On Monday the FSA outlined new voluntary guidelines for City pay, aimed at encouraging employers to make greater use of longer-term incentives – like paying bonuses in shares instead of cash (which will make it harder to buy that new Ferrari). With many people believing bonus structures were a big factor behind the current financial crisis, there’s clearly now a widespread consensus that the excesses of the banking world need to be curbed.
But what about the rest of UK plc? According to the latest pay survey by Income Data Services, FTSE 100 CEOs earned an average of about £3.5m each last year, an extremely healthy 11.5% increase on the previous year. And less than a quarter of this (£768k) came in salary – the other £2.8m came from long-term incentive payments and a rise in the value of their options. Even those in the next tier down, the FTSE mid-250, notched up an impressive 10% rise.
Strangely enough, despite the rotten year the market has had – the FTSE is currently down about by about a third on last year, even after Monday’s rally – incentive payments were up across the board. Long-term incentives (which track performance over a specified time) breached the £1m mark for the first time, while share options also increased in value - by nearly £900,000 for FTSE 100 directors. Unless the options were granted at ridiculously low levels, this seems a bit hard to fathom..
The interesting question is: what happens next? As the recession continues to bite, and corporate earnings and share prices slide, you’d expect incentive schemes not to pay out in the coming year. But in practice, companies often re-draw their targets to give execs a better chance of hitting them. And if directors keep getting fat bonuses – particularly if jobs are being cut on the factory floor – we could find ourselves embroiled in a ‘fat cat’ debate all over again. ‘If there is ever a time for the pay-for-performance culture that has gripped UK boardrooms in the past decade to live up to its promise, it is when the UK economy enters stormy weather,’ as the report’s author Steve Tatton says.
Of course, we’re inclined to think that those corporate leaders who successfully manage to navigate their companies through the turbulent waters ahead deserve every penny they get. But politically, paying out big bonuses is going to be a hard sell...
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