Wednesday, 18 April 2007

More on exec pay

The voting advisory service RREV issued a report at the start of the week looking at some of the trends in executive remuneration. Here are the headline stats that RREV disclosed.

Salaries and bonuses

Median salary increases for CEOs ranged from 8% (FTSE 100 and SmallCap) to 14% (FTSE 250). At CEO level, the largest percentage growth was at the lower quartile level, which was particularly marked at FTSE 100 companies, with an increase of 18%.

Annual bonuses

Performance related bonus payments received by executive directors increased by higher percentages than salaries.
At CEO level, median bonus payments at FTSE SmallCap companies increased by 31%, at FTSE 250 companies by 34% and at FTSE 100 companies by 39%.
In 2006 many companies have raised the maximum annual bonus potential. The data shows that bonus payments have increased as a percentage of (increased) salary across the board.

New executive incentive plans proposed

The use of performance share plans continues to account for the clear majority of new schemes.
The number of new option plans and co-investment/matching plans proposed continued to decline, while the number of performance share plans remained approximately the same as in 2005.

Annual award limits

Generally, the median face values of annual award limits under new executive incentive schemes have increased compared to the previous year.

Performance conditions

In 2006 there was a clear shift from the use of pure market-based conditions to the use of a combination of market and non-market conditions.
In the FTSE 100 and FTSE 250 this has been chiefly at the expense of single non-market conditions.
In the FTSE SmallCap, conversely, schemes using a single market-based condition were those that declined, while non-market conditions remained steady.
The most common market-related performance measure in new incentive schemes continues to be relative Total Shareholder Return (TSR) and the most common non-market measure continues to be Earnings per Share (EPS).

Some interesting stuff in there, and it hasn't escaped the attention of the T&G! Of course the question is what are shareholders doing about it? It's all very well wringing our hands over the incessant increases in pay and benefits, but if you don't vote against these policies what can you expect? Unfortunately many institutional investors - and let's be clear that we are talking primarily fund managers here since so few of our pension funds are activists - seem to be happy voting against a handful of key policies a year. This implies the problem is at the margins, rather than endemic.

PS. I've just been looking at our analysis of a fund manager which is publicly-listed (ie you may hold shares in it) and the chief exec received non-pay rewards of not much short of 950% of salary.

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