Almost half of chief executives in the UK’s largest 100 corporates have agreed to freeze their salaries this year after almost a decade of unprecedented increases.
An annual survey by law firm Addleshaw Goddard into FTSE350 executive pay and remuneration has found that 43.5% of CEOs have agreed to the freeze for 2009/10.
The research also showed that 69% of FTSE100 and 49% of FTSE250 companies now operate a deferred annual bonus plan.
Addleshaw Goddard said it is predicting a major overhaul of the UK executive pay model in response to shareholder pressure during the recent economic downturn which would see future reward and remuneration more closely linked with longer-term performance targets.
Key findings from the survey were:
- 43.5% of chief executives in FTSE100 and 49.2% of CEOs in a FTSE250 have taken a pay freeze for 2009/10.
- A number of executives are also having salary increases pegged to the wider workforce for 2009-2010 (for example, Next with a 1% salary increase) or even seeing their salary being reduced for the year (for example, at GKN the chief executive has waived 20% of his salary for the year).
- Last year’s average reported increase in salary for a FTSE100 CEO was 7.1% and for a FTSE250 CEO is was 7.7%. These are similar levels to those seen in 2007/08.
- 94% of FTSE100 and 76% of FTSE 250 companies are now operating a performance share plan. Typical award levels are around between 125% and 200% of salary which is a similar level to those in 2007/08 although a number of companies are reducing the actual awards granted in 2009/10, to reflect a combination of falling share prices and, in some cases, the easing of performance targets. However, in many cases, the actual number of shares comprised in awards is still significantly higher than previous years, and this is an area of concern to investors.
Michael Carter, head of the employee incentives group at Addleshaw Goddard, said: “Investors have been keen to see the brakes being put on senior level remuneration over the last 12 months. A number of companies have looked to change their performance targets for both annual bonuses and long-term incentives to take into account the unsettled economic conditions, and shareholders will continue to focus on these to ensure that the pay-outs are commensurate with value delivered.”
“With increasing public scrutiny and reputational risk, the pressure on remuneration committees to manage their reward programmes has become more intense over the last 12 months with the spotlight turning on the composition and operation of the committee. This is partly as a consequence of the pressure institutional shareholders are under from both their clients and politically to be seen to be taking an active role challenging boards around their remuneration policies.”