Member Article

Long term incentive schemes boost executive pay

FTSE 100 companies have palmed bonuses off onto long term incentive schemes, according to figures from Incomes Data Services (IDS).

Although basic pay and bonus growth slowed to a pace that barely increased over the last year, earnings for Directors rose by 10% as a result of an 81% value rise in long term incentives to £1m.

While short term bonuses became almost negligible, incentives were passed over to long term schemes that will safeguard increases in Directors’ earnings.

IDS reported median salary rises of 3.5%, while the value of some long term bonus initiatives rose by an average of 27%.

A survey of all FTSE 100 Directors showed that the value of long term incentives rose from a median of £519,625 in 2011 to £938,888 this year.

Plans to reward Directors over a longer period have now been adopted by over 90% of FTSE 100 firms, with incentives often coming in the form of shares.

Commonly, Directors are given targets for shareholder returns before these incentives can be retrieved.

Steve Tatton, the Editor of the IDS Directors Pay Report 2012/13 commented: “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.”

He added: “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.”

The Institute of Directors commented on Tuesday’s report, and said that issues still exist with Directors’ pay.

Simon Walker, Director General of the IOD said: “Very high levels of pay at the top of the UK’s largest companies damage the legitimacy of business as a whole.

“Most directors in the private sector earn nothing like FTSE salaries, and yet are often damaged by association. It is therefore welcome that top directors’ basic pay is not rising as fast as in the past.”

Mr Walker added that in some cases, pay levels are excessively high and incentives are not appropriately linked to how well the company is doing.

He concluded: “Working with boards, shareholders need to make sure that directors are judged on a range of criteria that reward genuine long-term performance, not just on fluctuations in the stock market.”

This was posted in Bdaily's Members' News section by Miranda Dobson .