Remuneration shows trend to long-term stewardship

When is a salary rise not a salary rise? When it’s actually a whopping bonus. Certainly from a business strategy perspective, and as far as remuneration best practice goes, you can certainly see why companies would favour some sort of performance-related payment scheme.

So it comes as no huge surprise that the number of FTSE350 companies shunning salary hikes in favour of bonus bungs is this year so huge. At least that’s the picture painted by Deloitte’s latest remuneration survey, published earlier this week.

It found that over half of FTSE 350 companies will not increase the salaries of executive directors in 2010. For many executives this will mean a two year salary freeze, after over two thirds were awarded no pay increase in 2009. Increases, where given, are likely to be around 3%, which is much lower than the level of increase seen in prior years.

Bonus payouts were returning to ‘normal’, Deloitte said, although the report highlighted increasing volatility in bonus payouts, which are higher than last year in FTSE 100 companies and lower in FTSE 250 companies.

One in seven FTSE 250 companies paid no bonus to executive directors for the 2008/09 period and the median bonus was around 60% of salary, almost 10% lower than the previous year. In contrast, bonuses were paid in almost all FTSE 100 companies; the median bonus payment was around 100% of salary and in the top 30 companies was 140% of salary, almost 20% higher than last year.

That’s not to say there aren’t some pretty spectacular pay cheques being cashed in. Paul Walsh and Nick Rose, CEO and CFO respectively of drinks giant Diageo, are a case in point.

Paul Walsh’s total remuneration package has climbed to £3,178,000 from £1,706,000, while CFO Nick Rose's increased to £1,872,000 from £996,000. The rise in their total pay packet was mainly due to the pair being awarded a large increase to their annual bonuses.

Diageo's remuneration committee justified to payments, describing them as “appropriate given the resilient performance delivered in challenging economic circumstances."

One recession-induced trend seems to be that companies are, quite rightly, placing greater focus on long term stewardship. Certainly, the rise of bonus deferral and clawbacks along with the significant shareholding requirements now in place in the majority of FTSE 350 companies suggests that remuneration arrangements for many executives are becoming longer term in nature.

As Stephen Cahill, partner in the remuneration team at Deloitte, comments, the years of executive salaries increasing at rates far in excess of inflation and the increase in average earnings are, at least for the moment, well and truly over.