Top Executives Losing Out?

November 30 2005 - Watson Wyatt's 2005 Executive Reward Survey shows that, on average, FTSE 100 executives have seen falls in overall pay packages this year. The consultancy firm attribute this to increasingly demanding performance conditions imposed on their long-term incentive plans.

The Survey found that while average basic salaries and bonuses for FTSE 100 chief executives have continued to rise this year - by 9.1% and 29% respectively - their total remuneration has fallen on average by 7% to £2.1m. (Yes, that's a mere £2,100,000). Whereas increased bonuses reflect average increases in profits last year of 20%, the value of their long-term incentives has fallen in many cases.

Basic salaries and bonuses for other FTSE 100 executive directors have also risen - by 7.8% and 22% respectively - while their average total remuneration has fallen by 18% to £980,000. According to Watson Wyatt, the value of long-term incentive plans, such as share option plans, has also been undermined by the relatively low volatility in the stock market. Lower volatility has the effect of reducing the potential upside of share options.

"There is a risk that institutional investors may have been too tough in their attempts to ensure executive pay is aligned to shareholder interests," said Damien Knight, an executive reward consultant at Watson Wyatt. "Shareholders have understandably been keen to use performance conditions to ensure that the long-term incentives offered to executives are paid out on their actual performance rather than fortunate market conditions. But the performance measures they have imposed have in some cases reduced the real value of the incentives to the executives. The question is: does this leave executives suitably motivated and aligned to shareholders' interests?"

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