FTSE 250 companies build on investor support for remuneration
13 November 2015
- 85% of companies received in excess of 90% of votes in favour of its annual remuneration report
- Almost a quarter (23%) of FTSE 250 companies have increased the shareholding requirements for their executive directors over the past year
Companies have received more support for the annual remuneration report, according to the latest analysis of the FTSE 250 by Deloitte. 85% of companies received in excess of 90% of votes in favour of the annual remuneration report, compared to 82% last year.
Mitul Shah, remuneration partner at Deloitte, comments: “Investor pressure and regulation have led to some significant changes in executive pay. Companies have sought to respond to shareholder concerns with measures providing a stronger alignment of directors’ interests with the long-term performance of the company. This along with improved engagement and dialogue between companies and their shareholders has resulted in the increased level of support.”
Companies have also responded to calls from some investors for executive directors to hold shares for at least five years. Almost one third of companies (32%) have now introduced further holding periods on long-term share awards earned typically over a three year performance period.*
60% of companies require part of any bonus earned to be deferred for a period of time, most commonly three years. 85% of companies have now introduced clawback and malus provisions in relation to incentive pay.
Almost a quarter (23%) of FTSE 250 companies have increased shareholding requirements for their executive directors over the past year, compared to fewer than 10% last year. 90% of companies now have formal shareholding requirements, up from 85% last year. Half of companies (50%) have stated the number of years over which the director must acquire the shareholding, which is typically more than five years.
As part of these requirements, around half (51%) of companies place restrictions on shares earned from incentive plans until the shareholding is attained.
Shah adds: “Shareholders want to see remuneration structures which align the interests of directors with their own and are particularly looking for evidence of longer term stewardship. This has been emphasised in the recent publication by the Investment Association of the 2015 Principles of Remuneration which now specifically include an expectation that long term incentives should have a performance and holding period of at least five years in total. We believe that there are many different ways in which companies can achieve alignment and stewardship, through bonus deferral, longer term performance periods, holding periods, clawback arrangements and requiring directors to hold specific numbers of shares.
“All of these measures are focussed on greater alignment and the approach taken by each company should depend on their own facts and circumstances and aim to strike a balance between management interests and shareholder interests. We are seeing a significant increase in the number of companies implementing changes to the remuneration structures which are designed to encourage stewardship.”
Shah adds: “Although support for the remuneration report has generally been higher, shareholder reaction to the recruitment arrangements in some companies has resulted in some low voting outcomes, although no FTSE 250 company has received a majority vote against the remuneration report so far this year. Concern has focused on buy-out arrangements and the overall size of the package.
“Although all companies now have an approved policy in place governing the remuneration arrangements on recruitment this has not always proved to be sufficient. The way in which the policy is implemented is critical and it is clear that this has been a key issue for shareholders in 2015.”
Simplification of remuneration arrangements
FTSE 250 companies are moving towards simpler remuneration arrangements. Deferred bonus matching plans are only operated by 10% of companies and were removed by 11 companies this year. Around 85% of companies now operate only one annual bonus plan and one long term plan, compared with 74% in 2014.
FTSE 250 companies are once again demonstrating restraint in relation to salaries. 38% of CEOs and 29% of other executive directors received no increase for 2015, compared with 30% and 27% last year respectively. The median increase for all executive directors is 2.3% in 2015, slightly lower than 2014, which was 2.5%.
The median level of bonus opportunity remains at 120% of salary in FTSE 250 companies. Bonus payouts were slightly higher than last year with a median payout of 69% of the maximum opportunity.
Shah concludes: “In addition to concern over recruitment arrangements, shareholder concern is primarily focused on the need for a clear and justifiable link between pay and performance. Ensuring this link is clearly disclosed is therefore critical. Any awards outside of normal policy or decisions to apply discretion to increase levels of incentive payouts must be accompanied by additional explanation and consultation.”
Notes to editors
*In some companies the holding period does not apply to the entire award but in one in five companies (21%) no shares will be released for five years from the date of award.
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
The information contained in this press release is correct at the time of going to press.
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