Executive pay to rise by 3%-4%

Executives in FTSE 500 companies should be expecting pay rises of between just 3% and 4% this financial year, according to a survey.

In the survey commissioned by KPMG, more than half (53%) of FTSE 500 executive board members said the base pay for executive directors would rise by less than 4% in the current financial year (2004-05).

Just 4% of executives questioned said pay rises for their level would reach double figures and 5% said executive directors would receive no pay rise at all.

As for non-executive directors, 29% of those questioned said their fees would not rise at all in this financial year, while 19% thought their fees would rise again by just 3%-4%.

According to Sean O’Hare, head of KPMG’s executive compensation practice, these new figures are at odds with recent years where executive pay rises have normally reached double figures.

“Last year was the first year we saw single-figure increases but still these were far above the 3%-4% mark. As for non-executive directors, their fees have been rising sharply in line with the extra governance responsibilities most of them now face,” said O’Hare.

“These new figures suggest to me most companies are taking into account the pay increases for employees as a whole when considering appropriate reviews for executive directors.”

The survey, conducted by Opinion Leader Research, questioned 100 FTSE 500 main board directors on a host of issues relating to pay, performance, the role of institutional investors and corporate governance.

Other key findings include:

  • Pay and performance is a key concern when it comes to executive compensation, according to the survey. Almost three-quarters (72%) agreed performance measures gave them the most cause for concern on executive remuneration issues, with 53% saying cost was a concern and 49% agreeing the balance of fixed and variable pay was an issue that needed addressing.
  • On the question of bonus payments, the ability to identify metrics was seen as the biggest constraint with linking pay and performance (28%), followed by the ability to implement incentives (24%), and institutional investors (16%).  Performance rewards are linked to company strategy in the majority of companies (68%), whereas 7% said that investors influenced these payments.
  • Despite calls from institutional investors for more transparency over executive pay and bonuses, 53% of company executives said they had no intention of increasing disclosure in this area. Less than a fifth (19%) of executives interviewed plan to provide more information in respect of past awards and just 17% plan to provide more detailed information on future awards.
  • On balance, most companies believe their institutional investors behave like owners and put the long-term wellbeing of the company first, although 30% of those surveyed expressed their concern that institutional investors put short-term profits first. Almost a third (31%) believed that employees take a short-term approach to their business, while 23% thought their board took a short–term view of the business.

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