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FTSE 100 firms show continued executive pay restraint as ESG goals become more embedded in remuneration decisions

Nov 22, 2021

Executive pay at FTSE 100 companies continues to show restraint in 2021, PwC analysis finds, though there has been a slight dip in the number of CEOs having their salaries frozen as the executive labour market experiences a bounce back. 

With the 2021 AGM season now over, PwC has reviewed and analysed the executive remunerations decisions for FTSE 100 companies, which show that 2021 remuneration decisions demonstrated restraint by remuneration committees, with:

  • A 9% reduction in median total single total figure of remuneration for FTSE 100 CEOs, with a median of £2,940,000 in 2021 compared to £3,247,000 in 2020.

  • 28% of CEOs received no bonus (as a result of not meeting targets, or the bonus being cancelled or waived) in 2021 compared to 14% of CEOs in 2020.

  • 45% of CEOs have had their salaries frozen for 2021 compared to 52% in 2020.

Separate analysis shows the trend in the FTSE 100 towards the inclusion of environment, social and governance (ESG) measures as part of variable incentive arrangements has continued. Almost 60% of FTSE 100 companies now include ESG measures as part of their executive incentive plans, with 58% of the FTSE 100 now linking ESG measures to executive pay, an increase of nearly one third on last year, when 45% of companies had these measures.

Just under half of companies (46%) had an ESG measure in their annual bonus for 2020, while almost one third (32%) incorporated an ESG measure into the assessment of their 2021 long-term incentive plans (LTIP). The average weighting of ESG measures is 16% in the bonus and 20% in the LTIP. 

This year’s AGM season has seen a reduction in companies achieving very high shareholder support (more than 90% votes for) and an increase in companies receiving low support from shareholders (less than 80%) in respect to the voting outcomes on remuneration packages they’ve presented. The Institutional Shareholder Services (ISS) and Investment Association (IA) have both been more critical of pay resolutions in the 2021 AGM season, with a significant increase in “Against” recommendations and “Red” tops respectively. 

Phillippa O’Connor, Reward & Employment Leader at PwC UK, comments:

“Looking forward to the 2022 AGM season, we expect to see much of the same restraint and scrutiny where pay outcomes do not appropriately reflect the broader stakeholder experience or ESG expectations. Shareholders have already started to share their focus areas and expectations. With more shareholder rebellions being recorded than in previous years, companies would do well to consider what actions they can take now to secure agreement, meet the expectations set and prepare for the new reporting regulations around their net zero plans.

“Our research shows that 28% of FTSE 100 companies have a measure linked to decarbonisation and net zero. Executive pay and reward offer an important lever to align senior leaders with ESG challenges and is increasingly seen as a key tool to achieving change, with two thirds of investors believing that ESG performance measures and targets should be included in executive pay.”

 

Ends

 

Notes to the editor

  1. The FTSE 100 executive pay report is based on the 97 published Directors’ Remuneration Reports of FTSE 100 companies (excludes Investment Trusts) voted on in the 2021 AGM season. 

  2. The ESG executive pay report is based on the 97 published Directors’ Remuneration Reports of FTSE 100 companies (excludes Investment Trusts) voted on in the 2021 AGM season. Data includes standalone ESG measures and underpins. Note that ESG components forming part of wider personal scorecards, but without distinct weightings are excluded. ESG bonus data relates to the bonus paid in respect of the last financial year (e.g. 2020 for December 2020 year ends), and LTIP for implementation in respect of the next financial year (e.g. 2021 for December 2020 year ends).

 

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Alice Bowdery

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