Strong performance pushes up executive pay

2006

The strong performance of many FTSE 100 companies in the UK is being reflected in significant increases in the pay and bonuses of CEOs and other board directors, with their total direct compensation rising by 30 per cent over the past year.

The increase has pushed median earnings to just under £3 million before adding in the value of pensions, according to figures from Watson Wyatt's 2006 Executive Reward Survey.

"The strong performance of UK businesses is a significant contributor to bigger executive bonuses and suggests that the continued move towards 'pay for performance' is having a positive impact," said Sue Bartlett, a senior executive reward consultant at Watson Wyatt.

"Companies are increasing the maximum size of bonuses payable and the amounts payable for on-target performance."

The Watson Wyatt survey shows that in FTSE100 companies, typical bonus plans now pay CEOs 85 per cent of salary for reaching target and 150 per cent of salary at maximum.

It also shows that for executives in FTSE 100 companies who are two full reporting levels below the main board, bonuses of 30 per cent of salary are available for on-target results and 50 per cent for top performance.

The basic salaries of executives of FTSE 100 companies have continued to pull away from the salaries of those in smaller companies. The median salary increases in 2006 were 7.1 per cent for the CEOs of FTSE 100 companies, 6.5 per cent in FTSE 250 companies and only 4.7 per cent in small cap companies.

"Salary is far from the whole story," said Sue Bartlett. "For CEOs, it typically accounts for only 40 per cent of the total value of the package if you include long-term incentives and pension. Our survey results show a continuation of the trend for the value of bonuses and the size of long-term incentive awards to grow faster than salary."

But it was not CEOs who saw the biggest percentage salary increases this year – that was enjoyed by finance directors, who saw a median increase of 9.4 per cent in 2006. The median increase for other board directors of FTSE 100 companies was not far behind, at 8.4 per cent.