Results fall short as executive pay surges
REMUNERATION committees at the UK’s largest companies are demonstrating a marked failure to adequately link executive pay with performance, according to a damning new survey to be published today.
While the median remuneration for chief executives at FTSE 100 companies has risen five per cent to £3.1m in the past two years, earnings per share have actually fallen one per cent over the period, according to the survey by reward consultancy MM&K and proxy voting agency Manifest.
The report identified a shift from longer-term incentives to annual bonuses as the key driver of the detachment between pay and performance, which it said “mirrors the approach that caused so many problems in the banking sector”.
Cliff Wright, director of MM&K, criticised company pay schemes for offering “little incentive for anything above just ‘adequate’ performance”.
“The key determinants of a successful incentive remuneration strategy revolve around choosing the right blend of short and long-term performance criteria together with rigour and toughness in the target setting,” he added.
The report comes ahead of what is expected to be a stormy annual meeting for retailer Marks and Spencer next week, at which new chief executive Marc Bolland’s pay is set to come under fire from shareholders. Bolland, the ex-Morrisons chief executive, could earn up to £15m in his first year, of which £4.9m will be granted regardless of company performance.
Today’s report singles out larger companies for especial scrutiny, since annual bonuses at bigger organisations can come in at up to 300 per cent of directors’ salaries. By comparison, the chief executives of smaller firms, with market capitalisations of between £100m and £1bn, usually have their bonuses capped at 100 per cent of salary.