Executive pay slides in UK but alignment to long-term goals and fairness still falls short

25 July 2017 Consultancy.uk

Executive pay fell over the past year, following continued discussion around executive pay and increased pressure from shareholders. Relatively weak set of voluntary moves are likely to see increased institutional pressure placed on executive remuneration in the coming years – particularly as wage disparity soars.

Executive pay across first 40 FTSE 100 companies – published in remuneration reports for 2017 – finds a real-terms decrease across most organisations. The median salary figure for the year saw total pay fall from £4.3 million to £4.1 million. The upper quartile saw the biggest decrease in pay, down a total of 13%, from £6.6 million to £5.7 million. 42.5% of all executives saw no increases in overall pay meanwhile in 2016.

The data, which is part of PwC’s wider reporting into executive pay across FTSE 100 companies, reflects what the firm identifies as increased pressure from shareholders to apply pressure to keep pay trends relatively subdued. This followed last year’s survey, which over the same period found that median pay had increased by around 2%.

The consulting firm notes that none of the FTSE 100 companies surveyed has yet moved to radically overhaul executive pay, even while there is continued pressure from the Investment Association Executive Remuneration Working Group and the BIS Committee for a complete overhaul. Executive pay, which has risen steeply over the past 30 years in relation to lower-level roles, appear to favour short-termism, and the suggested measures would aim to push booming executive pay packets back into line.

Hard work doesn't pay

As it stands, the majority of FTSE 100 companies (63%) are planning to make changes to their remuneration schemes, although PwC notes that analysis of the plans which tend to focus on ‘best practice’ changes, such as holder period and minimum shareholder requirements, tend to be relatively weak and do not tackle structural change in pay arrangements. Nor do they create incentives to focus on long-term company growth – something found to be highly beneficial for companies and their long-term stakeholders.

The research notes that 4 of the 40 companies has taken onboard recommendations to disclose the difference between executive and average employee pay, as key questions about fairness continue to surface – with labour increasingly losing out to technology and other means of cutting costs, while the executive reaps more and more rewards.

Tom Gosling, Leader of PwC's UK Reward Practice, commented, “Despite growing calls for reform, the continued divergence in shareholder views have made it too risky for FTSE 100 companies to contemplate radical change to pay design this year. This debate is far from over, given the recommendations of the BIS Committee. But real change is only likely to come after the Government's White Paper and a redraft of the UK Corporate Governance Code.”

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