Deloitte research: Executive directors see salary rises in 2011 after two-year pay freeze

Most executive directors have seen their salaries rise in 2011 after a two-year pay freeze, according to research by Deloitte.

Its Executive directors’ remuneration report provides analysis on basic salary, salary increases, annual bonus payments, details of annual and long-term incentive schemes and pension schemes.

The report shows that increases for main board directors in FTSE 100 organisations in 2011 are typically between 2.5% to 7.5%, with a median of 4%, and between 0.5% to 5% in FTSE 250 organisations, with a median of 3%.

The maximum annual bonus opportunity for FTSE 100 or FTSE 250 executive directors has remained constant at 150% and 100% of salary, respectively.

Bonus payouts have increased during the year from 71% of maximum to 87% of maximum for FTSE 100 firms, and from 54% of maximum to 86% of maximum for FTSE 250 firms. 

Over the past ten years, across all organisations, median bonus pay outs have consistently been around 70% to 80% of the maximum.

Long-term incentive opportunity for FTSE 100 organisations has remained constant during the year with a slight rise in the FTSE 250. 

However, typical pay out levels as a proportion of the maximum are lower than those of annual bonus plans and there is no pay out from these plans in at least a quarter of firms in most years.

The report also shows that, over the past decade, there has been a large increase in the number of organisations with deferred bonus plans and with shareholding requirements in place for senior executives. 

Shareholdings in the top-performing organisations are typically much higher than these requirements and the actual shareholdings of most executives, with a median of 11-times salary for the chief executive officer in the top performing FTSE 100 firms, and a median of three-times salary for the chief executive officer in the top performing FTSE 250 firms.

Stephen Cahill, partner in the remuneration team at Deloitte, said: “While there have been positive changes, such as the trend towards more deferral and retention of shares and the increase in clawback provisions, we are also seeing above target annual bonuses pay outs on a regular basis.

“Remuneration committees need to remain vigilant and ensure that remuneration is fair and reasonable from a participant’s and shareholder’s perspective. Reward should be linked effectively to the long-term strategy and success of the organisation.

“In addition to limiting salaries, remuneration committees should acknowledge that paying target bonus requires genuinely good performance, when setting the annual bonus targets. For bonuses in excess of this amount, truly stretching performance should have been achieved. 

“The government is about to release new proposals on remuneration disclosure and we expect it to send a clear message to UK businesses that other ways of controlling remuneration have not been ruled out.”

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