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Rising bonuses spark anger but little action

October 2011

A storm is brewing around UK executive salaries and bonuses as top pay levels outstrip performance and political lines are drawn on the issue of irresponsible remuneration.

Independent research into FTSE 100 pay has revealed that performance-related bonuses are now worth 90% of salary, against less than half in 2002, with pay before bonuses set to rise 7.5% this year.

The figures, appearing in separate research by Deloitte and the High Pay Commission, show executive pay rising against a backdrop of falling share prices, and have caused fears over the links between performance and remuneration in the UK’s top pay scale. In the wider FTSE 350, whose value has risen by only 21% since 2002, total pay has risen sevenfold.

The Liberal Democrats, meanwhile, have announced they will use their weight in the coalition government to simplify salary schemes and bolster the link between bonuses and performance through shares. While the Conservatives push for a reduction in the 50% high earners’ tax, LibDems are proposing employee representation on remuneration committees.

In the starkest indication of inverse performance-related pay, News International boss James Murdoch was offered a £3.7m ($5.8m, €4.2m) bonus last month, despite the phone-hacking scandal and the News Corp subsidiary’s subsequent reputational hit during his chairmanship.

At a time of pay cuts and job loses across the UK, Murdoch offered to forgo the bonus, but appears only to have postponed it. “I will consult with the compensation committee in the future about whether any bonus may be appropriate at a later date,” he said. The Murdoch case is close to investors’ hearts as rows continue over the family’s control of News Corp.

Bankers’ bonuses, the most controversial of all remuneration packages, continue to attract criticism. Given that the UK government pays many of these bonuses because it bailed out and owns a number of these institutions, it is considered to have done precious little to curb payouts that are effectively forcing public services cuts elsewhere.

Confederation of British Industry director-general John Cridland, who has argued that “the public sector must feel private sector’s pain”, said: “It is crucial that executive pay is squarely linked to performance, and there are cases where this link needs to be clearer.

“We need shareholders to be more involved with the companies they invest in, and they should hold the board to account when it’s necessary. However, it is not the role of shareholders to micro-manage companies day to day.”

Investor opposition to pay packages and calls for bonuses to be linked to sustainability as well as financial performance have been a feature of the proxy voting season, though most motions have failed.




FTSE Group | UK & NI Ireland | Executive pay

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