One in three FTSE 100 directors received no increase, up from one in five in 2011
Executive pay increases in the UK this year are smaller than last year and more closely linked to business strategy than short-term performance, according to a study by Deloitte, the business advisory firm.
The median salary increase for executives this year has been 2.5 percent, compared with 3 percent last year, according to the study of FTSE 100 companies. At the same time, one in three directors received no pay raise at all this year, up from one in five last year.
The survey adds that almost 75 percent of companies now base bonus payouts on more than three factors and the study observes a ‘significant increase’ in the number of companies using non-financial measures, or measures closely linked to overall business strategy, in determining bonuses. Bonus payouts in the 2011/2012 period are unchanged, at 150 percent.
‘Remuneration committees have continued to take a cautious approach to executive pay with overall packages remaining broadly flat compared with the previous year,’ says Stephen Cahill, remuneration team partner at Deloitte, in a statement.
‘We are encouraged by lower salary increases and bonus payouts. This suggests remuneration committees are taking steps to ensure the compensation paid to executives is fair and reasonable and linked to the long-term strategy and success of the business.’
Directors’ shareholding requirements, and their average level of shareholding, has increased, the study shows, with 58 percent now holding shares worth 200 percent of their salary.
Just under a quarter (23 percent) of directors and 43 percent of chief executives now hold shares of a value equivalent to five years’ pay.
Even though bonuses are little changed in the 2011/2012 period, they are still higher than any other year except last year, when counted as percentage of salary, the study concludes.
‘This is the part of the package where there is still work to be done,’ Cahill says. ‘Any payout in excess of half the maximum should be the result of better than ‘good’ performance and this will, in many cases, require a change in expectations and targets.’
Measures to take effect in 2014 requiring companies to put executive compensation to a binding vote could prompt several changes to pay in the next couple of years, the study predicts. Executive compensation could shift to longer-term packages, with requirements to hold shares until retirement or longer-term share awards, it suggests.
‘This may be a too-simplistic solution to a complex problem but remuneration committees would be wise to give some thought as to whether three years is sufficiently long term,’ Cahill comments.
‘We are seeing more companies introducing further retention requirements at the end of the performance period together with a continued increase in deferral, with four out of five companies now operating some sort of bonus deferral.’
