Executive compensation - FTSE 100 review of the year

Executive compensation review shows shift in bonus opportunities for board directors

December 2007

Our third annual report of senior executive pay shows companies are moving away from pure financial targets to determine executive reward. Executive compensation: FTSE 100 Review of the year 2007 found that the use of non-financial measures (including customer satisfaction, levels of employee engagement and environmental measures) has risen from 35% of bonus schemes last year, to 57% this year. Fewer than 20% now rely solely on measures of financial performance in their annual bonus schemes.

Private equity continues to be a subject for debate. Fears that private equity companies would raid the boardrooms of the listed sector for top talent have been unfounded – it seems the risk profile is generally of little interest to experienced talent.

The report also identified that the value of long-term incentives continues to increase. Only 32 FTSE 100 CEOs now receive a full ‘final salary’ pension. To accommodate this step change, the remaining CEOs receive a mixture of defined contribution pension schemes, cash alternatives or are members of an earnings capped defined benefit scheme. For the majority of employees however, the picture is not so rosy. The past year has highlighted a mass transfer of risk from employer to employee in relation to retirement. Employers need to act now to mitigate possible accusations of not looking after their retired employees in the years ahead.

The FTSE 100 Review of the year is the first in a series of reports that will also look at the FTSE 250 and consider the international perspective for companies operating globally.