Remuneration committees set to restrain bonuses, but large drops in executive pay unlikely: PwC

EXECUTIVE PAY

Remuneration committees set to restrain bonuses, but large drops in executive pay unlikely: PwC

Many FTSE100 executives will see no increase to their annual bonuses this year and some bonuses could even be cut by up to quarter, according to a PwC survey of large UK companies. This will result in the second successive year of bonus reductions in the FTSE100.

• Fewer than one in ten of those companies are expecting material increases to bonus pay-outs as remuneration committees plan to exercise restraint at upcoming AGMs.
• Nearly half (48%) of respondents expect bonus pay-outs will be about the same as last year, 21% think they will be at least a tenth lower and 17% predict they will fall by more than a quarter.
• Pay will also be largely static for FTSE100 executives. As many as 38% of respondents said they were planning to freeze salaries for executive directors in 2013 - a figure not seen since the height of the financial crisis in 2009.
• Salary increases, where given, are expected to be in the 3% to 4% range. Only one in ten are planning increases of more than 4%.

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Tom Gosling, head of PwC’s reward practice, said:

“The calls from shareholders for pay and bonus restraint appear to have hit home. Following a number of years in which bonuses had crept up to around 80% of maximum pay on average; we expect them to fall back towards target levels of around 60% of pay this year. This will mark the second successive year of bonus reductions in the FTSE100.

“It is clear that companies and remuneration committees are conscious of demonstrating a responsible approach to executive pay this year. We see evidence of companies showing restraint in pay increases, exercising greater rigour in bonus decisions and improving transparency through early adoption of BIS disclosure proposals.”

Future prospects

Despite remuneration committees being keen to demonstrate restraint, the survey suggests that there is unlikely to be a large drop in executive pay levels in the UK over the longer term:

• Only 15% of respondents said they expected total executive pay levels to be more than 10% lower in their organisation in three to five years’ time.
• Most (55%) felt it would be about the same and a quarter thought it would be up to 25% higher.

A final word

“There is no doubt that the intense shareholder, public and political focus on executive pay over the last 18 months has caused a change of approach. But the level of impact is still only modest and anyone hoping for a large-scale reduction in executive pay and bonus payouts in the long-term is likely to be disappointed. We expect executive pay to plateau for a period, rather than fall dramatically.

“In all of the debate around executive pay, perhaps most worrying is the impact on the image of the UK as a place to do business. Nearly two-thirds of companies said the scrutiny on executive pay is making the UK an unattractive location for executives. The UK benefits hugely from the flow of talent to our shores, bringing with it investment, jobs and tax revenues and care must be taken not to damage our competitive position.” - Tom Gosling, head of PwC’s reward practice.

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The results are based on a survey of heads of reward, executive board members, remuneration committee chairs and HR Directors at 40 large companies. The research was carried out in December 2012.

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