Bonuses for FTSE100 bosses bear no relation to performance

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FTSE 100 bosses are being paid huge bonuses with little apparent regard to performance, a report out today says.

The annual review of top pay by the professional services firm PwC says that while a third received no pay rise this year, “almost all CEOs receive a significant bonus each year, raising questions about whether variable pay is living up to its name”.

For a typical chief executive, basic salary makes up just under a third of their total pay, with the rest coming from various types of bonus that are supposed to be performance related. However, PwC’s “Executive Pay: Review of the 2015 AGM season” says: “A high proportion of [bonus] payouts only vary by relatively small margins from one performance cycle to the next. In 48 per cent of companies, bonuses were either exactly the same as during the previous year (12 per cent), or within 10 percentage points of the previous year (36 per cent).”

It asks the question: “With the median CEO payout remaining at around 130 per cent of salary for the past three years, and with almost half of awards showing little change from year to year, can annual bonuses genuinely be described as variable pay?”

The issue of annual bonuses that are all but guarantees opens up a new front in an increasingly fraught debate.

Tom Gosling, executive pay partner at PwC, said: “With the average FTSE 100 CEO earning in a year what several ordinary people might earn in a working lifetime, remuneration committees need to make sure that payouts are fully justified by performance to help rebuild trust in business.”

He added: “Committees must continue to improve the quality of disclosure about how bonus targets are set and whether they are sufficiently stretching.”

Roger Barker, director of corporate governance at the Institute of Directors, said: “This report highlights some encouraging trends in terms of executive pay. Make no mistake, after years where excess was common and remuneration ran away from performance, there was plenty of work to do. But there are signs that companies are alive to the importance of addressing both their shareholders and stakeholders’ concerns over executive pay.”

But TUC General Secretary Frances O’Grady said: “If earning more than 150 times the average salary is a sign of restraint than I would hate to see what excess is.

“Little has changed in the City. Bonuses are still out of control, with CEOs’ remuneration going up at more than twice the rate of average wages. These figures show once again why we need workers to sit on company boards and remuneration committees to keep boardroom pay in check.

“We need a recovery that works for everyone, not just the super-rich.”