Over a third of FTSE 100 CEOs received no salary increase this year and bonuses remained unchanged, suggesting executive pay levels in the UK’s top companies remain largely static, but there is little sign that bonuses are becoming more closely tied to performance, according to PwC
The latest PwC report, Taking stock – review of 2015 AGM season, shows that 36% of CEOs in the UK’s largest companies saw no increase in salary, compared to a quarter the year before. Those that did saw a median 3% pay increase, taking median base salary to £891,000 for the current year.
Bonuses increased on average at just 3% to a median figure of £1.12m according to PwC’s analysis, which indicates that the maximum bonus FTSE 100 CEOs can receive as a percentage of salary has not changed since 2011. Median bonus pay-outs have been unchanged for the past three years at 72% of the maximum award available.
CEOs at four out of five companies were paid more than half the maximum bonus and just 4% of companies paid zero bonus, which PwC says casts doubt on whether variable pay to match performance is a reality.
Tom Gosling, executive pay partner at PwC, said: ‘The consistency in bonus pay-outs is raising questions about how well variable pay is living up to its name. To build trust in the system, remuneration committees must continue to improve the quality of disclosure about how bonus targets are set and whether they are sufficiently stretching. This is likely to be where shareholders’ focus will shift next.’
PwC’s research shows most companies have introduced best practice remuneration structures in response to earlier shareholder demands. Over half of FTSE 100 companies now stipulate that there must be five years between the granting and release of long-term incentives, and almost all have introduced clawback provisions.
The majority of companies are also using more performance measures to determine long-term incentives, including more non-financial measures designed to reflect shareholders’ focus on linking reward to strategy and sustainable performance.
Gosling said: ‘There’s been growing dissatisfaction with long-term incentives, which are often seen as a lottery and too complicated. In response companies are looking for performance measures that more closely link to company strategy. At the same time they’re satisfying shareholder demands by increasing the length of time that shares must be held.’
PwC’s figures shows the median total single figure of remuneration for FTSE 100 CEOs increased by 6.8% to £4.28m, largely influenced by positive stock market performance up to the early part of 2015. The firm says falling stock markets since the start of the year are expected to result in a falling single figure of pay for the next reporting year.
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