Interestingly, the 27% increase isn’t down to cash bonuses or hikes in basic salaries. Instead, the rise reflects an increase in long-term, share-based incentive schemes. The value of these schemes has risen 81% to £938,000 for directors and to a median figure of £1.6m for chief executives, reckons the report, while basic pay and bonuses have only risen slightly in the last year. Directors' pay is up by a just 3.5%, while the value of bonuses has actually fallen by 4.9%.
The IDS’ Steve Tatton says, ‘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.’
Of course, directors are still earning more money, regardless of the vehicle through which it is delivered, but the rise of long-term incentive plans (LTIP) shows a real trend towards performance-based pay.
These LTIPs are now used by more than 90% of FTSE 100 firms, says the report, and are proving popular with shareholders. And this illustrates the difficulty facing those who have been calling for fair pay restraints at the top of UK plc. What is taken away with one hand is often given back, and more so, with the other.
These deals first became popular at the start of the recession in 2008 when cash reserves were low, posits the report. And now directors are starting to reap the rewards as share prices recover from the lows of the past few years. ‘Directors have had the potential to profit from 'windfall' LTIP gains,’ says Tatton.