FTSE 250 companies have a way to go in improving transparency on senior executive pay compared to the FTSE 100 and are facing more challenges from shareholders on remuneration levels, which continue to rise, according to analysis by Deloitte
The firm’s annual FTSE 250 remuneration report shows the median amount paid to FTSE 250 chief executives increased by 11% to £1.8m in 2016. This is in contrast to a fall of 19% (to £3.5m) for chief executives of FTSE 100 companies.
FTSE 250 are also seeing more opposition to pay plans than FTSE 100 companies. Of the FTSE 250 companies which have held an AGM so far this year, 15% have received support of less than 80% of shareholders for either the annual remuneration report or the remuneration policy, compared with 8% last year, and 9% of FTSE 100 companies.
However, the Deloitte report also found that FTSE 250 companies have taken significant steps to strengthen the link between executives and the fortunes of shareholders.
Over a quarter of companies have increased their shareholding requirements for executive directors for 2017, with 56% now requiring executive directors to hold shares with a value of at least 200% of salary, compared with only 40% of companies doing so last year.
Deloitte’s analysis suggests that, taking all components of an executive’s pay package together, the total pay package available for maximum performance in 2017 has increased by 7% for the average FTSE 250 chief executive and 5% for finance directors.
However, FTSE 250 companies are making increasingly large awards to chief executives through long-term incentive plans. The median long-term incentive opportunity for CEOs has increased to 200% of salary, up from 175% in 2016 and 150% in 2015. By comparison, award levels have remained flat, or decreased slightly, in FTSE 100 companies.
The proportion of FTSE 250 companies providing a full range of the financial targets used to determine bonus outcomes, therefore allowing shareholders to more accurately assess whether executives are being stretched, has increased from 48% in 2016 to 59% this year.
Executives are also having to wait longer until they receive their pay, thanks to an increase in the using of holding periods. Deloitte has found that in 51% of long-term plans, no shares will be released for at least a period of five years from award, up from 29% in 2016 and 8% three years ago. More companies are also protecting themselves against rewarding failure, with 78% now having provisions which allow cash bonuses to be clawed back compared with only around half two years ago.
Report by Pat Sweet
