By Max Clarke

Nearly one in four businesses are planning to implement a pay freeze at executive level, while the average pay increase for businesses planning a raise are 3%.

This figure is lower than the current 4.4% consumer price inflation, and far below the 6% increases in pay seen in 2006 and 2007.

The survey was carried out by ‘Big Four’ accountancy firm Pricewaterhouse Coopers, ahead of annual general meetings season, when executive pay will once again come under the spotlight.

Pressure to ensure executives remain motivated in the face of pay freezes perhaps explains why 30% of companies are planning to increase the maximum potential bonus. Last year the average (median) maximum potential bonus for FTSE 100 CEOs rose for the first time in three years, from 150% to 175% of base salary.

Actual bonus payments also increased substantially in 2010. The average (median) actual bonus payment for a FTSE 100 CEO was 111% of base salary, almost 30% higher than the previous year.

“Given current economic volatility and political scrutiny, decisions on pay are not going to get easier,” commented Sean O’Hare, reward partner at PwC.

Continued O’Hare: “However, companies are undoubtedly taking steps to ensure pay is better aligned with performance. If these changes are communicated and understood by both executives and shareholders, and resulting compensation levels therefore felt to be fair, future reporting seasons may be slightly less fraught. To get this right may require remuneration committees to have more discretion over bonus outcomes — not something shareholders have supported in the past.”

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