Research update – Performance pay heads up agenda

Companies are placing a growing emphasis on performance pay, according to a survey by Mercer Human Resource Consulting. It found that salary increases for executive directors and senior executives decreased slightly last year, while bonuses went up.

Median salary increases dropped to 5% of base pay in 2005 from 6% the previous year. Median annual bonuses in the companies surveyed increased to 41% of salary from 39% in 2004.

Richard Lamptey, principal at Mercer, said: "It is likely that salary increase rates for executives will continue to decrease as the pay gap between executives and other employees is becoming more difficult for remuneration committees to justify."

The study, which covered reward arrangements for 46 top management roles in 44 UK companies, mainly FTSE-100 firms and other large multinationals, also showed that performance share plans replaced share options as the predominant form of long-term incentive. The proportion of companies offering share options to senior management during the year dropped from 48% to 33%, while 36% of companies offered performance share plans.

Lamptey added: "For the first time, share option plans will be charged to companies’ profit and loss accounts, putting them on a par with other forms of long-term incentive plans in terms of cost. Additionally, many employers turned against options following a long period when shares did not perform that well."

For more information contact Richard Lamptey on 020 7178 5573.