Executive pay trends in the US point to frozen salaries in the UK

UK executives are likely to be subject to frozen salaries and clawback policies to their pay packages if trends in the US flow across the Atlantic, according to research conducted by Watson Wyatt.

The survey found that the number of US companies that froze salaries and added clawback policies to their executive pay programmes had jumped sharply during the past three months.

The proportion of respondents that had frozen salaries jumped to 55% from 21% in December. Almost half (48%) of respondents plan to decrease this year’s bonus pool by an average of about 40%. Additionally, 23% of respondents had added a clawback policy.

Sue Bartlett, senior reward consultant at Watson Wyatt, said: “Pay trends in the US – especially at the executive level – often point the way for how things will develop in Europe, and in particular the UK. So far the recession has caused US companies to re-evaluate the long-term implications of their executive pay policies. Although boards are under pressure to make changes, it is still not clear whether the changes they have made have been aggressive enough to placate shareholders. These are exactly the same issues facing UK boards.”

A similar survey conducted by Watson Wyatt in January found that UK companies are taking a conservative approach to base salary increases. There was a significant difference in expected base salary increases between high and low performing companies, with 82% of the low performers freezing executive salaries, but only 38% of the high performers doing so. The UK survey also showed that a significant proportion of long-term incentive awards are going to lapse in 2009.