Steep pay falls for senior managers

Remuneration cuts hit below board level
By Rachel Sanderson - Financial Times on 12th November 2009.

Compensation is shrinking faster for senior managers of UK companies in the recession than for board members, according to a report by Deloitte.

The survey showed senior managers sitting below board level are earning 8 per cent less than a year ago, while board members are taking home the same amount in pay and bonus.

For an executive board member in a FTSE 100 company, the median bonus payment was also about 100 per cent of salary, in spite of falling profits in one of the deepest post-war recessions. A FTSE 100 senior manager could expect to take home a bonus worth half of salary. At an FTSE 250 company, it fell to a fifth of salary.

The findings come at a sensitive time after Richard Lambert, CBI director–general, warned last month that high levels of executive pay were an important factor in the “severe knock” business had taken to its reputation. Demands for reform are increasing, including tougher guidelines for compensation committees, following investor unrest at companies such as Royal Dutch Shell and Royal Bank of Scotland.

Deloitte said senior managers were losing out on long-term incentive awards, which tended to be “significantly lower” than those at board level. Many board bonuses tended to be deferred or made up entirely of shares. At senior level, the percentage of bonuses paid in shares was lower.

Carol Arrowsmith, partner and head of Deloitte’s remuneration team, said those below the board had been more affected by pay changes in the past year.

“It is important to be confident that the bonus payouts at all levels reflect reality and companies need to focus on the measures and targets in place for the coming year to make sure these remain appropriate.”

The findings showed FTSE 100 board members and executive committee members were taking home substantially larger salaries and bonuses relative to salaries than board members at smaller companies.

By Rachel Sanderson - Financial Times on 12th November 2009.