The 2010 FTSE 100 Directors' Remuneration report by Hewitt New Bridge Street, the executive remuneration specialist, is the first comprehensive report on directors' pay data from the 2009/10 financial year.
The median salary of FTSE 100 highest paid directors is £823,000. The corresponding figures in the FTSE 30 and 31-100 are £1.06 million and £770,000 respectively. The median salary of FTSE 100 finance directors is around £490,000 and other executive directors approximately £460,000.
The survey found executive remuneration is comprised of two key elements: fixed (typically comprising around 40% of the package) and variable pay (around 60%). The median total remuneration for the highest paid director in the FTSE 100 is just under £3 million (compared with £2.5 million last year). But this increase was largely driven by changes to the constituents of the FTSE 100. Comparison on a like-for-like basis shows that total remuneration increased by only 4%.
Over a third of FTSE 100 companies have frozen salary levels this year (compared with 60% last year). While there is a decrease in salary freezes on a year-on-year basis, this remains high in a historical context, as traditionally base salaries were generally increased each year. Hewitt New Bridge Street’s data shows that where salary increases have been made, the most common rate of increase is broadly in line with inflation.
Fewer companies established new long-term incentive plans in 2009/10 than would normally be the case, although more than last year (a time when investors expected companies to concentrate on more pressing strategic operational issues given the economic uncertainty that prevailed). Therefore, most companies maintained their existing schemes, albeit ensuring that performance conditions applying to new awards reflected the new outlook.
The most common pension provision for FTSE 100 directors is the sole operation of a defined-contribution plan with the median company contribution at 20% of salary. However, potential changes to legislation and the impact of the June 2010 Budget will impact on how companies plan their executive pensions.
Actual bonuses earned for highest paid directors in 2009/10 were about 120% of salary (compared with around 90% last year), or around 75% of the maximum potential (60% last year).
Rob Burdett, a principal consultant at Hewitt New Bridge Street, said: "While the widespread salary freeze imposed in 2009 has thawed to a degree, the days of almost automatic year-on-year above-inflation salary increases for executives are numbered.
"Also, risk audits and greater transparency over executive pay have been embraced by many remuneration committees. However, bonuses paid this year have reached record levels, driven by the unexpected rate of improvement in economic conditions during the year.
"Shareholders may be deriving some comfort from the better performance of the markets. The fact 65% of FTSE 100 companies now require part of the bonus to be deferred into shares, and the increasing number of companies requiring the bonus to be repaid (clawed back) if it is later found to have been paid on the back of
mis-stated results, a practice that was virtually unheard of until recently.
"Shareholders have, perhaps grudgingly, been accepting of increasing annual bonus opportunities in the belief that the targets were being made significantly harder. However, in each of the past eight years, we have seen higher than target bonuses paid. This may make some question how tough the targets really are.
"Continued base salary moderation is likely, with few companies considering it appropriate to increase executive salaries at a faster rate than the workforce as a whole."
Hewitt New Bridge Street predicts that bonuses will continue to remain in the spotlight going into 2011. Target setting remains an issue and the level of disclosure provided by companies in relation to the operation of their annual bonus structure is likely to receive even further scrutiny.
