Bonuses are on the rise as top pay stalls

WARY shareholders are keeping pressure on companies to rein in executive salaries ahead of annual meetings this year, a new survey today found.

Executives at FTSE 350 companies are expected to see minimal pay increases with more than a fifth of boards planning a pay freeze on top staff despite firms’ performance bouncing back strongly since the financial crisis.

But bonus payments are rising, with FTSE 100 chief executives’ bonuses rising by nearly a third last year to 111 per cent of base salary, the PwC FTSE 350 Executive Remuneration Survey found.

Where awarded, salary rises are expected to be low at about three per cent, a slight increase on the average 2.8 per cent raise in 2010 and a sign that boards are aware restive shareholders may oppose large pay deals.

Institutional investors voiced concern at HSBC’s proposed £13.3m award to new chief executive Stuart Gulliver last week. In 2007 and 2008 salaries rose by six per cent.

“Shareholder activism on pay has stepped up substantially over the last few years and seems to be having an effect. It looks like 2011 will be the third consecutive year of pay rise restraint,” said PwC reward partner Sean O’Hare.

Firms keen to keep top staff are pushing bonus ceilings up to compensate, with 30 per cent planning to increase executives’ maximum potential bonuses this year. In 2010 the median bonus ceiling jumped 25 percentage points to 175 per cent of base salary.

Deferrals are becoming more common as boards bow to regulatory pressure. About three quarters of FTSE 100 companies and 58 per cent of FTSE 250 companies now defer about half of all bonus awards.

A fifth of companies also operate clawbacks, where bonuses can be reclaimed in the event of material change at a company. Another fifth are planning to add clawbacks.

Remuneration plans will be presented by boards to shareholders at the many annual general meetings scheduled for April and May.