The report, by human resources consulting and outsourcing company Hewitt Associates, focuses on how existing pay structures will need to be updated, particularly cash and shares-based incentives, to take account of investors' expectations.
Rob Burdett, principal consultant with Hewitt New Bridge Street in the UK, said:
"Executive remuneration has been the subject of much debate in recent months in the light of greater scrutiny and high-profile interest. What is now clear is that many companies are reviewing their executive reward structures to ensure they meet the demands of the current environment."
Share options could be abandoned in favour of performance shares, which many investors prefer, says Burdett. "The current economic climate strengthens the case for a move away from options. Market volatility makes them an over-geared and more expensive incentive than performance shares, as well as having the potential to over-reward executives when markets recover."
The report also reveals that a pay-for-performance culture is growing in directors' remuneration across the top 100 European companies.
"It will be interesting to see the level of bonus payouts in the coming year in light of the current recession," says Burdett. "With levels of fixed pay unlikely to increase much (if at all) in 2009, the emphasis is firmly thrown onto performance-related pay.
"While some will argue that bonuses are hard to justify in a recessionary environment, we believe it's important that companies maintain incentive arrangements linked to clear objectives. But companies have to remain sensitive to shareholders' views on determining the level of performance that triggers the payment of a bonus. The targets must not encourage undue risk-taking."
Top executive rewards must be redesigned to meet shareholder expectations
Europe's top companies will need to rethink their senior executives' remuneration packages to reflect the new economic reality, according to a report published today.
