UK bosses agree pay clawbacks

Steve Dinneen
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MORE than half of the UK’s top firms will soon be tied into schemes where the pay of top executives can be recouped if decisions they make adversely affect the business.

A third of companies say they will introduce so-called clawback schemes next year, adding to the 25 per cent who brought one in over the last 12 months, according to a new study by professional services group PwC.

Banks and most other financials are required by City regulator the FSA to impose such a requirement but intense scrutiny by politicians and shareholders over the link between performance and pay have encouraged more firms to act. RBS, under chief executive Stephen Hester, was the first UK bank to adopt the scheme.

Executives at BT and Premier Farnell are among those who are already subject to clawback schemes.

The findings come ahead of proposals expected this autumn from business secretary Vince Cable on executive compensation. The High Pay Commission will also report on the issue. Clawbacks remain untested in the UK, although Lloyds chairman Sir Win Bischoff said he would consider using them to recoup the bonuses of several executives following the bank’s £3.2bn hit over the payment protection insurance (PPI) scandal.

Most clawback schemes apply to deferred pay and other long-term incentives, with individual remuneration committees responsible for enacting them. However, PwC reward consultant Jon Terry warned the schemes may not give remuneration committees the powers to recoup pay that some shareholders hope for.

He said: “The real issue is under what circumstances they come into effect. They are often limited to mis-stated accounts or evidence of fraud.”

Around 13 per cent of firms will also be freezing the pay of their top executives, with bonuses taking the biggest hit, according to the PwC survey of FTSE-350 companies.

An overwhelming 85 per cent of firms do not plan to increase bonuses this year – the traditional City way of rewarding staff. Most banks have already moved away from bonuses in favour of salary increases in a bid to avert controversy and keep within new guidelines on remuneration.

The majority of respondents said they expect a modest salary increase of between two to four per cent, broadly in line with 2011 rates.

Basic pay for FTSE-350 executives rose 2.8 per cent last year, while the average bonus for a FTSE 100 chief executive was almost 30 per cent higher than the previous year.