The time of executive salaries increasing far in excess of inflation are now over, with more than half of FTSE 350 companies choosing not to boost the salaries of executive directors this year.

 
This situation equates to a two-year salary freeze for many as over two thirds received no increment last year either. Where wage increases were given, the average rate was 3%, much lower than in the past, according to a new report by management consultancy Deloitte.
 
Stephen Cahill, a partner in Deloitte’s renumeration team, said: “Last year, we saw a very large number of companies freezing executive salaries, but at the time it was difficult to predict whether this was a one-off. Now it appears that the years of executive salaries increasing at rates far in excess of inflation and the increase in average earnings are, at least for the moment, well and truly over.”
 
More companies were now realising that executive pay rises must be considered “fair and reasonable” in the current economic climate and when compared with the pay and conditions of more junior staff, he added.
 
The picture for bonus payouts was more mixed, however, reflecting expectations among many renumeration committees that economic conditions in 2009 would be very difficult. Almost all of the larger FTSE 100 firms offered median payments of 100% of salary in the 2008/2009 fiscal year, which was more in line with ‘normal’ levels, following a slight drop last year. The top 30 companies forked out 140% of salary, however, nearly 20% higher than last year.
 
But executive directors in one out of seven of the smaller FTSE 250 firms received no bonus at all and of those that did, the median was about 60% of salary, nearly 10% lower than the previous year.
 
There was also an increasing trend towards renumeration arrangements becoming longer-term in nature, however. In two thirds of FTSE 100 and half of FTSE 250 organisations, an average of between a third and a half of bonuses were deferred, usually into shares, for up to three years.
 
Many of the deferrals were also made subject to forfeiture in the case of a material misstatement of the company’s accounts or gross misconduct by the individual. In some instances, the clawback could also be applied if the bonus was later deemed unjustified or if performance over the deferred period was not considered satisfactory.
 
But Bill Cohen, another renumeration partner, said: “Whilst we are seeing companies introducing clawback provisions, in many cases these are actually no more than might be considered ‘good housekeeping’. Relatively few companies have introduced provisions which could be considered to have real bite.”
 
The average executive director holds shares in the company of an equivalent to 150% of their salary, while chief executives typically hold twice that amount. Based on share price levels of three years ago, these stockholdings have lost a third of their value.