BY Fraser Tennant
Pay restraint continues to hit senior executives with over a third of FTSE 100 CEOs experiencing a salary freeze this year, up from a quarter in 2014, according to new analysis by PwC.
The ‘Taking stock – Review of 2015 AGM season’ report reveals that while almost all CEOs still receive a significant bonus each year, pay rose by a median 3 percent (meaning a CEO median base salary of £891,000 for 2015).
The PwC analysis also shows that organisations are improving their bonus disclosure policies and making pay more of a challenge to earn by requiring senior executives to hold onto shares for longer as well substantially beefing up clawback conditions.
“Remuneration Committees have again exercised pay restraint," says Tom Gosling, executive pay partner at PwC. “This continues the trend of largely static executive pay levels in real terms since the financial crisis. But with the average FTSE 100 CEO earning in a year what several ordinary people might earn in a working lifetime, remuneration committees need to make sure that pay-outs are fully justified by performance to help rebuild trust in business.”
Furthermore, the report states that: (i) bonus outcomes are also largely unchanged from the previous year; (ii) the maximum bonus FTSE 100 CEOs can receive as a percentage of salary has not changed since 2011; (iii) median bonus pay-outs have been unchanged for the past three years at 72 percent of the maximum award available; and (iv) CEOs at four out of five companies were paid more than half the maximum bonus and just 4 percent of companies paid zero bonus.
Mr Gosling continues: “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.
“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.”
The PwC report is based on analysis of FTSE 100 annual reports in the 12 months to 31 May 2015.