The heads of the UK’s biggest firms saw their pay soar by nearly a third during 2010 – but the value of their companies rose by only 9%, research indicated.
The chief executives of FTSE 100 groups received remuneration packages averaging £3.5 million last year, 32% more than they were paid in 2009, according to consultancy firm MM&K and electronic voting agency Manifest.
But the FTSE 100 increased in value by just 9% during the same period, suggesting a weakening in the link between chief executives’ pay and their performance.
The groups said remuneration committees appeared to be struggling to maintain their independence from chief executives, and were adopting increasingly expensive, short-term reward strategies.
It added that the heads of FTSE 100 firms had seen their pay packets quadruple during the past 12 years, despite the fact that share prices have not risen during the same period.
The report warned many firms were shifting away from long-term incentives to annual bonuses, mirroring the approach that caused problems in the banking sector. It added most strategies now involved the use of long-term incentive plans, which measured performance over three years, compared with a seven-to-10-year horizon a decade ago.
The research found that larger companies tended to have complex schemes with multiple reward thresholds, but under these chief executives typically enjoyed rewards for “even the most basic levels of performance”, regardless of whether they produced “exceptional outcomes” for the company or not.
Around 74% of FTSE 100 companies now have deferred bonus plans, as do 52% of firms in the FTSE 250, but the report found that most of these schemes had been introduced at the same time that bonus levels were increased, meaning that in many cases, executives’ earnings had been “considerably enhanced” over the long term.
Sarah Wilson, co-author of the report, said: “Shareholders are increasingly looking for more aggressive strategic target setting. There is a level of frustration that remuneration committees are developing a tin ear and don’t see high levels of voting dissent as something to be concerned about.
“Remuneration committee chairmen need to reach out to their key investors directly rather than assuming that box-ticking compliance with trade association guidance is going to see them home and dry.”
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