More than half of FTSE 100 Bosses' £550m+ salary comes from 'Opaque' Perks

30 August 2018 -

ONLY ONE FIFTH OF EXECUTIVE PAY IS LINKED TO INDIVIDUAL PERFORMANCE, NEW STUDY SHOWS

The mean annual salary of FTSE 100 chief executives is £5.6m per year, but just a third of that pay is dependent on personal performance, new CMI data reveals. There are fears that the news could threaten employees’ trust in organisations if more is not done to make the pay of senior executives transparent.

OPAQUE REWARDS FOR CHIEF EXECUTIVES

According to CMI research, 16% of CEO pay is made up of base salary and 20% from annual bonuses. In comparison, more than half of rewards come through more complicated Long Term Incentive Plans (LTIPS). These are tied to growing company share price and other market factors, which are often out of the CEOs’ control. Pensions, taxable benefits and other perks make up the remaining eight per cent of their pay.

Ann Francke, chief executive of the Chartered Management Institute says: “The dominance of LTIPS raises fundamental questions about how we reward our top CEOs.”

In June, the CMI revealed a pay slump for senior managers in real terms. “This level of CEO pay comes at a time when most of the workforce are being denied a pay rise – a stark reminder that CEO pay is out of synch with the rest of the workforce,” she adds.

Therefore, while corporate governance reforms are underway and are supported by CMI, more needs to be done. “Fundamental change is needed to improve transparency and accountability at the top, and restore trust in business. CMI’s research shows only 36% of Britain’s middle managers say they trust their business leaders.”

A FOCUS ON PURPOSE

Businesses should look again at their wider objectives: “The best-led businesses define their purpose not in terms of short-term financial results, but on the long-term value they create for customers and stakeholders,” says Francke. “CEO remuneration should be linked to measurable progress on these fronts and move away from these complex LTIPs that are often weakly linked to executives’ performance.”

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