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The key trends in executive pay

Unlike last year, when the salaries of about half the FTSE 100 chief executives were frozen, over four-fifths of those surveyed have received an increase. The pay constraint last year was hardly surprising, considering that lockdowns were slowing the economy when salaries were reviewed, and that inflation was so low. The median of the increases decided for 2022 was about 3 per cent, broadly in line with inflation at the time, but never forget that companies as a group are far from monolithic – there are variations between each because each has different characteristics and each faces different challenges. “Of those companies disclosing wider workforce increases,” PwC says, “59 per cent are awarding the chief executive an increase in line with the wider workforce, whereas 36 per cent are awarding an increase below that of the wider workforce”, suggesting that two of the 50 companies had awarded higher rises.

That’s all very well, but salaries are only a small proportion of the amount that chief executives can receive each year, so what about pay for performance? In short, it was much higher. In 2020, 28 per cent of FTSE 100 companies paid no annual bonus, and bonuses were constrained by performance targets that had mostly been set before the pandemic. The lockdowns generally hampered performance, and those companies that received government support or cancelled their dividend came under pressure to peg salaries and cancel bonuses. So you might have expected some sort of a bounce back last year, and indeed, with one exception, every chief executive in the 50 companies surveyed received a bonus. What’s more, the amounts were higher. The median of 82 per cent (of the maximum they could have received) was not only more than in 2020 (when the median was 44 per cent), but higher than in the most recent pre-pandemic years. The reason for this goes back to the uncertainty when performance targets were being set for 2021. Nobody could say then when lockdowns would end, nor what would happen afterwards, so remuneration committees tended to set conservative targets. When lockdown restrictions eased, pent-up demand returned faster than expected, which boosted revenues and profits. That lifted performances against targets. And bonuses.

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