The pay and benefits of FTSE 100 business executives rose by 27 per cent last year to an average of four million pounds each, despite a backlash against big basic salaries and bonuses, according to research from Income Data Services.
The research firm found that that while basic pay rose slightly and standard bonuses fell noticeably, total executive packages have been bolstered by a big increase in long term incentive plans (LTIPs), share awards based on a company's performance over several years.
Its study found that across all FTSE-100 directors, the value of LTIPs rose by 81% from a median of £519,625 in 2011 to £938,888 this year. For chief executives, the value of vested LTIPs reached a median of £1.6m.
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IDS explains that LTIPs are now used by more than 90% of the FTSE 100 and are designed to incentivise directors over a longer-term period. They are typically granted in the form of shares and are closely linked to shareholder returns, with directors typically having to reach a minimum target before any shares are granted.
Steve Tatton, Editor of IDS Directors Pay Report 2012/13 commented: "Many LTIPs are based on comparative performance with competitors, rather than their own company's historical performance, meaning that directors stand to earn a payment even if their company's performance has worsened - as long as their chosen peer group has done even worse."
Explaining the rise in the value of LTIPs, IDS says that: "Today, more directors are receiving LTIP awards of higher value as a result of the evolution of plan design over the last decade."
"In particular, the maximum value of the share grants received from LTIPs has been steadily increasing over time and when equity prices were low, as they were during 2008 and 2009, directors were allocated a large block of shares. When share prices have subsequently risen, as they have since the depth of the recession, directors have had the potential to profit from windfall LTIP gains."
Steve Tatton adds: "Shareholders will not take issue with directors earnings increasing, provided they are doing so in line with company performance and share price."
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