Fact Service June 2011

Issue 22

Chief executives’ pay goes on rising

Chief executive officer (CEO) pay continues to rise, quadrupling over the past 12 years, according to the Executive Director Total Remuneration Survey 2011 by MM&K and Manifest, which also found poor correlation between remuneration, performance and shareholder value.

The survey found that while the median remuneration of a CEO of the FTSE top 100 companies was up 32% in 2010 from 2009, the FTSE 100 index only rose by 9% over the same period.

The survey identifies a shift from longer-term incentives — typically over three years — to annual bonuses, mirroring the approach that caused so many problems in the banking sector.

Furthermore, as most remuneration strategies now involve the use of medium-term incentive plans, reward horizons have shortened to only three years. A decade ago, the horizon average was seven to 10 years.

According to MM&K and Manifest, “management myopia” is accentuated among larger employers where complex schemes contain multiple reward thresholds.