EXECUTIVE PAY
Directors' pay packages evolving at a rapid pace
Greater flexibility in the design of directors' remuneration packages, an increasing emphasis on executives building up a substantial shareholding in the company and evidence of stronger links between the level of award under long-term plans and performance are three key findings to emerge from research carried out by Andersen.
Main findings
The study, which looks at the remuneration of directors in 310 of the largest publicly quoted UK companies, found:
Share Options: Until recently the median annual grant of share options was typically in the region of 100% of salary. Today, however, it is worth 200% of salary at grant value and 300% in the largest companies.
Says the report: "Higher grant levels should be seen in the context of tougher performance measures. In a quarter of share option plans only a portion of the options will become exercisable for target or median performance. In order to exercise the full award, performance will need to be significantly above average, typically meaning that the company has to be in the top 25% of a relevant group of companies and in some cases in the top 10%."
Shareholding: The number of FTSE 100 companies that require their executives to build up a substantial holding in the company’s shares has doubled in the last two years, from 14% to 27%.
Long-term incentive plans: Over half of FTSE 350 companies sought shareholder approval for new, or amendments to existing, long-term incentive plans during the past eighteen months.
Says the report: "The main theme that emerges is flexibility in the design of plans, enabling companies to adapt the reward package to fit different needs at different times. This may take the form of allowing higher awards in exceptional circumstances, allowing awards to be made under different plans, and the facility to apply different practices for non-UK participants."
Overseas/US participants: One in ten companies now allow different practices to apply for non-UK participants. These include higher potential awards under incentive plans, the imposing of performance conditions on the grant rather than the exercise of options and the removal of performance conditions altogether.
Over 30% of board directors in the top UK companies are non-UK nationals, 70% have at least one US citizen on the board and 30% have at least one executive director based in the US.
A final word
"Overall, we expect the rate of change to continue as the full impact of the current corporate governance initiatives takes effect. The role of the remuneration committee is increasingly about balancing the pressures of globalisation, the concerns of shareholders, the complex regulatory environment and the scrutiny of the media. It is set to become harder than ever." — Carol Arrowsmith, partner, Andersen.
Want to know more?
Title: The Andersen 2001 Directors’ Remuneration Report.
Methodology: The report is based on information available in the latest annual reports and accounts of 310 businesses representing FTSE 350 companies in June 2001, excluding investment trusts.
Survey sample: The report covers: basic salary levels and increases of over 1,480 full-time executive positions, plus incentive plan design features, expected value of total compensation, pensions, notice periods, shareholding requirements, change of control provisions, board structure, and non-executive fee levels of 1,660 non-executive positions.
Availability: Contact Alison Smith at Andersen in London, tel: 020 7546 9904 or email: alison.z.smith@uk.andersen.com.
To download a summary of the report visit . . . www.andersen.com/directorsremuneration
Andersen Human Capital describes itself as "the largest integrated HR services consultancy in the UK and provides a wide range of services including; HR strategy, eHR, executive reward, share schemes, expatriate management, employee tax, employee compensation and HR outsourcing."
To find out more jump to . . . www.andersen.com