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December 2010

Remuneration in the Mutual sector

Thring Townsend Lee & Pembertons LLP proves that the executive bonus scheme ethos is not prevalent in the Mutual sector as benefits are passed to members.

Thring Townsend Lee & Pembertons LLP (TTLP) the financial services regulatory solicitors reinforces the notion that the executive bonus culture, which a whole generation has grown accustomed to, was partially to blame for the 2008 banking crisis. Despite this, the same bonus culture is rearing its head again.  However, the same cannot be said for the mutual sector members of AFM (Association of Financial Mutuals) which is evidenced in the first remuneration survey of AFM members conducted by TTLP.

TTLP’s survey proves that the executive bonus culture does not exist in mutuals in the same way it does in proprietary companies. This therefore leads to a greater trust in mutuals as well as a stronger relationship with their members compared to shareholders of corporates.

Corporates are now moving to bonuses related to increase in share value and are spreading them over a longer period. TTLP can now demonstrate that mutuals have been doing this all along. The result is an increase in financial strength as well as maintenance of member bonuses.   TTLP’s survey also shows that only 50% of AFM members have formal bonus schemes and a large number of those are discretionary, a positive governance that still leads to positive investor sentiment.

Robert Wharton of TTLP comments:

“This review proves that mutuals have been very circumspect in the pay of their executives, leaving more profits to go to members.  Chief executive basic salary varies widely but the additional payments—including pension and benefits-- are very narrow at an average of19% of base salary.  In FTSE 250 companies in 2009, Deloitte suggested the corporate equivalent was 60%.”

Martin Shaw, CEO of AFM continues:

“It is gratifying to see that mutuals have been behaving very responsibly on behalf of their members through the recent crisis period and long may this continue. Likewise the transparent nature of the survey proves that many mutuals have no bonus or benefit schemes at all making them inherently more attractive to investors.”

About the survey

This is the first survey of executive pay within the members of AFM and which provides, on information gleaned from the 2009 accounts of each member, detailed analysis of basic salary, annual bonus payments and other benefits relating to senior executive and non-executive management.

The survey is based on information from the latest reports and accounts to December 2009, where possible from public information or where supplied by the member itself.  It is intended to repeat the survey each summer.

More Information

For a copy of the survey please contact Martin Shaw CEO of AFM on: martin@financialmutuals.org / 07887 547195 or Robert Wharton, head of the FSA regulatory team at TTLP on rwharton@ttuk.com / 020 7766 5600

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