Share incentive schemes boost top executives' earnings


Director of the High Pay Centre Deborah Hargreaves: "This is inefficient, you're not getting what you pay for"

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Senior executives in the UK's biggest companies have seen their average earnings go up by more than a quarter in the past year.

New research suggests the bosses of top firms made an average of £4m a year.

But Incomes Data Services, which compiled the figures, says pay and bonuses have hardly risen at all.

Instead the increase is due to a rise in value of long term incentive plans which have replaced cash bonuses.

The study looked at the earnings of directors of the 100 largest companies quoted on the London stock exchange, in the 12 months to June.

It showed that increases in basic pay and bonuses slowed almost to a halt - with pay rising in line with inflation, and bonuses falling.

However, earnings still increased by an average of 27%, largely due to the introduction of long term, share-based incentive plans for executives.

These plans - which are now used by 90% of top companies - are designed to match bonuses more closely to the return that shareholders make, says BBC business correspondent Jonty Bloom.

Compared to competitors

But since many started in the depths of the recession, executives have benefited as the stock market overall has bounced back, our correspondent adds.

Incomes Data Services said many executives were benefiting from the recent overall improvement in stock market performance.

It meant that the value of long term investment plans had risen to an average of £938,000 for directors, and to £1.6m for chief executives.

The study also pointed out that the plans were often calculated based on a firm's performance in comparison with its competitors, rather than its own performance history.

This meant that an executive might still be rewarded if the company's performance had deteriorated, as long as competitors had done worse.

Steve Tatton of Incomes Data Services said: "Whether a reaction to government pressure, shareholder concerns or a worse than expected business environment, it seems the brakes have been applied to the basic pay growth for FTSE 100 bosses.

"However, while shareholders will be pleased to see more traditional elements of pay seemingly slowing, these figures show that directors' earnings can still grow significantly as a result of a complex mix of incentives."


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  • rate this

    Comment number 1081.

    I would resent people telling me how to spend my money. We have no right to tell private companies how to spend theirs. It is up to the owners and shareholders.

  • rate this

    Comment number 627.

    The biggest problem in pay is comparisons. Should those running companies see, inane sportsmen, pop singers, actors, and such trivial nonsense taking more money than those running companies? We need to rip the heart out of the grossly over rewarded trivial occupations first before there is any logic to curbing pay of real jobs making the economy run, providing us with the products we all need.

  • rate this

    Comment number 470.

    Inexperienced and lazy get less, experienced and hard working get more. Nothing to do with any government. If you want more then get a job that pays more....if you can't do that then you should of listened and worked hard at school, if you didn't, then it's tough...get over it

  • rate this

    Comment number 416.

    Perhaps exec pay should be limited by a formula that factors in the number of workers who rely on tax credits and other tax [payer funded benefits to make ends meet. The economy will stay stagnant until people at the bottom end get some spending power back and CEOs have a role to play in that rather than using state subsidised wages to make the profits they need to 'earn' their bonuses.

  • rate this

    Comment number 336.

    I have no problem with high pay, providing it is earned, providing they pay their taxes, providing the companies are well run, that corporate governance is robust. Problem is that dividends are down, wages for employees at the lower end are down, big businesses are often avoiding tax, governance seems to be poor (see some of the banking scandals). Doesn't seem to me that it is being earned.


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