More FTSE 100 CEOs see pay freezes – PwC report

Published at 00:01 AM on 07 September 2015

  • Pay restraint continues as over a third of FTSE 100 CEOs receive no salary increase this year – up from a quarter last year
  • Companies are improving bonus disclosure and making pay harder to earn by requiring executives to hold shares for longer and adding clawback conditions
  • Bonus pay-outs as a percentage of the maximum award available remain at the same level for the third year in a row
  • Almost all CEOs receive a significant bonus each year raising questions about whether variable pay is living up to its name

New PwC analysis reveals that over a third (36%) of FTSE 100 CEOs received no salary increase this year, up from a quarter in 2014. Those chief executives that did get a raise saw a median 3% pay increase, taking median base salary to £891,000 for the current year.

PwC’s ‘Taking stock – Review of 2015 AGM season’ report reveals that bonus outcomes are also largely unchanged from the previous year. The analysis shows that the maximum bonus FTSE 100 CEOs can receive as a percentage of salary has not changed since 2011. And 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.  

The median annual bonus paid to FTSE 100 CEOs in 2015 was £1.12m, a median increase of 3% from the prior year. The median total single figure of remuneration increased by 6.8% to £4.28m. This was largely influenced by positive stock market performance up to the early part of 2015. 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.

Most companies are introducing best practice remuneration structures in response to shareholder demands. This includes increasing the amount of time executives have to hold on to their shares after they vest. Over half of FTSE 100 companies now stipulate that there must be five years between the granting and release of long-term incentives. Clawback has been introduced by almost all companies so that bonuses can be reclaimed in the event of wrongdoing.

The majority of companies are also using more performance measures to determine long-term incentives. Notably, more non-financial measures are being incorporated into many long-term incentive plans to reflect shareholders’ focus on linking reward to strategy and sustainable performance.

Tom Gosling, executive pay partner at PwC, said:

“Remuneration Committees have again exercised pay restraint, with over a third of CEOs having salary freezes. Bonuses paid to CEOs have on average increased at just 3%.  This continues the trend of largely static executive pay levels in real terms since the financial crisis. Pay has also become harder to earn, with longer holding periods and clawback. 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.

“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.”

Ends

Notes to editor:

  1. PwC’s report is based on analysis of FTSE 100 annual reports for year-ends in the twelve months to 31 May 2015. The report looks at policy and at actual incentive outcomes. The analysis looks at median pay rather than the average, which can be distorted by very high pay from one of two companies.
  2. The single figure for pay comprises base salary, pensions and benefits, bonus for the reporting year and long-term incentive plans that pay-out based on performance in the reporting year. This is the statutory basis on which companies must now report total pay.
  3. Monetary values for bonus and single figure are based on companies where a CEO was in place for the full year to avoid distortions from CEOs who only served a part year. Percentage increases are based on companies where the CEO has been in place for at least two full years to ensure comparability between the current and prior year figures.

 


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