The
basic salaries of executive directors are increasing at four times the rate of
inflation, according to a recent study.
Watson
Wyatt’s Executive Reward Survey 2002 found the average salary for chief
executives in FTSE 100 companies is £630,000 a year. With annual bonus payments
this rises to £984,000, and when taking into effect the value of long-term
incentives, the median total direct compensation for chief executives at the
UK’s largest companies is £1,494,000.
Andy
Christie, a senior consultant at Watson Wyatt, said: "Although the rate of
increase in basic salary is slightly lower this year than last, what we are
seeing is a significant increase in pay at risk."
For
chief executives basic salary now represents just 39 per cent of their total
reward package, with long-term incentives and annual bonuses accounting for 48
per cent, the balance made up of pension and other benefits.
"Performance-related
pay is becoming an increasingly important part of a board director’s
remuneration," Christie added. "And the higher up the organisation,
the more important it is. This is because companies are employing ‘line of
sight’ principles when designing bonus plans, ensuring there is some link
between a performance measure and the level of influence the individual has
over its achievement."
The
Watson Wyatt survey also found 79 per cent of companies are operating share
option plans and 50 per cent have performance/restricted share plans.
Currently, 54 per cent of FTSE 100 participants, and 25 per cent of their FTSE
250 counterparts, operate both types of arrangement, an indication that
companies are now taking a ‘portfolio’ approach to long-term incentives.
