Total pay for bosses at some of the UK’s largest companies rose by more than a tenth last year, further adding to the scrutiny expected from shareholders at annual meetings at a time when many employees face cost of living pressures.
Median overall pay for FTSE 100 chief executives increased by 12 per cent to £4.15mn, according to data compiled by Deloitte from the first 55 companies to publish 2022 annual reports with financial years ending on or after 15 September.
The median annual bonus payout of 76 per cent of the maximum award possible was lower than the 85 per cent level reached the previous year, with that in part due to companies hitting lower targets set during the pandemic. However many top executives benefited from strong share price performances at the end of 2022 across most sectors, which boosted payouts made under long-term incentive plans.
Deloitte found that more than 90 per cent of CEO salary increases for this year have been set below the average increase awarded to the workforce in the face of investor scrutiny and proxy guidance issued ahead of the 2023 AGM season. The median CEO salary increase of 3.5 per cent to date compiled from the 55 annual reports compares with a median average salary increase of 6 per cent for the workforce.
The first indication that many of Britain’s top executives enjoyed a significant boost to their overall pay package comes ahead of the annual investor meetings of companies in the UK in the spring and summer, when management teams face votes over their pay and governance by shareholders.
Mitul Shah, partner in Deloitte’s executive remuneration practice, predicted “a more challenging 2023 AGM season as investors closely scrutinise pay, with a particular focus on potential windfall gains made by executives on the back of incentive awards granted in 2020 during a dip in the market”.
Shah added that this will contrast with last year when there was a “quieter AGM season as pay levels bounced back, following a period of temporary pay cuts and restraint during the COVID-19 pandemic [but] investors were generally supportive in voting on remuneration reports”.
Even so, last year, pay revolts occurred at companies including the car dealership Pendragon, magazine publisher Future, retailers Ocado, WHSmith and M&S, construction company Kier, hospitality group Whitbread and business publisher Informa.
Deloitte also found that more than 90 per cent of FTSE 100 companies now incorporate ESG measures into incentive plans, with over 40 per cent including environmental metrics.
These climate-related incentives typically focused on Scope 1 and 2 emissions reduction — which measure emissions owned or controlled by a company. But five companies also moved to link long-term incentives to Scope 3 emissions — a consequence of company activity but that occurs from sources not owned or controlled by it.
In the coming 2023 AGM season, more than half of companies are seeking a triennial binding vote on their remuneration policy.
Where companies are putting a new policy to vote, about 40 per cent want approval from shareholders to increase maximum levels of performance-based incentives, for example annual bonus or long-term plans. Most of these companies argued that increases will enable them to compete globally for talent, Deloitte found.
The directors’ remuneration policy is subject to a binding vote at least every three years, and otherwise subject to an annual ‘advisory’ vote by shareholders.
Shah said: “UK-listed multinational companies competing for both talent and business in the US are increasingly citing the disparity in pay levels between the UK and US, as well as more stringent remuneration governance standards in the UK, as a challenge.”