Executive pay and bonus levels have fallen over the past year – but they’re still running at higher levels than employee rewards.
New research from Mercer Human Resource Consulting reveals that the average basic salary increase for executives stood at 5 per cent in 2006, while average bonuses were 37.5 per cent of base pay – down from 41 per cent in 2005.
But the latest pay award measurements from Industrial Relations Services (IRS) reveals the average pay rise for the quarter to 31 October remained at 3 per cent – although the private sector alone has risen slightly to 3.4 per cent.
Richard Lamptey, principal at Mercer, said: “While executive reward packages continue to attract attention and their increase rate outstrips those awarded to other employees, pay increases for senior managers have been fairly consistent over the last couple of years and have stabilised considerably compared to five years ago.
“This stability is due to a number of factors, particularly the advent of stronger and better informed remuneration committees. Media and shareholder scrutiny, increased disclosure requirements and the pressure to control costs have also played a part.”
Mercer found there were wide variations in bonuses, with some chief executives paid a bonus of 200 per cent of their base salary, while bonuses for finance directors were between 0 per cent and 160 per cent of salary.
In addition, the majority of bonus plans use a combination of financial and non-financial measures, most often with a 50:50 split.
Lamptey commented: “It is now common for executives to have formal bonus schemes with specific financial and non-financial objectives but, increasingly, the emphasis is on ensuring rewards more closely reflect performance. By improving these links, companies can demonstrate to shareholders that they are not paying for mediocrity.”
Performance share plans remain the most prevalent form of long-term incentive (LTIs), with 42 per cent of survey participants operating this type of incentive compared with 36 per cent last year.
The proportion of companies offering bonus matching and other forms of LTIs, such as cash plans, remained broadly stable in 2006.
In separate research, Mercer’s analysis of the ABI’s Institutional Voting Information Service reports for FTSE 100 and FTSE 250 companies found few companies were flagged up in terms of remuneration-related issues.
Lamptey found these results encouraging and concluded: “Remuneration committees are definitely paying more attention to public perceptions of executive pay practices.
“Companies now make greater effort to contain potential excesses, and give plenty of explanation where greater awards are necessary to attract and retain the high-calibre individuals that are crucial to success.”
