Top executives bonus growth comes to a halt

Published on Tuesday, 06 November 2012 09:43
Posted by Scott Buckler

Basic pay and bonus growth for FTSE-100 directors has slowed, almost to a halt, over the last year, with salaries matching inflation and bonuses down on the previous year, reveals a new report by Incomes Data Services

However a big rise in the value of vested long term incentive plans (LTIPs) awards means that their total earnings have still increased markedly, up 10% at the median. The payment of some high incentives pushed the average rise even higher to 27%.

The median total earnings of FTSE 100 CEOs was £3.2 million, while the average was £4 million.According to IDS, the salary rises for FTSE-100 directors increased by a median of 3.5% but the value of bonus payments received actually declined by 4.9%.Across all FTSE-100 directors, the value of LTIPs rose by 81% from a median of £519,625 in 2011 to £938,888 this year. For chief executives, the value of vested LTIPs reached a median of £1.6million.

Steve Tatton, Editor of IDS‟ Directors Pay Report 2012/13 comments: "Whether a reaction to Government pressure, shareholder concerns or a worse than expected business environment, it seems the brakes have been applied to the basic pay growth for FTSE-100 bosses."
"However while shareholders will be pleased to see more traditional elements of pay seemingly slowing, these figures show that directors‟ earnings can still grow significantly as a result of a complex mix of incentives."

IDS explains that LTIPs are now used by more than 90% of the FTSE-100 and are designed to incentivise directors over a longer term period. They are typically granted in the form of shares and are closely linked to shareholder returns, with directors typically having to reach a minimum target before any shares are granted.

"Many LTIPs are based on comparative performance with competitors, rather than their own company‟s historical performance, meaning that directors stand to earn a payment even if their company‟s performance has worsened – as long as their chosen peer group has done even worse."

Explaining the rise in the value of LTIPs, IDS says that: "Today, more directors are receiving LTIP awards of higher value as a result of the evolution of plan design over the last decade."
"In particular, the maximum value of the share grants received from LTIPs has been steadily increasing over time and when equity prices were low, as they were during 2008 and 2009, directors were allocated a large block of shares. When share prices have subsequently risen, as they have since the depth of the recession, directors have had the potential to profit from LTIP gains."

Steve Tatton says: "Shareholders will not take issue with directors‟ earnings increasing, provided they are doing so in line with company performance and share price."

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