FTSE 100 directors' pay surges 20% to £3m in 2010

The highest paid directors at FTSE 100 companies saw their total remuneration surge by 20% to £3 million in the last financial year.

According to Hewitt New Bridge Street’s 2010 FTSE 100 directors’ remuneration report, salaries, which typically comprise 40% of total payouts, only rose moderately with bonuses making up the bulk of the increase.

Actual bonuses made for the highest paid directors in the 2009/2010 financial year were around 120% of salary, compared to 90% last year with 75% of the maximum potential paid out versus 60% last year.

Rob Burdett, a principal consultant at Hewitt New Bridge Street, says that the high payout ratios should not be seen as being down to companies setting soft targets, however.

‘In fact, our experience suggested that when these targets were set in early 2009 they were actually set to be tougher relative to budgets, in order to take account of possible reduced profits,’ he says.

‘In fact, the economy and stock markets have recovered quite significantly, with companies recording stronger performance levels than envisaged. As a result of better than expected financial results, bonuses paid for performance in 2009 have increased considerably compared to 2008.’

This also has been reflected in terms of fewer shareholder revolts over executive pay packages with less ABI ‘red tops’ issued in 2010 than in the preceding year.

Shareholders can also take some comfort that much of the year-on-year increase in directors’ total remuneration was driven by changes to the FTSE 100’s constituents. Comparison on a like-for-like basis shows that total remuneration only increased by 4%.

Over a third of blue chip companies have frozen salary levels this year, compared to 60% last year, which although a significant decrease, the number of pay freezes remains high in a historical context.

‘While the widespread salary freeze imposed in 2009 has thawed to a degree, the days of almost automatic year-on-year above inflationary salary increases for executives are numbered,’ Burdett notes.

‘Also, risk audits and greater transparency over executive pay have been embraced by many remuneration committees. However, bonuses paid this year have reached record levels, driven by the unexpected rate of improvement in economic conditions during the year.’

Some 65% of companies now require part of the bonus to be deferred into shares and a growing number will claw back bonuses paid out if it later transpires that results have been misstated.