Top directors are getting too much easy money, survey suggests

A question mark remains over how much performance requirements stretch executives at Britain’s biggest firms, research suggests.

The survey of directors’ compensation by professional services firm KPMG reveals that payouts under current incentive schemes are approaching the maximum allowable level.

The findings come at a time when investors are becoming increasingly concerned that there is a widespread failure to link remuneration strategies and performance to the actual strategy of the business.

Carl Sjostrom, a partner in KPMG’s executive compensation practice, said: “We would argue that the signs we are seeing now – incentive awards approaching maximum opportunity levels, together with pension short-falls being replaced with cash payments alone, one-off incentives and companies testing private equity type models in a quoted environment – are early indicators that a sea change is about to happen.

“Companies will need to begin to design incentives that deliver higher pay for some but in return for clear, robust linkages to the performance that drives the long term value of the company.”

The survey revealed that the median take home pay of a FTSE 100 chief executive was £2.3m in 2005. Executive pensions, too, have been seen to be protected while workers’ pension funds close. 

Where annual bonuses are concerned, this could suggest that performance is improving against targets, but it could equally indicate that performance requirements were becoming less challenging.

Sjostrom said: “Too many companies are paying executives for achievements against targets with marginal relevance to the corporate strategy and the value proposition it puts to shareholders. And this is not necessarily to every executive’s liking either.”

 

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