The median basic salary increase for executive directors of FTSE 100 companies in the UK last year was seven per cent, the same as the preceding year, while for chief executives the median increase was six per cent- down from eight per cent the previous year- according to KPMG's Survey of Directors' Compensation 2006, a study of the compensation practices of the largest 350 listed companies in the UK.
For EDs the bulk of increases in remuneration are being channeled through variable pay instead of salary, the report says. Total actual remuneration in the FTSE 100 increased at a median rate of nine per cent, thus outstripping basic salary increases.
However, 'sounder salary management' saw the median salary level of FTSE 100 CEOs rise by only 4.8 per cent, from £671,000 to £703,000, while total actual remuneration increased by 26.8 per cent, from £1,837,000 to £2,329,000, according to the report.
For the FTSE 250, the report says, "best practice is still catching up, and we observe a 13 per cent median rate of total actual remuneration increase compared to a median salary increase of seven per cent."
In comparison, the median salary level of CEOs rose by 9.8 per cent, from £378,000 to £415,000 while the median total actual remuneration rose by 12 per cent from £782,000 to £878,000.
The survey led to five main conclusions. First, annual bonus opportunities ('opportunity' is defined as the maximum permitted level) have not moved significantly but the actual pay-outs continue to increase.
The median bonus opportunity is around 100 per cent of basic salary (130 per cent for FTSE 100 CEOs) with actual bonus paid being at a median of a little over 90 per cent of basic salary for FTSE 100 EDs and around 60 per cent for those of the FTSE 250.
Second, deferred annual bonus plans continue to be popular, with 68 per cent and 52 per cent of FTSE 100 and FTSE 250 companies, respectively, now operating this type of plan.
Third, option plans, on the other hand, continue to decline in popularity, with a significant number of companies stating that they will not be using their current plans to make new grants.
Fourth, most significant is the growing number of performance share plans, with 61 new or amended plans brought to FTSE 350 shareholders this year, resulting in 89 per cent of FTSE 100 and 78 per cent of FTSE 250 companies operating PSPs. Typical award levels are around 100 per cent of salary.
Fifth, while Total Shareholder Return continues to be the predominant measure for performance share plans and Earnings Per Share for share option plans, there is a definite trend away from using single plans and an increased willingness to consider other metrics, such as Return on Capital Employed and Net Asset Value.