Listed firms ‘better at linking pay and performance’, finds report
Chief executives’ salaries in FTSE 350 companies experienced a modest rise of 2.6 per cent during 2012/2013, new figures have revealed.
More than a quarter of these CEOs saw no increase at all in base pay, while 19 had not taken a rise in basic salary for two years running.
These were the findings of a new report by consulting company EY, entitled Into the Light, which revealed there has been a “marked shift” in approaches to executive pay, with companies far more able to demonstrate the link between pay and business performance.
EY found that the larger listed companies were the most restrained on salaries and bonuses. According to the report, CEO bonus payments in FTSE 100 companies decreased by 5.2 per cent in 2012/13, compared to an increase of 0.3 per cent in the FTSE 250.
Two-fifths of FTSE 100 companies awarded bonus payments but made them subject to deferral (for example, making them dependent on long-term performance), yet this was the case for just 25 per cent of FTSE 250 companies.
Looking ahead, there will also be more caution around CEOs’ shareholding interests, said the report. EY predicted that 71 per cent of FTSE 100 companies will require executives to hold double the value of their base salaries in shares, compared to just over one-third of FTSE 250 companies.
More FTSE 100 companies will also require executives to hang on to shares for longer – the number of companies requiring ‘post vesting holding periods’ will be 5 per cent higher than in the FTSE 250.
According to Mark Shelton, EY’s head of executive compensation and reward, greater scrutiny from investors and new legislation around disclosure has helped to fuel this more restrained approach to executive pay.
He said: “While compliance with the new regulations will continue to be a focus for all UK companies in 2014, the underlying issue is demonstrating a better linkage between pay and sustained long-term performance.”
“This change has provided a real opportunity for organisations to go back to their core principles and assess the financial and non-financial behaviours their remuneration packages should be driving.”
EY’s reports adds that the key reward reporting challenges of 2014 will be threefold: disclosure (working out what stakeholders need to know and anticipating concerns); linking pay and performance (looking at metrics and links between personal and corporate performance); and flexibility (striking a balance between providing detail to shareholders while being able to react to unforeseen circumstances).