Incentivising FDs: salaries, bonuses and performance measures

That’s according to some very smart cookies from KPMG: Renu Birla and David Shammai.

Presenting at a recent conference for FDs, Birla and Shammai went through the trends relating to base pay, bonus levels, long-term incentive plans and performance conditions and presented some interesting statistics.

For example, base salary increases for FDs in the FTSE 250 have continued to be greater than those increases seen in the CEO role. Increases awarded to finance directors in AIM-listed companies have also been greater. In FTSE 250 companies, KPMG analysis shows FDs are getting 8 per cent more in their back pocket while CEOs are receiving 6 per cent extra cash. For AIM, the figures are 9.2 per cent and 8.1 per cent respectively.

Birla and Shammai said that bonus opportunities have not moved much but the actual pay-outs are continuing to increase.

When it comes to performance measures, there has been a slight decline in the popularity of total shareholder return, a trend away from using single measures and increased willingness among companies to consider bespoke metrics.

Birla said: “The problem with long term incentives linking targets and strategy is investors can’t monitor the targets you choose, therefore we’re seeing a move to deferred annual bonus plans.”

However, Shammai warned: “Companies who rush in deferred annual bonus plans will have a problem on their hands become of the economic climate. Remuneration strategies are all about balance… Consistency should speak there.”

Birla said appropriate dialogue with investors over remuneration is crucial. “Support from investors will undermine media stories on pay,” she noted wryly.

Real FD sincerely hopes a certain executive pay blog didn’t raise the ire of Birla and the FD community it loves so dearly…!

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