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FTSE 100 bonuses rise faster than company performance

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Almost half of FTSE 100 companies paid executive directors bonuses that grew at a faster rate than company performance over the past five years, a study suggests.

Research conducted by Verum Financial Research found executive directors' bonus payments had grown by 46% between 2008/09 and 2012/13, exceeding growth in company performance.

The report suggests the discrepancy was caused by businesses using the wrong financial metrics to benchmark performance-related pay. It warned that the payments had fuelled “fat cat” media headlines and caused concern among shareholders.

Verum director of research Robert Macnab said the study showed the link between performance-related bonuses and actual company performance was broken.

“The clearest indication of this is that, according to the Verum Index, the performance of all FTSE 100 companies increased by only 2% in 2009/10 yet the bonus element of executive director pay increased by a massive 28%,” he said.

“Overall, total executive directors’ bonus pay increased on average by 5% per annum between 2008/09 and 2012/13, while total FTSE 100 company performance increased by only 2% per annum.

“We also found a huge variation in executive director pay across the FTSE 100, ranging from a five-year average low of £384,220 to a five-year average high of £5,248,454.

“Executive director performance pay is too often benchmarked against a small number of easily influenced metrics.”

Macnab recommended HR professionals evaluate director remuneration by reviewing nine financial measures.

These are return on capital employed, return on investment, return on equity, cash return on invested capital, cash to profit ratio, earnings per share, profit after tax, assets to debt, and equity to debt ratio.