FTSE 100 remuneration structures changing

FTSE 100 companies are listening to shareholders and are making changes to remuneration structures to support better shareholder alignment and long-term stewardship, according to research by business advisory firm Deloitte.

Its Directors’ remuneration in FTSE 100 companies research found that two-thirds of FTSE 100 companies’ bonus plans incorporate measures based on the organisation’s key performance indicators.

The research also found that around a third have not received salary increases in 2013. Among those that have, the median increase is 2.5%, the same as in 2012.

Median bonus payouts were 67% of maximum bonus opportunity, compared with 75% for 2011 and 87% in 2010. The median level of bonus opportunity is the same as in 2012, at 150% of salary.

A majority (80%) of FTSE 100 companies have introduced clawback and malus provisions into their bonus plans, while 85% operate bonus deferral arrangements.

The research also found:

  • A significant number (92%) of FTSE 100 companies have formal shareholding requirements in place and there has been an increase in the number of shares executive directors are expected to hold.
  • 62% of companies now require executive directors to hold shares with a value of more than one-times salary, compared with 48% last year.
  • 26% of FTSE 100 companies have incorporated longer timescales into their incentive plans.

Stephen Cahill (pictured), partner in the remuneration team at Deloitte, said: “It is clear that companies now understand there is no rationale in normal circumstances for giving salary increases to executives that are higher than those given to other employees. It also does not mean that there should be expectations of salary increases being awarded every year.

“We believe incentive plans should support the longer-term success of the company and not be based solely on short-term financial performance. At the same time, it is important to recognise that payouts must reflect the overall financial performance in the year to which the bonus relates.

“Last year, we noted that there was still work to be done on changing both bonus targets and expectations. The lower bonus payouts appear to reflect lower earnings per share growth across FTSE 100 companies. Companies have listened to their shareholders and made a move in the right direction by strengthening the link between pay with performance.

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“We think these findings go some way toward explaining why shareholders have generally been more supportive of arrangements this year, compared with 2012. Our experience suggests that many companies, when they anticipated contentious issues, chose to engage with shareholders earlier and more extensively.

“We are starting to see a genuine move towards a stronger alignment between remuneration, company strategy and performance.”