FTSE 100 CEOs see pay decrease by almost 20% after calmer than expected 2017 AGM season
21 August 2017
- Median CEO pay package down by almost 20%;
- Bonus pay-outs are down and 10% of companies have reduced pension allowances for new executive appointments;
- Increase in the number of shares directors are required to hold;
- 91% of companies received more than 80% votes in support of their remuneration.
The median pay of FTSE 100 chief executives has fallen by almost 20% from £4.3 million in 2016 to £3.5 million this year, according to a preview of Deloitte’s annual FTSE 100 executive remuneration report.
The median salary increase remains at around 2%, as it has for the last few years. However, the number of CEOs receiving an increase in excess of three per cent has halved since 2016.*
Stephen Cahill, vice chairman at Deloitte, said: “The fall in executive pay demonstrates that remuneration committees are making a real effort to address shareholder concerns. This is the first cycle where the legislation introduced in 2013 and primarily voted on during the 2014 AGMs will have taken effect. It seems to show that the current legislation is working.”
Bonuses and long-term incentives
The median bonus opportunity of 150% of salary has remained steady in FTSE 100 companies since 2007. However, in the top 30 companies, over the past four years the median bonus opportunity has fallen from 200% to 185% of salary.
The median potential long-term award has also fallen from 235% to 225% of salary for executive directors in FTSE 100 companies. For the CEOs of the largest companies, the fall in the long-term potential award is more significant, with a decrease of almost 10% from a median of 400% two years ago to 365% this year.
Cahill commented: “We are beginning to see signs that overall pay may be falling, particularly in the largest companies. Alongside the decrease in incentive potential, companies are also beginning to respond to shareholder concerns about pension, with over 10% of companies reducing the pension provision for new executive appointments. Shareholder pressure to simplify remuneration arrangements also accounts for some of this change. For some companies, consolidating a number of different incentive plans has resulted in a decrease in the overall quantum.”
Actual bonus pay-outs in respect of performance are also slightly lower this year at 71% of maximum compared with 77% last year. Long-term awards pay out at a lower level than the annual bonus. Awards made in 2014 have typically paid out between 10% and 60% of maximum with a median of 40% and a quarter of these awards did not pay out at all.
Improving remuneration policies
In the last four years, over half of FTSE 100 companies have increased the number of shares they expect their directors to hold. These guidelines are designed to more closely tie executive salary with the profitability of the companies.
CEOs are now typically expected to hold shares with a value of 2.5 x salary, rising to 4 x salary in the top 30 companies. In fact, directors often hold shares in excess of these guidelines, with half of CEOs and a third of executive directors holding shares with a value of more than 500% of salary.
It is now commonplace for incentive plan awards to be paid in shares which must be held for a number of years. In four out of five FTSE 100 companies any annual bonus earned is partly paid in shares which are not typically released for three years. In three out of five companies, participants will receive no shares from long-term plans for at least five years. Alongside this, companies are introducing stronger measures to enable them to clawback incentive awards in certain circumstances, after they have been paid.
All of these changes are designed to better align directors’ pay with the experience of the shareholders. As a result, 91% of companies received more than 80% of votes in support of their remuneration report, with just one company failing to secure a majority.
Cahill commented: “During the four years since the Government introduced new disclosure requirements, we have seen a very welcome improvement in the level of engagement between companies and their shareholders. With many companies renewing their policies this year we are seeing further moves to incorporate the best practice provisions shareholders now expect. This has meant that, despite predictions of a stormy AGM season, most companies have received a high level of support from their shareholders.”
Cahill concluded: “The current framework is working well and we do not believe further regulation is needed to move things forward. Any future changes, if required, would be better encouraged through the Corporate Governance Code, ensuring that companies have sufficient flexibility to make changes that best support the overall aims of the business.”
Note to editors
* Excluding the number of recent appointments where there are planned increases to bring the salary to market levels.
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