Remuneration committees show restraint on directors’ packages

Remuneration committees have shown restraint when setting executive directors’ packages this year, with widespread salary freezes and lower bonus payouts, according to research by Fit Remuneration Consultants.

Its FTSE 100 executive remuneration survey sourced data from companies’ annual reports and included all FTSE 100 companies with a year-end up to, and including, 31 December 2012.

It found that a pay freeze is the most common approach to base salaries, with nearly a third (32%) of FTSE 100 companies not increasing salaries this year, up from 27% last year.

Overall, the median salary increase was around 2.5%, with a number of companies stating that directors’ pay increases, where made, reflected wider staff pay rises.

The research also found:

  • At the median, a FTSE chief executive officer (CEO) receives a base salary of £870,000, with £515,000 for financial directors and £501,000 for other executive directors.
  • Bonus payouts have reduced, down to 69% of the maximum bonus possible, compared to 77% a year ago. The median CEO bonus is more than 15% down on last year.
  • Long-term incentive award levels are largely unchanged.

Rob Burdett, a partner at Fit Remuneration Consultants, said: “Our survey shows that remuneration committees are taking notice of the ever-increasing focus on executive pay, as manifested in last year’s Shareholders’ Spring. 

“As a result, salary increases have tended to be either non-existent or inflation-linked. Also, annual bonus payouts are appreciably lower than the prior year, notwithstanding the strong recovery in markets seen in 2012 that has continued into this year. 

“Indeed, we have even seen some remuneration committees reducing the size of the bonus that would be paid out based on a formulaic test of performance against the bonus targets, on the basis that other factors might make this bonus look inappropriate. 

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“This is exactly the sort of judgement call investors want to see remuneration committees making. While we have not seen the same level of shareholder activism in the 2013 [annual general meeting] AGM season as last year, there is no doubt that the Shareholders’ Spring has had a lasting impact. 

“This, together with the new disclosure requirements and increased shareholder voting power that will come in with the new Department for Business, Skills and Innovation (BIS) regulations means that companies will need to ever more clearly demonstrate that their pay policies are appropriate and genuinely support an organisation’s business strategy.”