More than 70 per cent of companies in the FTSE 350 have imposed a pay freeze on their executive staff for the current financial year, according to a report from a leading pay specialist.
Where pay rises are offered, the increases are between 3 per cent and 4 per cent compared with the 6 per cent to 7 per cent seen in recent years, Deloitte, the consultant, found in its latest annual survey of executive remuneration, published today.
Deloitte’s report comes amid unprecedented scrutiny of the pay and bonus structures in place at the UK’s biggest companies, particularly banks.
However, the “overwhelming majority” of Britain’s top listed companies continue to offer bonuses to their executive directors in spite of the recession and the public outcry over potential “rewards for failure”, the consultant said.
Of those companies that will pay bonuses this year, some intend to increase the maximum payout on offer to executives that meet performance criteria, said Deloitte.
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Fifteen companies in the FTSE 100 blue-chip index plan to increase the maximum that an executive could receive for performance during the 2009 financial year, while 17 companies in the FTSE 250 proposed similar moves, according to Deloitte.
But Carol Arrowsmith, head of the remuneration team at Deloitte, said there was increasing evidence that companies were adapting their bonus policies in response to public pressure and the economic climate.
Deloitte found that 23 FTSE 100 companies and 11 per cent of the FTSE 250 had introduced a deferred element into their bonus plans this year.
Two companies in the FTSE 100 plan to cut annual bonus levels, while 14 firms have introduced a clawback provision that means they may recover some of the payout.
Ms Arrowsmith said: “It’s a normal part of pay and conditions that executives have the opportunity to earn a bonus. The question is whether they actually earn and receive it.
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“The world has changed. What I hope has happened is that there has been a tearing up of the paradigm of ‘pay gravity’, where executives expect to receive annual pay increases of 6 per cent a year, whatever happens.”
In response to the public outcry over bankers’ pay and bonuses, the Financial Services Authority has introduced a set of pay guidelines specifying that remuneration should be closely tied to performance, longer term in nature and not encourage excessive risk-taking.
Institutional investors have also cracked down on what they regard as excessive executive rewards in a string of protest votes during the annual results season this year. Royal Dutch Shell, the oil and gas group, and Provident Financial, the sub-prime and doorstep lender, were among several companies to have their remuneration reports vetoed by shareholders.
Ms Arrowsmith said that executives had been quick to accept pay freezes because they recognise the straitened economic times and were likely be asking their workforce to accept pay cuts.
Ms Arrowsmith also said that the increased willingness of shareholders to take companies to task over pay had “strengthened the resolve” of independent directors, whose job it is to sign off executive pay deals.