FTSE350 executives have seen their bonuses fall for the second year in a row and one in ten received no bonus at all in 2013, according to PwC’s annual executive pay survey of large UK companies.
The findings reveal widespread restraint at this year’s AGM season. Total pay (made up of salary, bonus, long-term incentives and pension) has been largely static across FTSE350 senior management positions. Where salary increases have been given, they have been roughly in line with inflation at an average of three percent, which is consistent with 2012 levels. The analysis reveals that around one in five of FTSE100 and 15 percent of FTSE250 chief executives have seen pay freeses in 2013.
Where bonuses were awarded to FTSE100 chief executives, the average (median) payout was £905,000. This is a seven percent fall from 2012 where the median was £975,000. This means FTSE100 chief executives received on average just over two thirds of maximum payout. This is a drop from the high in 2011, where bonus payouts were typically over three quarters of the maximum. The survey shows that senior management and executives below board level in the FTSE100 have seen the largest drop in annual bonus payments across this level in the FTSE350. Their bonuses as a percentage of maximum payout have fallen from 70 percent in 2012 to 62 percent in 2013. There has been a less dramatic fall for the same roles in FTSE250 companies, whose bonuses have been largely flat. PwC data indicates that FTSE350 companies are planning minimal changes to pay levels next year, with most budgeting pay rises of between 2.5 percent and 3.5 percent for all management levels.
Tom Gosling, head of PwC’s reward practice, said: “It is unsurprising that following a bruising 2012, companies have been keen to avoid the spotlight by demonstrating a responsible approach to executive pay this year. Restraint is the name of the game, with relatively few changes to pay plans this year. Where there has been change, it has been managed carefully through increased engagement with shareholders and more intensive work in the run up to the AGMs. This pattern of active engagement and consultation with shareholders is only set to continue as the new BIS reporting guidelines come into force this year. Companies have heard loud and clear from shareholders that bonuses and pay rises that are not closely linked to performance are unacceptable. The fact executives are receiving a lower proportion of their maximum bonus entitlement confirms remuneration committees are getting tougher in setting and measuring bonus targets.
Gosling continued: “The outlook for executive pay over the short term remains unclear. If the early signs of economic recovery translate to improved company performance, remuneration committees will face a conundrum. Improved performance should lead to higher bonus pay-outs, but remuneration committees will be keen to continue showing restraint in what remains a controversial area. The key will be for companies to demonstrate a very robust link between pay and performance.”
