By Max Clarke
Despite efforts to address pay inequalities in the wake of the recession, basic salary increases for FTSE 350 executives have overtaken those for average employees, Deloitte has said.
The findings from the world’s largest professional services firm (NYSE: DTT) come at a time of worsening budgets, rising prices and pay freezes for much of the country. A report from accountants, BDO LLP, concludes that price pressures will continue to face UK households for much of the next decade, making the findings of Deloitte’s research particularly controversial.
Companies should ensure base salary increases for executives are limited to those of the general population. If director salaries are currently above market median then the remuneration committees should consider implementing a pay freeze in order to exhibit restraint in these difficult times, says the business advisory firm.
“In addition to limiting salaries, remuneration committees should acknowledge that paying target bonus requires genuinely good performance, when setting the annual bonus targets,” Stephen Cahill, partner in the remuneration team at Deloitte. “For bonuses in excess of this amount, truly stretching performance should have been achieved. During the design of long-term incentive plans, performance conditions should be aligned with the strategic vision of the company and shares should be held for long enough to align the interests of shareholders and management.”
After a period of two years when many FTSE 350 companies awarded no salary increases to executive directors, most are seeing their salaries rise in 2011. Increases for main board directors in FTSE 100 companies in 2011 are typically between 2.5% to 7.5%, with a median of 4%, and between 0.5% to 5% in FTSE 250 companies, with a median of 3%.
Cahill comments: “It is not surprising that after a two year period of widespread pay freezes there has been a return to pay increases for executive directors. What has surprised us is the number of salary increases above 5%, which is significantly above inflation and the increase in average employee earnings. Remuneration committees should consider increasing salaries only where there is a real and compelling reason to do so and any increases should be limited to the general level of increase for other employees, unless exceptional circumstances exist.”
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