According to research from Mercer - a leading executive remuneration consultancy supporting many FTSE remuneration committees and/or management teams on all aspects of remuneration design and implementation - most FTSE 350 listed companies have increased their 2022 general salary budgets compared to 2021 and for UK executive remuneration, actual total compensation levels have rebounded to around the levels seen before the COVID-19 pandemic.
Mercers analysis used data for financial year-ends up to the end of March. It stated that whilst half of businesses cancelled or postponed executive salary increases in 2021 due to the COVID-19 pandemic, this practice has now reduced to only one in five companies. However, although executive salaries have started to increase at the same or slightly lower rates than the wider workforce, these increases were modest and mostly in the range of c.3.0% to 3.5% - which does not reflect the prevailing higher levels of inflation. Therefore, median salary levels remain relatively stable compared with the prior year.
As far as bonus payments are concerned, most companies are now paying bonuses above target and more payments are closer to maximum than in the recent past. The reason for this appears to be that financial targets set during the uncertainty of the pandemic were conservative, along with some industries who experienced favourable market conditions.
Although 2021 financial performance was, broadly speaking, significantly better than in 2020, most financial targets for Long Term Incentives (LTIs) vesting at the end of the 2021 had pre-pandemic (2018) performance target baselines. This was more likely than not the reason for a decrease in vesting and a higher level of zero pay-outs than in most previous years.
Going forward, the survey shows that at companies where the share price is depressed by 25% or more, shareholders expect Remuneration Committees to scale back LTI awards, which has meant another year with little movement in LTI opportunities – whether this is in performance shares, which are the most common LTI in the FTSE350, or restricted shares which are now the second most common LTI type.
Regarding pension contributions, although only three years ago most companies paid their executives significantly higher pension contributions than their employees, the majority of companies – reacting to investors’ demands – have now aligned these to the same as the rest of the workforce. As a result, there is now only a 2% point difference in median pension levels and even this should be almost completely eliminated by 2023.
The full report can be viewed here:
