FTSE 100 directors have seen their total earnings increase by an average of 49% in the last financial year, and are now averaging £2,697,664 per year, according to research by Incomes Data Services (IDS).
The IDS Directors’ pay report found the average rise for:
- Chief executive officers (CEOs): 43.5%
- Finance directors: 35%
- All other directors: 66.5%
The total earnings include fixed pay, salary and benefits, the value of bonuses earned during the year, both cash and deferred, plus the monetary value of an long-term incentive plan awards and the gains made through any share options cashed in during the year.
FTSE 100 directors saw their average bonus payments increase by 23%, from £737,624 in 2010 to £906,044 in 2011.
Steve Tatton, editor of the IDS report, said: “Britain’s economy may be struggling to return to pre-recession levels of output, but the same cannot be said of FTSE 100 directors’ remuneration.
“With closer scrutiny of boardroom pay expected in the future, remuneration committees will have to make sure that they are able to provide full and thorough justifications for the bonuses awarded.
“This means that they will have to be much more transparent about how total benefits packages are structured and how performance is measured.”
Len McCluskey, general secretary at union Unite, said: “This is an astonishing display of boardroom greed. It is exactly why people have been occupying St Paul’s Cathedral to protest against the behaviour of the City elite and a government which is turning a blind eye to these abuses.
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“Directors of top companies should not be getting these outrageous packages, especially those heading up companies that are failing to perform. It is obscene and shows that the City has learnt nothing during the financial troubles of the last four years.”
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It is important to highlight that the IDS survey is focused on 2010 data. Through 2010 the economy was coming out of recession, share prices rose nearly 10% over the year to finish at their highest year end position since 2007, and there was a general mood of optimism in the economy. It is not surprising that bonus and share option pay-outs increased.
Of more interest is what will happen in the coming pay round, with the economic outlook much more uncertain. Our recently published survey of 77 major companies showed that fully 78% expected executive pay to increase further in 2012 with only 3% predicting a decrease. Over 90% of companies are expecting to increase base salaries, with around 30% expecting to increase bonus or long term incentive awards.
Remuneration committees are going to have to work hard to strike the right balance this year. Companies in the survey identified their main challenges as maintaining overall competitiveness of pay and managing executives’ expectations around pay. However, we would highlight the challenge for remuneration committees to demonstrate that they are acting responsibly in the context of a worsening business outlook and growing cost constraints within businesses.
The government has announced its intention to require companies to disclose the link between pay and performance over 5 years as well as showing how pay for the most senior executives compares with company profits and pay of the wider workforce. Companies should bear these future disclosures in mind as they make decisions this year, and make sure they have a good story to tell.
Throughout the recent recession executive pay continued to rise year on year. If this continues, it will only increase the political pressure to act. Companies need to be careful that they don’t create a situation where regulation is imposed upon them, with all its unintended consequences.
Public servants who heal our sick, look after our communities and educate our children are having their pay slashed while FTSE 100 directors’ pay goes into orbit. The contrast is stark and it is sickening. It tells us everything about the sort of society that the coalition government wants to create. They want public servants to work for longer and for less while giving their friends in the City free reign.