With the spotlight firmly on remuneration during the 2012 AGM season, FTSE 100 companies have continued to improve the structure of executive compensation although there is no room for complacency, according to Deloitte's 2012 FTSE 100 Executive Directors' Remuneration report.
The report highlights that salary increases are lower in 2012, bonus payouts for periods ending in 2011/12 were lower than those in the previous period, and nearly half of chief executives and a quarter of directors hold company shares with a value of at least five times salary.
The median salary increase in 2012 for FTSE 100 company directors is around 2.5%, but one-third will not receive any increase this year compared with 20% last year, according to the report.
Companies are linking performance more closely to the business strategy than basing bonus payouts purely on short term financial achievements. Almost three-quarters of companies base the payout on more than three factors and there has been a significant increase in the use of non-financial measures and those related to very specific business objectives.
Deloitte's research found that there has been no increase in the median potential bonus that may be earned, remaining at 150% and bonus payouts for periods ending in 2011/12 were lower than those in the previous period. However, as a percentage of salary, bonuses paid in the last financial period were still higher than in any other year, except last year.
There has been an increase in shareholding requirements and the level of shareholding generally among FTSE 100 directors. The majority of directors (58%) now hold company shares with a value of at least 200% of salary. In addition, around one quarter of directors (23%) and almost half the chief executives (43%), hold shares with a value in excess of 500% of salary.
Deloitte's research suggests that the 'Shareholder Spring' was not a universal protest movement with only two companies failing to get 50% of the votes in favour. It is clear that shareholders have been more vocal and prepared to mount a strong challenge where they feel remuneration is not consistent with how the shares have performed.
Stephen Cahill, partner in the remuneration team at Deloitte, says: 'Remuneration committees have continued to take a cautious approach to executive pay with overall packages remaining broadly flat compared to the previous year. We are encouraged by lower salary increases and bonus payouts. This suggests that remuneration committees are taking steps to ensure that the compensation paid to executives is fair and reasonable and linked to the long-term strategy and success of the business.'
