Restraining remmuneration

In the new reality where executive remuneration is more under the spotlight than ever, there has been little change in the landscape in the last twelve months.

The KPMG Guide to Directors’ Remuneration found that around 17% of Chief Executives did not receive a pay increase and that those that did were far more in-line with the general employee population, between three and four per cent. Meanwhile, the more contentious area of bonuses has seen a fall thanks to a re-emergence of the ‘Shareholder Spring’.

This remuneration restraint, attributed to the 2012 wave of shareholder rebellions, whereby investors refused to back multimillion bonuses for executives when coupled with unimpressive corporate performance is supported by PwC’s analysis of FTSE 100 companies. It was found that the average CEO bonus came in at £1.14 million in 2013 - down one per cent on 2012.

FTSE 100 companies were not immune from shareholders expressing their displeasure with proposed remuneration schemes. Significant numbers of shareholders at Aviva, Hiscox, AstraZeneca and Barclays voted against the proposed bonuses.

KPMG’s findings show that this will have come as a surprise to some. Their report claims that there were certain observers who believed that executives would be able to play catch-up when the scrutiny had blown over. However, this has not happened as many Remuneration Committees felt uncomfortable with this situation before the recession and now that a change has come about they want to make it stick. Prior to the financial crisis the debate around executive pay was in isolation from the pay of the wider workforce and would often see doubledigit rises for the C-Suite.

Now that regulation changes have come into play, increasing shareholder power over executive remuneration by giving them a binding vote, there is pressure on Remuneration Committees to not be too far out of line with conditions of frontline employees - many of whom have faced difficult times.

Nevertheless, annual reports have shown that, despite modest salary increases and annual bonus payments being comparable to the previous year, total compensation has increased. KPMG asserts that this is driven by an increase in gains from Long-Term Incentive Plans, of which Performance Share Plans continue to be the most popular.

The value of PSP payouts has increased across the FTSE 350. While the increase has been moderate for CEOs in the FTSE 100, KPMG figures show that among the FTSE 250 it has nearly doubled. Schemes such as this have proven to be the main reason behind an increase in total earnings.