Companies move to non-financial measures for executive bonuses

EXECUTIVE PAY

Companies move to non-financial measures for executive bonuses

The proportion of top UK companies offering annual bonus plans to executives on purely financial measures has fallen by half over the past year to 17%, says a report by Monks, the pay survey unit of PricewaterhouseCoopers.

At the same time there has been dramatic growth in the number of such reward packages offered on a combination of financial, non-financial and individual measures – up from 13% in 2005/06 to 31% in 2006/07.

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The trend is away from hard financial targets exclusively to include broader corporate activities such as levels of customer satisfaction, employee engagement and environmental measures.

Key results

• The average maximum bonus opportunities available for chief executives in the FTSE 100 companies has risen to 123% of their salary from 103% last year.
• At the same time chief executives in FTSE 250 companies have seen a smaller rise of 5% in the average maximum bonus opportunities to 100%, from 95% last year.
• While incentive opportunities have increased, so have requirements to retain a minimum shareholding in the company, the aim of which is to maintain an alignment between management and shareholder interests.

A final word

“We are seeing a continuing shift towards variable pay in UK plcs and a growing emphasis on long-term performance when determining executive pay. Additionally, the broader corporate stakeholder and corporate responsibility agenda has stimulated growth in the use of non-financial measures in bonus plans alongside those more traditional measures focused on financial and shareholder return. Some of the most popular new measures are operational performance and customer-related ones, which mean that if customer service levels fall then so could executive bonuses.” - Duncan Brown, PricewaterhouseCoopers.

Want to know more?

Title: Annual and Long-term Incentives 2007, PricewaterhouseCoopers Monks.

Methodology: The study was carried out during June 2007. Data was provided from over 500 business units across all sectors of the economy, including FTSE 100 companies. Data was also taken from annual reports of some 1,500 quoted groups and organisations.

Availability: The report can be obtained by contacting info@monkspwc.co.uk and costs £2,000 or £355 for those participating in the survey or providing data.

Read the press release online at www.ukmediacentre.pwc.com/Content/Detail.asp?ReleaseID=2415&NewsAreaID=2

The member firms of the PricewaterhouseCoopers network provide industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 140,000 people in 149 countries are employed across the network. To find out more visit www.pwc.com/uk.