Senior executives share pain of the recession

Senior executives are sharing the pain of the recession felt by shareholders and other employees, with typically only finance directors receiving pay increases, according to Watson Wyatt’s 2009 Executive Reward Survey.

Salaries for UK executives were frozen in 2009, with the median salary increase for chief executives and other directors (but excluding finance directors) standing at 0%. Companies are budgeting for zero salary increases in 2010 for executives, compared with a budget for other employees of 2%.

Finance directors, whose skills are in high demand in the current economic climate, saw a median increase of 2.9%.

Sue Bartlett, senior executive reward consultant at Watson Wyatt, said: “We are witnessing a departure from the long-running trend of executives’ salaries increasing at a faster rate than those of other employees. We are now seeing a much closer correlation between the performance of companies and the compensation executives are actually receiving.

“This year the median salary increase for employees below management level was higher than for executives, at 2.5%, and the increases awarded to executives and others were lower than had been budgeted in the previous year. This shows the impact of the credit crunch and recession, and the expectations for 2010 are that salaries will not catch up for the lost ground.”

Bonus payments received in respect of the previous year’s performance were significantly lower for executives. For chief executives the median bonus paid this year was 29% of salary compared with 61% in the previous year and a median bonus opportunity of 135%.

“Some commentators might be surprised that executives are receiving bonuses, even at this reduced level,” said Sue Bartlett. “However, some bonuses relate to the performance of companies that were late in being affected by the slowdown.”

The Watson Wyatt survey found that more companies are deferring payment of annual bonuses, usually into shares for a period of three years. “This trend reflects increased pressure from shareholders and regulators, particularly in the financial sector, where deferral is being insisted upon to reduce risk-taking,” said Bartlett.

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