Demystifying Executive Pay
Posted on 11 December 2012
Recent research from Income Data Services identified that pay within the FTSE 100 companies has increased by 27% over the last 12 months. This provides us with a confusing picture. LTIPs generally pay out on a 3 year cycle, so shares awarded this year will not vest until 2015. What we are seeing now is shares awarded in 2009 are paying out this year. As the value of these shares has risen, it has created a significant payout as they vest. It is the increase in shareholder value that has provided the increase in reward, rather than the company itself paying more in base and bonus.
However it does clearly demonstrate how complex exec reward is now and therefore, how hard it is to benchmark your proposition against other organisations. Bringing in experts can provide the knowledge, skills and experience to help you to design executive reward packages that are competitive, attractive, motivating and most importantly business focussed.
From our experience of working with organisations of all types and sizes, and particularly with the recent round of Remuneration Committee sessions we’re supporting, the typical trends we’re seeing are:
- Cash levels in exec pay remaining fairly static
- Greater shareholder pressure to link pay with business results, and more pressure on Rem Coms to scrutinise these arrangements thoroughly
- A stronger link between individual performance and compensation
- Voluntary adoption of the UK Corporate Governance Code 2012, amongst organisations not mandated by it, as a way of implementing best practice
- Increased pressure on Rem Com members to demonstrate an increasing level of competence and knowledge to understand and implement thoughtful and business-centric arrangements. This requires training and up skilling of individual non-executive directors.
With all these issues in mind one thing that is clearer than ever is the need for solid benchmarking data – across both industry sector and organisations of similar size, and it’s here we see a gap. For medium sized organisations with a turnover of between £25m and £100m there is a lack of robust and relevant executive level pay data, making it difficult to know where your proposition stands in the market. We are investigating the demand for a pay survey that fits with this need, so if your company turnover is less than 100M please get involved.
Please get in touch if you’d like help with any area of Executive Reward.
