Partner Article

Work still needed to achieve best practices in business, say Deloitte

Research into executive remuneration structures shows there is still some way to go to achieve best practice.

A new report by Deloitte highlights the need for performance related reward among FTSE 350 companies.

However, it also suggests that if director salaries are currently above market median then the remuneration committees should implement pay freezes to show restraint.

Stephen Hall, Tax Partner at Deloitte Newcastle, said: “While there have been positive changes, such as the trend towards more deferral and retention of shares and the increase in clawback provisions, we are also seeing above target annual bonus payouts on a regular basis.”

Mr Hall went on to suggest that companies should design their incentive plans in line with strategic visions, and shares should be held for long enough to align the interests of shareholders and management.

Those companies delivering the strongest returns to shareholders were found to have longer serving senior teams than the general market, and these teams typically have much larger shareholdings.

Elsewhere in the report, it is stated many executive directors were seeing salary rises in 2011 after a two year period of freezes.

Commenting on this, Mr Hall said: “It is not surprising that after a two year period of widespread pay freezes there has been a return to pay increases for executive directors.

“What has surprised us is the number of salary increases above 5%, which is significantly above inflation and the increase in average employee earnings.”

There has been a large increase over the last year in the number of companies with deferred bonus plans, and with shareholding requirements in place for senior executives.

Shareholdings in the top performing companies are typically much higher than these requirements and the actual shareholdings of most executives.

Mr Hall concluded by saying: “The Government is about to release new proposals on remuneration disclosure and we expect it to send a clear message to UK businesses that other ways of controlling remuneration have not been ruled out.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .