investment (for example via a sale or flotation)) or

arrangements linked to longer term projects or investment plans.

Key observations with regard to the long term incentive of SECL are as follows:

20

It is unusual to have a three year “long term” incentive structured around three separate annual

performance periods. Although the current long term award earned for a particular year is deferred

until the three year period is reached, it may be viewed that this structure promotes short term

behaviours and overlaps with the function of the annual bonus. Typically long term incentives have

performance measures that are assessed over a period of more than one year and are aligned to

the achievement on longer term strategies or goals, for example long term profit growth or longer

term developments or investment plans.

Based on the information supplied by SECL, the performance targets for the annual bonus and the

long term incentive plans seem to overlap in part. For example, in the year ended 31 March 2011,

the finance director had performance targets relating to the development of the QD2 project

featuring in both his annual bonus and long term award. This is unusual and we would expect

different criteria for the annual incentive compared with the longer term incentive, to align with the

short term and long term strategies of the business.

The number of performance measures seems to be high, which may indicate that the scheme is

overly complex. This point was raised at the Remuneration Committee meeting of 8 February

2008, and it was suggested that the scheme be simplified going forward. However, the

performance conditions for the 2008 and 2011 plans do not appear to be less complex than the

2005 plan.

The concept of having non-financial measurements in a long term incentive plan is relatively

uncommon. Although not a lot of detail is disclosed where non-financial measures are used, these

are likely to range from specific strategic objectives to measures relating to health and safety,

environment and people issues (Deloitte guide to executive directors’ remuneration, September

2011). From our experience, we would usually see long term incentive performance targets which

are objective and quantifiable. The performance measures listed above appear to be more

subjective which may raise concerns over robustness and fairness when the performance targets

come to be assessed. For example, one performance measure includes "secure hotel site

disposal”. It may be that we do not have all the information, but from this note alone, there is no

reference to how the hotel site is to be disposed off, and how effective the disposal should be. On

the other hand, one performance measure states “secure naming rights and secondary sponsors in

line with business plan plus 25%”. This is the type of performance measure we would expect to

see, as it sets a quantifiable target, in line with business goals and easily measurable at the end of

the performance period.

Going forward, when setting performance targets the role and impact of the various bodies who

work in partnership with, and provide funding (direct / indirect) to, SECL, should be taken into

account. For example, it is understood that SECL work jointly with Glasgow City Marketing Bureau

(“GCMB”), where GCMB are responsible for activities such as bidding for, attracting and managing

high-profile major events, conventions and exhibitions and are also responsible for conference and

event accommodation bookings. In this context it is clear that GCMB and others have a positive

impact on SECL’s income and performance, although it may be difficult to quantify directly the

extent of this impact.

During the meeting between SECL and Deloitte on 27 July 2012, it was stated that GCC asked

SECL to show restraint in relation to the LTIP awards in 2009. It was stated that since then, total

remuneration has decreased, for example the CEO waived his bonus in 2009/10, and in 2011/12

we understand that the CEO directed that his bonus should rather be distributed to employees.

However, the remuneration data supplied by SECL (which has been checked against the

remuneration reports produced by GCC, where available) shows that since then, the total variable

remuneration and total remuneration has increased. For example, the finance director’s overall

package (excluding pension) has increased every year from the year ended 31 March 2009

(£136,518) to the year ended 31 March 2012 (£149,489).

21

GCC has provided further background, stating that in 2009, GCC expressed concern about the

2009 remuneration report and discussed the restraint which is required in the public sector due to

the financial climate. GCC have said that it was indicated to them in the accounts for the year

ended 31 March 2011 that the CEO waived his bonus for that year. There was no disclosure

requirement at that time for the other directors .The bonus payments for the year ended 31 March

2012 reported in the remuneration report were unexpected by the Council.

4.7 Pension history and rationale

All of the directors of SECL are members of the SEC Stakeholder Scheme, a defined contribution pension

plan. The pension contributions for the year ended 31 March 2012 are shown in Section 3.1.

The scheme applies to all employees of SECL on the same terms. The company contribution is based

upon age and length of service.

As with the other elements of remuneration, it is difficult to benchmark the pension arrangements of

unquoted private companies. However, based on the FTSE data we collate and analysis, the value of

contribution levels to defined contribution pension schemes as a percentage of base salary is as follows:

Company listing

Median

Contribution (% of

salary)

FTSE 250 16%

FTSE SmallCap 15%

AIM 11%

Source: Deloitte ‘Your guide to executive directors’ remuneration’, September 2011 and ‘Be equipped’, March

2012

Based on the document provided by SECL titled “SECL Executive Remuneration Background- The

Pension Story”, the directors of SECL consider the SEC Stakeholder Scheme to be much less favourable

than the pension schemes in which executives in local authorities and other parts of the public sector

participate. In the case of GCC, the scheme in questions is the Strathclyde Pension Fund, a defined

benefit pension scheme.

It has been noted in the document summary that the “overwhelming conclusion” is that the SECL directors

“could quite easily have no bonus arrangements (annual or LTIP) in place and still be significantly better off

financially if they were in the Strathclyde Pension Scheme”.

Commentary

The declining use of defined benefit plans continues in the private sector, with companies more likely to

offer defined contribution arrangements to new appointments at all levels. The number of existing directors

participating in defined benefit plans has also decreased. For example, in FTSE SmallCap companies the

number of executive directors participating in a defined benefit scheme was 9% in 2011, compared with

11% in 2010 and 16% in 2009. Defined contribution pension and pension allowance are the most popular

policies offered to new appointments. These are offered at 80% of FTSE 250 companies, 89% of FTSE

Small Cap and 62% of AIM companies.

Whilst SECL’s major shareholder is GCC, we understand that SECL has been operated as a private

enterprise with a private company business model and not as a public sector organisation. In light of this

and the move away from the use of defined benefit schemes in the private sector, a defined contribution

pension scheme in SECL is typical of what we would expect.

22

If a comparison is being drawn with the pay of GCC executives, it would be appropriate for this to be on the

basis of total compensation, including salary, benefits, incentives and pension provision, applying a

recognised basis of valuation to annual defined benefit pension accruals.

As GCC is a major shareholder, GCC have had representatives on the SECL board and remuneration

committee. GCC have confirmed (in an email from GCC on 14 August 2012) that they have two elected

members of the SECL board. It is a legal requirement that these individuals are responsible to SECL and

must act within the best interests of SECL. The two GCC members should provide the board with their

knowledge and understanding from a GCC perspective.

23

5 Considerations and recommendations going forward

Taking the current remuneration policies and its history into consideration, together with our remuneration

experience, we have set out a number of observations and recommendations below regarding a number of

actions that GCC and SECL may wish to consider going forward. These should be read in conjunction with

the observations set out in the Executive Summary.

5.1 Status of SECL

It appears that GCC and SECL view the status of SECL differently. We understand that SECL considers

that it is a private sector company, whereas GCC views SECL as a private sector company, but with a

public sector purpose and public profile and where GCC is majority shareholder as well as having

significant financial commitment and interest in the Company. Agreement should be reached as to the

status of SECL going forwards, and the desired business strategy and success factors, to enable an

appropriate remuneration strategy to be developed and agreed.

If it is decided that SECL should be treated as a private company, then it may be appropriate, when

assessing remuneration, to give more weighting to appropriate private company comparators of a similar

size to SECL, as well as sector specific comparators (for example other exhibition / conference / venue

providers) . We have set out further information on private sector companies with up to £100 million in

revenue in Section 6.1 and details of sector comparators in Section 6.3.

If it is decided that SECL should be treated as a public body, then it may be appropriate to assess the

remuneration procedures and policies against other ALEOs of GCC and comparable organisations within

other councils, and transition the policies accordingly. We have set out further information on public sector

companies in Section 6.2.

The decision as to SECL’s status as private sector or public sector is not straightforward, due to the nature

of SECL’s business and its history and as noted, it may be appropriate to consider the remuneration at

other arenas, conference centre and convention centres, and the impact this may have on the current

incumbents at SECL (see further comparator companies in Section 6.3).

Whilst it is noted that the scope of this review does not include a review of the governance framework of

SECL/GCC and / or the SECL / GCC remuneration committee(s), it is clear from the work completed that

this is a key activity that should be undertaken by the two parties to define the status of SECL and the role

of each organisation going forward.

We understand that GCC and SECL are jointly undertaking a review of the governance arrangements to

reshape and redefine the relationship between the two organisations. This review should consider the

extent that:

SECL have in place a well developed strategy that includes links to the strategic objectives and

priorities of GCC. This should clearly articulate the critical success factors GCC desire from SECL;

GCC contributes to the business and strategic plan of SECL and appropriate arrangements are put

in place to monitor delivery and reporting of the plan;

GCC has specific governance, finance and performance indicators by which it assess the

performance of SECL;

GCC ensures it has adequate representation on the SECL Board, Remuneration Committee and in

any additional decision making forums;

GCC and SECL have a communication and disclosure strategy; and

GCC and SECL mutually agree regulations over the remuneration policy and ensure that it has a

clear linkage to objectives and success factors of GCC and the minority shareholders.

24

5.2 Communication and disclosure

Following a review of governance arrangements and agreement on the status of SECL, we would

recommend that GCC and SECL jointly develop a process around communication of remuneration going

forward, to ensure that the rationale behind decisions is clear and understood.

5.3 Choice of remuneration consultant

It is good practice for the Remuneration Committee to seek external benchmarking on a regular basis, to

form part of the salary decision making process.

Where detailed benchmarking exercises are carried out for private unquoted companies such as SECL, we

would typically expect the review to be carried out by specialist remuneration consultants who collate and

hold their own remuneration data. Going forward, it may be beneficial to use the services of a specialised

remuneration consultant with access to relevant remuneration data.

5.4 Base Salary

The terms of reference of any benchmarking review of salary and total remuneration should be agreed

clearly with GCC in its role as major shareholder.

In addition, any benchmark data should be considered in the wider context including the factors typically

considered as set out in section 4.4, namely:

an individual’s performance in the role;

the value an individual brings to the business (for example, personal connections);

length of service;

the individual’s package as a whole;

retention factors;

local market factors;

the salary levels and recent salary increases of the company’s employee population as a whole;

company performance; and

the general economic climate.

It is important that the Remuneration Committee understand clearly the rationale and methodology used in

calculating benchmarks.

5.5 Annual bonus

It is difficult to benchmark or compare annual bonus arrangements in private unquoted companies as this information is not publically disclosed. In our view, whether such a company operates an annual bonus or not (and the potential award under any annual bonus) will vary by sector, role and individual company practice. In our experience, there is no “normal practice” with regard to the bonuses in unquoted private companies. Please see section 6.1.2 for further information on annual bonus arrangements in private sector companies.

Going forward, we would recommend that the area of focus for the annual bonus should be the choice of

performance measures and the targets set for these.

It is important to determine the functions of the role which should be rewarded via salary (i.e. the day to day

responsibilities of the role) and any additional performance that should be rewarded via the annual bonus.

25

We would also recommend that fewer performance conditions are used. Performance conditions should be

more objective in nature, and should include a group or board element of performance. We would

recommend that the non-financial subjective measures are restricted to 10-20% of the annual bonus.

5.6 Long Term Incentive

As with the annual bonus, it is difficult to benchmark or compare long term incentives in private unquoted

companies as this information is not publically disclosed. Whether such a company operates an incentive

or not (and the potential award under any incentive) will vary by sector, role, individual company practice

and, most importantly, the company’s strategy. Please see section 6.1.3 for further information on long

term incentive arrangements in private sector companies.

We would therefore recommend a review of the long term incentive going forward to take it back to its

original rationale being, a long term plan with clear objectives to take the company forward to a certain

point, incorporating the company’s strategy.

It is unusual to have a three year ‘long term’ incentive structured around three separate annual

performance periods. We would recommend that consideration is given to operating a longer performance

period, for example, a continuous three year period.

We would also recommend a review of the performance conditions used in the long term incentive. It is the

Remuneration Committee and the Board’s responsibility to set these, but we would expect these to be

clearly aligned to SECL’s long term strategy and the expectations of GCC as shareholder.

Ensuring recovery of the outlay in relation to the commercial agreement in place for “the Arena” is a key

long term success factor for GCC. The current long term incentive plan currently assigns 15% to key

milestones based on the QD2 project plan which aligns the plan to GCC success criteria.

GCC also consider long term success of SECL to include its contribution to developing Glasgow as a world

class city. In particular the role that SECL can play in promoting cultural, economic, sporting, tourist and

‘life in Glasgow’ aspects of the ‘Glasgow product’ to both residents and visitors. Currently the long term

incentive plan includes 5% weighting to shareholder feedback and 5% to economic impact, we would

recommend that these elements are reviewed to ensure that they are aligned to GCC success factors.

On this basis, some examples of objective performance conditions that may be appropriate for SECL

include:

a form of measurable financial performance - for example, turnover, profit or shareholder return;

the current economic impact measure, possibly expanded to include other variables agreed with

GCC as constituting long term success, in a greater proportion to the overall performance

assessment;

a measure incorporating the Pollstar rating - the advantage of this measure is that it is an external

objective and would assess the SECC against other international venues;

longer term objectives with regard to the Hydro development - for example, significant sponsorship

deals;

a longer term objective with regard to risk management or the implementation of strategies which

generate the most income or economic impact for the business going forward; and

objectives that align SECL activity to GCC’s targets for sporting, cultural and economic contribution

to the city.

26

6 Comparator Data

As stated, it is important to determine if SECL is to be treated as a private company or a public body, and

this decision may influence the total remuneration levels and rationale going forward.

This section sets out data from both the public sector and the private sector. We have split the section into

three parts, looking at different areas of comparator data:

Private sector companies with up to £100 million revenues (data has a base date of 1 November

2009).

Public sector companies, including ALEOs.

Other comparator companies, including arenas and conference centres

It will then be necessary to determine which comparator area is most relevant to SECL.

6.1 Private sector companies

Deloitte collates remuneration data annually on the FTSE350, FTSE SmallCap and AIM listed companies.

The minimum market capitalisation of the companies whose data we review is typically in the region of £50

million (within our “Be Equipped” report focussing on FTSE SmallCap and AIM listed companies). On this

basis, SECL is not of a comparable size to make meaningful salary comparisons with data from FTSE

listed businesses.

Therefore, we have looked at another survey, which provides information on the remuneration levels and

trends for smaller private companies, with revenues below £100 million.

Our survey data for these companies has a base date of 1 November 2009. We have compared the survey

data to the remuneration packages received in SECL in the year ended 31 March 2010.

In 2009, the UK officially entered into recession. The economic downturn gave rise to a number of

pressures on reward, as many companies were looking to incentivise their employees, whilst ensuring

costs were managed effectively.

Average pay increases for top full time directors in FTSE SmallCap companies since 2009 were as follows:

Year Average Salary Increase

2009/2010 0.3%

2010/2011 1.2%

2011/2012 0%

Source: Deloitte Be Equipped publications from 2010 to 2012.

The rates of the Consumer Price Index (“CPI”) and the Retail Price Index (“RPI”) during this period were as

follows:

Year CPI Rate RPI Rate

April 2010 3.7% 5.3%

April 2011 4.5% 5.2%

April 2012 3.0% 3.5%

27

Source: RPI and CPI publications by the Office of National Statistics and Towers Watson, for the month of

April in each year.

As the survey data reflects remuneration trends during recession, and executive remuneration has

remained quite static since 2009, we have also included a comparison of the data with current

remuneration levels at SECL.

6.1.1 Base Salary

The table below compares the median base salary received in companies with revenues between £15

million – £30 million, with the base salaries received at SECL. We have looked at the CEO and board

director base salaries. For comparator purposes, we have used the Finance Director role at SECL as an

example board director.

Role Median base salary in

companies with revenue between £15 – £30m

Base salary in SECL: year ended 31 March

2010

Base salary in SECL: as at 16 July 2012

CEO

£173,000 £155,000 £193,800

Board director

£126,000 £100,000 £107,483

Source: PwC Monks Management Pay UK – Companies up to £100m Revenues 2009

6.1.2 Annual bonus

As a result of the economic climate, annual bonuses have been the subject of scrutiny by the media and

investors. There has been a continuing challenge to ensure employees are incentivised whilst also acting

with restraint. That said, the majority of board directors are eligible to participate in an annual bonus plan.

The table below compares the target and maximum annual bonus provision in companies with revenues

below £100 million with the annual bonus provisions at SECL. We have looked at the CEO and board

director annual bonus payments. Again, for comparator purposes, we have used the Finance Director role

at SECL as an example board director.

Role Companies with

revenues below £100m SECL: year ended 31

March 2010 SECL: year ended 31

March 2012

Target

(% of Salary)

Max

(% of Salary)

Target

(% of Salary)

Max

(% of Salary)

Target

(% of Salary)

Max

(% of Salary)

CEO

45% 100% 22-25% 30% 22-25% 30%

Board director

35% 80% 10% 20% 10% 20%

28

Source: PwC Monks Management Pay UK – Companies up to £100m Revenues 2009

In 2009, the average maximum award available for the CEO was 100% of salary and the average

maximum award available for board directors was 80% of salary. The average actual award for the CEO

was 38% of salary and the average actual award for a board director was 32% of salary.

In SECL, the maximum award available for the CEO was 30% of salary and the maximum award available

for the Finance Director (board director) was 20% of salary (for both the years ended 31 March 2010 and

31 March 2012). The CEO was awarded a bonus of 25% of salary in the year ended 31 March 2010, but

payment was waived. The actual award for the Finance Director (board director) in the year ended 31

March 2010 was 10% of salary.

The CEO was awarded a bonus of 25% of salary in the year ended 31 March 2012, but this amount was

distributed to employees. The actual award for the Finance Director (board director) in the year ended 31

March 2012 was 11% of salary.

6.1.3 Long term incentive plan

Long term incentives are a significant part of the executive and senior management remuneration package.

It was noted in 2009 that competitive pressures and the desire to link pay and performance had led to

increasing award levels, and this is a trend we have seen continue.

We have looked at one type of long term incentive operated in companies with revenue below £100 million,

a performance share plan, to illustrate market trends in 2009. The average maximum award available for

the CEO and board directors in 2009 was 125% of salary. The average actual award for the CEO in 2009

was 100% of salary and the average actual award for a board director in 2009 was 125%of salary. (Source:

PwC Monks Management Pay UK – Companies up to £100m Revenues 2009)

In SECL, the maximum award available for the CEO and board directors was 50% of salary (for both the

years ended 31 March 2010 and 31 March 2012). The actual award for the CEO and board directors in the

year ended 31 March 2009 was 19% of salary.

The actual award for the CEO and board directors in the year ended 31 March 2012 was 20% of salary.

Source: Management Pay UK – Companies up to £100m Revenues, 2009, published by Human Resource

Services, PwC Monks.270 companies in total participated in this survey, including companies from the

leisure and media, construction and building, and retail sectors.

6.2 Public sector companies

6.2.1 Arms-Length External Organizations (“ALEOs”)

We have been provided by GCC with the remuneration details of the board for the following ALEOs:

Glasgow Life

City Building

Cordia

In comparing these organisations with SECL, we would make the following observations:

the structure of the Board is different from that of the ALEOs listed above (with the exception of

Glasgow Life), as it includes non- executive directors recruited from the private sector. Whilst

Glasgow Life has non-executive private sector directors, they are not recruited or salaried. In

29

addition, Glasgow Life has a completely different structure and function from SECL as it is a

charitable company;

the size of the business operated by the ALEOs listed above is not comparable with SECL

(because their turnover is significantly larger) and they operate in widely different sectors, making

arm’s length salary comparisons difficult.

As stated in section 2, if SECL is to be benchmarked as a public sector body, then the table below shows

potential comparators. However, it is recommended that in such a case, in order to make a meaningful

comparison of remuneration, total compensation, including pension, should be considered, rather than just

salary and any variable pay.

a) CEO remuneration

The table below sets out the total remuneration received by the CEO of each of the three ALEOs listed

above and SECL:

Company Turnover Salary Annual Bonus Performance Related

Payment Pension- (Note

1)

Total salary, annual bonus, performance

related pay and pension

Glasgow Life

£100m £132,051 n/a n/a Defined benefit-

£35,200 £167,251

City Building

£200m £134,000 n/a n/a

Defined benefit- £35,700

£169,700

Cordia £150m £119,555 n/a n/a Defined benefit-

£31,900

£151,455

SECL

£18m

£190,000

Expectation: 22% Expectation: 20%

(Note 2) Defined

contribution-12%

Expectation: £292,600

Target: 22-25% Target: 35% (Note 3) Target: £326,800

Max: 30% Max: 50% Max: £364,800

Source: ALEO information provided by GCC in an email dated 13 July 2012, and relates to the 2011/12 tax

year. SECL information provided by SECL. We have not audited this information. The table does not

consider benefits in kind received by the CEOs.

Note 1: The pension calculations for the defined benefit scheme are very high level and for illustrative

purposes only. The benefit accrued in the year has been calculated by multiplying the salary by 1/60th, and

this figure is then multiplied by a flat rate of 16 (based on the HM Revenue & Customs factor). A more

accurate comparison would require a more detailed valuation method.

Note 2: It is assumed that the expected payout under the annual bonus is at the lower end of the target

bonus for the purposes of this table.

Note 3: The Remuneration Committee minutes dated 7 June 2006 note that the Committee’s view for the

long term incentive plan was that the expectation would be 15%, later increased to 20% per annum.

Note 4: Based on a table supplied by SECL, we understand that achieving 100% of target performance

results in an award of 35% of salary and that achieving 120% of target results in a maximum award of 50%

of salary.

30

In an email from GCC on 13 July 2012, it states that there are no specific job descriptions for CEOs in

ALEOs which are based on role profiles and bespoke specifications. The email also states that the starting

salary level for a CEO of an ALEO is generally around £112,000 to £132,000. SECL commented during the

meeting with Deloitte on 27 July 2012 that the ALEO salary data is not directly comparable to the salary

level at SECL, as total remuneration, including pension needed to be taken into consideration. It is very

difficult to make total remuneration comparisons due to the differing nature of the pension arrangements

i.e. defined contribution versus defined benefit arrangements. A more accurate comparison would require a

detailed valuation methodology to be agreed.

In a further email from GCC on 14 August 2012 further details on the defined benefit pension plan operated

by GCC were provided. It is a Local Government Pension Scheme in Scotland (“LGPS”), which is a

statutory, funded pension scheme, meaning the benefits are set out in law. Benefits under the scheme

include:

A secure pension: the benefits received on retirement are based on the length of LGPS

membership and the final year’s pay for the individual. The pension builds up during employment

and keeps pace as pay rises. After the individual retires, the pension keeps pace with the increase

in costs of living.

Accrual rate: an accrual rate of 1/60th is applied to work out the annual pension.

Tax-free cash: part of the pension can be exchanged for tax-free cash on retirement.

Early retirement: an individual can retire from age 60 and receive their benefits immediately,

although they may be reduced for early payment. It is also possible to retire from age 55 and

receive benefits immediately, provided employer consent is received or the individual has been

made redundant or ‘retired in the interests of business efficiency’.

Option to pay extra: an individual can boost their pension by paying more contributions. Extra tax

relief would be received on these contributions. There is no cap applied to the scheme.

31

b) Senior management team

We understand that the remuneration levels of the senior management team at City Building are not

available at present, as they are being reviewed. The table below sets out the total remuneration received

by the senior management team of the remaining two ALEOs listed above and SECL. We have calculated

pension contributions and total salary, annual bonus, performance related pay and pension for the highest

possible pay for a director in each ALEO, and compared this with the senior management team’s

remuneration at SECL.

Role Salary Scale

Annual Bonus Performance

Related Payment

Pension-

For highest paid director

(Note 1)

Total salary, annual bonus, performance

related pay and pension for highest

paid director

Glasgow Life

Assistant director (x1)

Director (x3)

Director (x1)

Senior staff (x4)

£88,000 - £97,500

£74,000 - £86,000

£59,500 - £69,000

£59,500 - £69,000

n/a n/a

Defined benefit-

e.g. £26,000

£123,500

Cordia

Director of Finance (x1)

Head of Service (x2)

Head of Service (x3)

£88,000 - £97,500

£74,400 - £86,000

£59,500 - £69,000

n/a n/a Defined benefit- £26,000

£123,500

SECL

Operations Director

£124,395

Expectation: 10% (Note 2)


Defined contribution-

15%


Target: 10% Target: 35% (Note 4) Target: £190,032

Max: 20% Max: 50% Max: £230,131

Finance Director

£105,060




10%



Max: 20% Max: 50% Max: £189,108

Commercial Director

£105,375




15%



Max: 20% Max: 50% Max: £194,944


£120,152




10%



Max: 20% Max: 50% Max: £216,274

Source: ALEO information provided by GCC in emails dated 13 July 2012 and 14 August 2012, and relates

to the 2011/12 tax year. SECL information provided by SECL. We have not audited this information. The

table does not consider benefits in kind received by the senior management team.

32

Note 1: The pension calculations for the defined benefit scheme are very high level and for illustrative

purposes only. The benefit accrued in the year has been calculated by multiplying the salary by 1/60th, and

this figure is then multiplied by a flat rate of 16 (based on the HM Revenue & Customs factor). A more

accurate comparison would require a more detailed valuation method.

Note 2: It is assumed that the expected payout under the annual bonus is at the lower end of the target

bonus for the purposes of this table.

Note 3: The Remuneration Committee minutes dated 7 June 2006 note that the Committee’s view for the

long term incentive plan was that the expectation would be 15%, later increased to 20% per annum.

Note 4: Based on a table supplied by SECL, we understand that achieving 100% of target performance

results in an award of 35% of salary and that achieving 120% of target results in a maximum award of 50%

of salary.

In an email from GCC on 14 August 2012, it was explained that all employees start at the bottom of the

scale when they are appointed to a new post. They then receive an annual increment automatically until

they reach the top of the scale. The increment is not dependent on performance by the employee.

All the members of the senior management team are eligible to participate in the LGPS, a defined benefit

pension scheme, as outlined above in section 6.1.1.

33

6.2.2 Companies with links to Local Government

As SECL is primarily a private company, with the majority of the shareholding held by GCC, it would be

beneficial to compare the remuneration packages for directors and senior management at other companies

controlled by UK councils.

We have looked for UK councils of a similar size to GCC, who control external companies of a similar size

to SECL, and set these out in the table below:

Local Government Connection

Population size

Company Year Turnover Directors Remuneration Pension Scheme

Glasgow City Council

598,830 (2011)

Scottish Exhibition Centre Limited

31 Mar 2011

£18m CEO remuneration: £244,253

Total directors’ remuneration: £887,864

Defined Contribution

City of Edinburgh Council

495,360 (2011)

Waterfront Edinburgh Limited

31 Dec 2010

£0.3m No directors received emoluments from Waterfront Edinburgh Limited

Defined Contribution

CEC Holdings Limited

31 Dec 2010

£11m No directors received any remuneration

Defined Benefit

Lothian Buses Plc

31 Dec 2011

£117m Highest paid director’s emoluments and benefits: £211,000.

All directors’ aggregate emoluments and benefits: £855,000

Defined Benefit

tie Limited 31 Mar 2011

£64m Highest paid director’s emoluments: £150,000.

All executive directors’ salaries and benefits: £203,330.

Defined Benefit (for 1 director)

Manchester City Council

498,800 (2010)

Northwards Housing Limited

31 Mar 2011

£26m Highest paid director’s emoluments: £101,000.

All executive Officers’ aggregate emoluments: £325,000.

Defined Benefit

Barnsley Metropolitan Borough Council

224,600 (2008)

Berneslai Homes Limited

31 Mar 2011

£33m All non-executive directors

Highest paid director’s emoluments: £8,913.

All directors’ aggregate emoluments - £32,000

No pension contributions were made on behalf of any directors

Source: Information taken from companies’ accounts. Population information is from internet searches. More remuneration information for Scottish Exhibition Centre Limited is in section 3.1 of the report.

34

6.2.3 Chief Officials of Local Authorities

GCC provided information from the Convention of Scottish Local Authorities (“COSLA”) which sets out pay

scales for Chief Officials of Local Authorities. We have not included these pay scales in our review, as we

do not consider that the Chief Official of Local Authorities is a relevant role to benchmark SECL directors

against.

However, it provides a useful context around pay rises, and we have noted a general trend from the

COSLA circular. Chief Officers of Local Authorities received salary increase of 2.5% with effect from 1 April

2008, 1 April 2009 and 1 April 2010 respectively. This salary increase then ceased, and COSLA has

confirmed that the pay for Chief Officials has been frozen since 2010.

If it is determined that it is appropriate to benchmark the SECL directors against the public sector, it would

be appropriate to benchmark against the directors at a lower level, for example, directors at ALEOs or

directors at companies controlled by UK councils.

Source: email from GCC on 15 August 2012, including circular from COSLA dated 1 July 2008.

6.3 Other comparator companies

6.3.1 Comparator arenas

According to the 2012 list of the ‘Top 100 worldwide Entertainment Venues’, complied by Pollstar (the

leading industry publication) the SECC has climbed to 13th place globally, based on attendance and

volume of tickets sold by arenas for concerts and special events.

As 13th in the world, the SECC is ranked higher than other major venues including the Staples Centre in

LA and Madison Square Gardens in New York.

The SECC has consistently climbed in the Pollstar poll from 45th in 2010 and 28th in 2011, to 13th in less

than 3 years. It is aimed that the new Hydro development will be one of ‘the top five’ venues in the world.

We have therefore looked to compare the remuneration packages of SECL to the remuneration packages

of other arenas in the Pollstar list.

We have been provided by SECL with a table listing the amounts paid to the highest paid directors of

several arenas and entertainment companies. We have included this information in the table below, along

with a comparison of the relevant size of each company. Where the information provided by SECL conflicts

with the figures publishes in the annual accounts, we have recorded the figure in the annual accounts. The

main difference in the figures from those provided by SECL is that some contained pension contributions,

but we have removed these for consistency and comparator purposes. In order to use the below

information for total remuneration comparison purposes, and accurately reflect any pension contributions,

further research would be required.

The table below gives an overview of the emoluments paid to the highest paid directors. Please note that

the highest paid director emoluments information does not give an insight into the breakdown of the

remuneration. It is not clear how much relates to base salary or benefits in kind. It is also not clear if an

annual bonus or long term incentive exists, and how much was paid to the director.

35

Arena

Turnover

£

Year

End

Month

Year ended

2011

£

Year

ended

2010

£

Year

ended

2009

£

Year

ended

2008

£

Year ended

2007

£

The National

Exhibition Centre

Limited, Birmingham

£123m

(2010) Mar 450,000 536,000 524,000 372,000 245,000

London International

Exhibition Centre Plc

30m

(2010) Dec - 655,380 621,642

558,517

(Note 1)

761,783

(31 Jan

2008)

SMG UK Ltd 23m

(2011) Dec 290,000 281,000 261,000 266,000 283,000

Haymarket Exhibitions

Ltd

13m

(2010) Dec - 237,000

919,000

(Note 2) 403,000 453,000

Tarsus Group Limited 3m

(2011) Dec 602,306 408,390 516,794 481,994 382,864

Live Nation (Music)

UK Ltd

167m

(2010) Dec 1,155,256 642,232 482,249

818,168

(Note 3) 331,007

SECL 18m

(2011) Mar 262,064 199,556 234,431 229,666 251,371

Source: Information and figures taken from table titled ‘Highest paid directors’ supplied by SECL. Checked

against company accounts, where available.

Note 1: Highest paid director also received an additional loss of office payment of £700,000 in the year

ended 31 December 2008

Note 2: No explanation given in the accounts for the increase in emoluments paid to the highest paid

director in the year ended 31 December 2009

Note 3: Highest paid director emoluments in the year ended 31 December 2008 includes an amount of

£423,000, which was receivable in relation to services to the company for future years. No further

explanation is given in the company accounts.

6.3.2 Scottish Convention Centres

We have also looked at the remuneration packages for directors and senior management at other

convention centres in Scotland. Although the accounts do not disclose adequate information for a

meaningful comparison, we have noted some key points for the Edinburgh International Conference Centre

and the Aberdeen Exhibition and Conference Centre Limited.

Information was limited with regard to other convention centres based in Scotland.

Edinburgh International Conference Centre

The accounts state that the directors and key management (which comprise the board) were not

paid any emoluments during year ended 31 December 2010 (the same applies to the previous

year). The accounts do not provide a reason for this.

36

It is noted that the turnover of the Edinburgh International Conference Centre is almost £5m, which

is significantly lower than the £18m turnover of SECC in the year ended 31 March 2011, making

the companies less comparable.

Aberdeen Exhibition and Conference Centre Limited

The accounts state that the directors received aggregate emoluments £198,244 for the year ended

31 March 2011.

The aggregate emoluments (excluding pension) received by the SECL directors was £887,864 for

the year ended 31 March 2011.

It is noted that the turnover of the Aberdeen Exhibition and Conference Centre Limited is almost

£6m which is significantly lower than the £18m turnover of SECC in the year ended 31 March

2011, making the companies less comparable.

SECL have stated in the meeting with Deloitte on 27 July that the business is not comparable with

Edinburgh International Conference Centre or Aberdeen Exhibition and Conference Centre.

6.3.3 UK Convention Centres

We have also looked at the remuneration packages for directors and senior management at The Queen

Elizabeth II Conference Centre (“QEIICC”) in London, to provide an additional comparator.

The QEIICC is an executive agency of the Department of Communities and Local Government. It consists

of large conference suites, exhibition space, banqueting and reception rooms, and smaller meeting rooms.

It differs from the SECC as it does not hold concerts or music events, a major focus of the SECC business.

The QEIICC is primarily a conference centre.

It should also be noted that the QEIICC is much smaller than the SECC. For example, the QEIICC has over

2,000msq exhibition space on one floor, but the SECC’s largest hall has exhibition space of over

10,000msq.

Source: the QEIICC website (www.qeiicc.co.uk) and the SECC website (www.secc.co.uk)

We have noted some key points from the QEIICC for the year ended 31 March 2012 below:

The CEO received a salary of between £85,000 and £90,000 in the year. He also received a bonus

of between £5,000 and £10,000.

The Finance Director received a salary of between £70,000 and £75,000 in the year. He also

received a bonus of up to £5,000.

The Commercial Director received a salary of between £60,000 and £65,000 in the year. He also

received a bonus of up to £5,000.

It is noted that the turnover of the QEIICC was over £10m in the year ended 31 March 2012, which

is lower than the £18m turnover of SECC in the year ended 31 March 2011, making the companies

less comparable.

http://www.qeiicc.co.uk/

37

Commentary

The current base salary of the CEO, Finance Director and Commercial Director of SECL are positioned

above the range for the CEO, Finance Director and Commercial Director roles in the QEIICC. However,

we have not considered the relative size of the business (which seems to be smaller and less complex that

that of SECL) nor the roles and responsibilities of the individuals.

The CEO, Finance Director and Commercial Director at the QEIICC received annual bonuses. We not do

have details of the potential award under the annual bonus plan or any other details of the incentive. The

remuneration of the CEO is determined by the Department for Communities and Local Government. The

annual bonus for the other members of staff is linked to the financial performance of the centre.

The QEIICC accounts state that the banded remuneration of the highest paid director was 2.69 times the

median remuneration of the workforce.

38

7 Current Economic and Financial Environment

7.1 Current trends

Generally, in the quoted private sector, the attention on executive pay over the past few years has been

growing. There have been many high profile cases in the media and shareholders are focusing more

attention on the remuneration packages paid to executives.

The concerns cover a wide variety of issues, including salary increases, termination payments and bonus

payouts which appear unjustified. In addition, the lack of disclosure, particularly in relation to explaining the

link between bonus payout and performance, has also been raised as a concern.

Smaller quoted companies are continuing to apply restraint to the remuneration of directors, in light of the

economic climate. For the past three years the majority of companies have given no salary increase to

their directors. In addition, bonus payouts are still significantly lower than before the economic crisis.

7.2 Current trends in listed companies

Although SECL is a private company, as noted above, the trends in listed companies can still have an

impact on the approach to remuneration of SECL directors. We have therefore set out a brief outline of the

current trends we have seen in FTSE 250, FTSE SmallCap and AIM companies recently. This information

is taken from Deloitte publications (‘Your Guide to executive directors’ remuneration’, September 2011, and

‘Be equipped- directors’ remuneration in smaller companies’, March 2012).

It is interesting to note that salary increases in FTSE SmallCap companies have decreased in recent years,

and increases continue to be low in 2012. Executive directors’ salaries did not increase in over half of

FTSE SmallCap companies and 45% of FTSE 250 companies.

In relation to relative salaries between board members, the salary of finance directors and other main

directors in FTSE SmallCap companies tends to be approximately 65% of top full time executive’s salary

(70% in AIM companies). Based on the current remuneration figures which have been supplied for SECL,

the Finance Director’s salary is 55% of the CEO’s salary, and the Operations Director’s salary is 65% of the

CEO’s salary.

The below table contains a summary of average salary increase for executive directors in FTSE 250, FTSE

SmallCap and AIM listed companies since 2006.

We have not compared quantum to SECL but have provided the data to show trends amongst increases in

the salaries of executive directors throughout the review period.

39

Year of Report

Base salary increase trends in FTSE SmallCap and AIM companies

Base salary increase trends in FTSE 250 companies

2006 Report not published Median base salary increase for executive directors of 6.6% (Note 1)

2007 Median base salary increases for directors of 7.0% in FTSE SmallCap and 9.2% in AIM companies

Median base salary increase for all full time executive directors in the FTSE 350 of 7.5% (Note 1)

2008 Median base salary increases for all full time executive directors of 6.1% in FTSE SmallCap and 13.8% in AIM companies

Median base salary increase for all full time executive directors in the FTSE 350 of 7.0% (Note 1)

2009 Median base salary increases for all full time executive directors of 7.0% in FTSE SmallCap and 11.4% in AIM companies

Median base salary increase for top full

time executive directors in the FTSE 250

of 1.4%

Median base salary increase for all other

full time executive directors in the FTSE

250 of 1.3%

2010

Average salary decrease for the top full time executive directors of 0.3% in FTSE SmallCap companies.

Average salary decrease for the all other full time executive directors of 0.2% in FTSE SmallCap companies.

Median base salary increase for all full time executive directors in the FTSE 250 of 0%

2011

Average salary increase for the top full time executive directors of 1.2% in FTSE SmallCap companies.

Average salary increase for the all other full time executive directors of 0.7% in FTSE SmallCap companies.

Median base salary increase for all full time executive directors in the FTSE 250 of 3%

2012

Median salary increase for all full time executive directors of 0% in FTSE SmallCap companies.

Median salary increase for the all full time executive directors of 3% in FTSE AIM companies.

Report not yet published

Source: Deloitte Be Equipped and Executive directors’ remuneration publications from 2006 to 2012.

Note 1: Our survey covered FTSE 350 companies as a whole in this year, and did not split to show FTSE

250 companies. We have therefore reported the median salary increase for the group of FTSE 350

companies with the smallest market capitalisation, as this would be the most relevant of groups for

comparator purposes.

40

Appendices

41

Appendix 1: Historic remuneration/financial data comparison

Summary table of key financial data and total directors' remuneration for the years ended 31 March 2007 to 31 March 2012

Y/E 31 March 2007 £ Remuneration element

Total received by directors (note 2)

Turnover (joint venture) (note 1) 15,722,654 Salary 667,750

Turnover 14,152,154 Bonus 141,300

Profit before tax 2,103,581 LTIP 200,325

Profit after tax 1,412,239


Total received by directors (note 2)

Turnover (joint venture) (note 1) 16,421,498 Salary 682,468

Turnover 16,421,498 Bonus 84,353

Profit before tax 1,105,548 LTIP 110,086

Profit after tax 840,512


Total received by directors

Turnover 18,099,566 Salary 596,253

Profit before tax 627,812 Bonus 91,588

Profit after tax 165,669 LTIP 94,714














Profit before tax (29,838,047) Bonus 50,386

Profit after tax (29,918,790) LTIP 128,996

Source: Annual Report and Accounts of the Company for the years ended 31 March 2007 to 2012 and

remuneration data provided by the Company.

Notes:

1) Turnover data including share of joint venture (subsequently excluded for years ended 31 March

2009 onwards).

2) Remuneration data varies as the roles for sales and marketing were consolidated. Please see

Section 4.

42

It is apparent from the above information that the profits have fluctuated over the previous years, and in the

year ended 31 March 2012, the Company recorded a loss. SECL have provided further information on

SECL’s profit and loss account since the year ended 31 March 2007, to explain the profit movements in the

business, as outlined below:

The Divisional Gross Profits (for Exhibitions, Conferences, and Concerts etc) are heavily

influenced by the availability of space in any one year for the events to take place.

The income from QD2 Events has decreased over the years, from £826,000 in 2006/07 to

(£384,000) in 2011/12. This shows the difficult environment facing show organisers. It also

incorporates the level of investment being made to launch shows which are capable of going into

the extra space once Concerts & Events are transferred to the new Hydro Arena.

Investment income has also decreased over the years. Investment income is heavily influenced by

the drop in bank interest rates.

Box Office interest figures from advance ticket sales have also decreased due to the drop in bank

interest rates.

It therefore appears that the environment in which SECL operates can fluctuate greatly from year to year.

Profit movements occur due to factors such as the amount of events which take place in a year, and also

the level of business investment made. It is also influenced by eternal factors such as the fall in bank

interest rates.

43


We have based our report on the following information, which we have been provided with by GCC and

SECL:

2006 and 2009 FWB Consulting reports and 2012 FWB Consulting draft report.

Letter from the CEO dated 25 June 2012 which includes terms of reference of Remuneration

Committee. We understand these terms of reference of the Remuneration Committee of SECL

were formalised in 2009.

Glasgow City Council draft Remuneration Report for year ended 31 March 2012.

Group accounts for SECL for 10/11 and 11/12.

Extracts of the Remuneration Committee meeting and Board meeting minutes covering the period

from August 2004 to date.

Remuneration Committee reports for GCC and, to the extent there are any, for SECL, for the years

ended 31 March 2006 to date.

Group accounts for SECL for the years ended 31 March 2011, 31 March 2010, 31 March 2009, 31

March 2008, 31 March 2007 and 31 March 2006.

Employment contracts (current and legacy) of the following senior executives covered by the scope

of this review at SECL, together with details of their current packages:

o CEO

o Operations Director

o Finance Director

o Commercial Director

o Sales & Marketing Director

Details of any bonus schemes in operation from 31 March 2006 to date, including performance

measures, performance targets, and the process used in arriving at these.

Details of any long term incentive plans in operation from year ended 31 March 2006 to date,

including performance measures, performance targets, and the process used in arriving at these.

Latest Memorandum and Articles of SECL, as adopted on 28 May 1998.

Benchmark data used by SECL and GCC for senior executive roles covering the period 31 March

2006 to date, namely the FWB Consulting reports dated January 2009 and April 2006, and the

draft report for 2012.

Details of all pension schemes in SECL, being the Scottish Exhibition Centre Limited Stakeholder

Pension Scheme.

Details of all pensions schemes at SECL and the other ALEOs.

Details of defined benefit pension scheme operated by GCC, including scheme rules.

Up to date job descriptions and organograms for the senior team at SECL and the other ALEOs (to

extent not already provided by other documents).

44

Background to and impact of £40m injection by GCC.

Details of packages received in relation to the following external arm’s length organisations:

o City Building, approximately 2,000 employees, turnover £100m.

o Glasgow Life, approximately 2,800 employees, turnover £100m.

o Cordia, approximately 8,000 employees, approximately £50m turnover.

This information was received in an email from GCC in an email dated 13 July 2012.

Details of remuneration discussions between GCC and SECL, and details of GCC representatives

on the board and Remuneration Committee, provided in email from GCC.

Information on profit movements in SECL from 2006 to 2012.

scottish exhibition and conference centre - … · the secl roles included in this report are as...

Documents