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Director bonuses continue to grow at largest UK firms, City analyst says www.theguardian.com
The UK’s largest firms paid directors bigger bonuses in 2015 than the previous year, despite a fall in the number of shareholders backing their remuneration plans, according to analysis by Deloitte.
The City firm, which advises many top companies on how to pay executives, said new regulations that increased disclosure and brought in binding votes on board pay had to some extent put the brakes on executive payouts amongst FTSE 100 firms.
The median salary increased by 2% in 2015, in line with the previous three years, and the median amount that could be earned as a bonus remained at 150% of salary, where it has been since 2007.
But its analysis of the UK’s largest companies found that bonus payments in respect of performance increased last year, with the median payout rising to 77% of the maximum possible, from 73% in 2014. Only four companies paid no bonus to executive directors, it said, while seven companies paid the maximum amount possible.
This year has seen more companies face a pay revolt than the so-called shareholder spring in 2012, Deloitte said, suggesting that it could be a “pivotal moment for executive pay”. Eight companies have received less than 75% backing from investors for their remuneration reports and two failed to secure a majority. Just 26% of the top 30 companies were approved by 95% of shareholders or more, just half of the proportion of last year.
In April, 60% of shareholders voted against a £14m pay package for the chief executive of BP, in a year in which it reported record losses and cut thousands of jobs, and more than 50% of investors voted against pay deals at the medical equipment group Smith & Nephew. Other big firms also faced pay rebellions.
Stephen Cahill, partner in Deloitte’s remuneration team, said: “While we’re still talking about a relatively small number of companies, this is rightly a cause for concern. The 2016 AGM season has been bruising for a number of companies, perhaps even more so than the shareholder spring of 2012.”
Deloitte said concerns raised by shareholders included bonus targets not being disclosed and a lack of transparency about the link between executive pay and the performance of the business.
Cahill said median bonus payouts had consistently been between 70% and 80% of the maximum every year for the last 10 years. “We believe there needs to be much more rigour in the way the targets for these plans are determined, more discretion used to ensure payouts reflect overall performance, and greater scrutiny by investors once the targets are disclosed.”
Votes on remuneration that has already been paid are not binding for firms, but it has been suggested that the rules be changed. Cahill said this would cause some practical issues and may make shareholders more reluctant to vote against a deal. Instead he suggested a “yellow card” approach: “For example, if a company received less than 75% of votes in support a binding vote would be required in the following year, giving the company time to address the problem.”
Published Date:2016-09-05
