Employers risk losing experienced executives if they cut pay and reward

Employers risk losing some of their most experienced executives at the point when they need them most if they cut back on compensation and reward packages.

A Watson Wyatt survey of 4,800 executive directors and senior managers from FTSE 100 companies found that 31% of chief executives over the age of 55 would change jobs or retire if they felt there was no prospect of incentive paying out for several years. And 27% of executive directors of the same age would also leave their jobs if compensation was held on a long-term basis.

The findings of the Executive Reward Survey 2008 also show that 42% of participating companies require their chief executives to hold 200% of their salary in the form of shares.

Sue Bartlett a, senior reward consultant at Watson Wyatt, said.“If you are an executive with your own money tied up in shares to the value of twice your salary and you’ve seen the share price halve, you’ve effectively already been working for no salary this year. Who in this position wouldn’t start wondering if it is worth sticking around to fight through what could be a long recession?”

The survey found that salary increases for executives in 2008 were slightly lower in 2008 than in 2007 and companies are predicting lower increases still for 2009. Bonus potential has remained stable between 2007 and 2008 for both on-target and maximum achievement.

The number of companies that offer final pensions to newly recruited executives has continued to decrease. Only 18% of companies in the survey would offer a new chief executive a final salary pension and where cash is offered in place of pension, the typical rate for main board directors is between 20% and 25% of salary in FTSE 100 companies and between 15% and 20% of salary in FTSE 250 companies.