Big business starts to show pay moderation

More than three-quarters of the UK’s FTSE 100 companies have responded in the past 12 months to shareholders’ expectations and the government’s new disclosure and voting rules by changing their remuneration policies.

FTSE 100 companies generally are trying to match directors’ interests with shareholders’ wishes by planning for the longer term, says a report from the professional services consultancy Deloitte.

The longer-term planning has been simplified too, reports Deloitte. In the past year 35 companies have implemented new long-term incentive plans, more than at any time for ten years – but, significantly, fewer than 30% have more than one plan, against almost 50% in the previous year.

Stephen Cahill, a partner in Deloitte’s remuneration team, observes: “A particularly striking finding from this year’s analysis is that in over a quarter of the performance share plans the participants will not receive any shares for five years.

“Overall, almost half the long-term plans in place are now based on time periods longer than three years.”
Another significant change, says Cahill, is that more than 40% of companies today have a policy of clawing back inappropriate incentive payments and share awards, as requested by shareholders.

An additional expectation from shareholders, that directors have a minimum number of shares, is now fulfilled by 96% of companies. More than a quarter of companies have increased the requirement, so that the median is 200% of salary, compared with 150% last year. A 300% figure applies in the largest companies.

Deloitte reports that increases in basic salaries continue to be modest. The median increase is 2.5% and fewer companies have given more than 3%.

Cahill comments: “Companies are showing moderation … demonstrated by the fact that 35% of chief executive directors and 30% of other executive directors received no salary increase.

“Restraint has been particularly apparent in the top 30 companies, where 44% of executive directors received no increase.”

New rules released at the same time by the Financial Reporting Council (FRC) have recommended that remuneration is aligned with a company’s long-term health.

This could mean longer bonus deferrals and a shift to non-cash remuneration, such as shares.

Longer-term strategies, instead of short-term profits, are the intention of the FRC, which devises and enforces reporting rules.

The FRC said: “Executive directors’ remuneration should be designed to promote the long-term success of the company. Performance-related elements should be transparent, stretching and rigorously applied.”

The provisions proposed could involve a company’s ability to withhold bonuses for longer or recover previously paid bonuses.