Britain’s biggest public companies are still paying out big performance bonuses despite investor concerns about pay, according to a new report by remuneration specialists Hewitt New Bridge Street. Apparently the majority of companies have frozen their directors’ salaries in the past year, as you’d expect. But the figures also show that they took home about 65% of their maximum bonus, in a year when almost all of them have seen their share prices plummet. That’s not going to help them avoid the charge of corporate fat-cattery…
HNBS’s report suggests that boards have made some concessions to the prevailing climate. About 60% have frozen salaries, and on average they’re paying out less in bonuses (as a proportion of salary) than they were last year. And of those companies that disclose their long-term incentive schemes (admittedly only a quarter of the FTSE 100), four in ten have made lower grant sizes for 2010.
On the other hand, this means that 6 out of 10 of these companies have not – so they’re not reducing equity awards, despite the dwindling value of said equity in the past 12 months. What’s more, these directors – the top dogs among whom take home an average £800,000 in base salary – also received about two-thirds of their maximum bonus. Did all these companies really perform to two-thirds of their potential in the last year?
The good news is that the average public company director’s total remuneration does now have a much bigger performance-related element (and more of a long-term focus) than it did five years ago. However, these figures suggest that some companies still haven’t got their performance metrics right, or directors would surely have done a lot worse in a rotten year like the last one.
In practice, most directors will probably still have taken a big financial hit thanks to the declining value of their shares (leaving them on average £600,000 worse off, according to HNBS). But these days, pay schemes have to look fair as well as be fair. Companies are already coming under pressure from investors on this subject, and if they start increasing salaries or paying out hefty bonuses in the next year, during a period of rising unemployment and general salary freezes, they could really find themselves in hot water.
In today's bulletin:
City surprised as inflation sticks at 1.8%
Dell and Sony Ericsson aim for bite of Apple
Worst is over for property and car sales?
Directors got 65% of maximum bonus last year
Jobs at risk as Ryanair grounds 90% of its Manchester flights