Greater Incentives Needed to Boost FTSE 250 Businesses
28th December 2007
Annual survey shows FTSE250 executive packages lag behind other markets in performance-related terms
A survey published this week shows that while 45% of a typical FTSE 250 Highest Paid Director’s package is now linked to performance, the figure is significantly behind the incentive pay opportunity offered to FTSE 100 executives, where typically 55% of remuneration is performance-related. This is one of the main findings in the 2007 FTSE 250 Directors' Remuneration Survey, an authoritative annual survey published by New Bridge Street Consultants.
“FTSE 250 companies have more to gain than FTSE 100 businesses, and because they're smaller you’d expect them to be more flexible, more entrepreneurial, fleeter of foot than their larger rivals,” said Rob Burdett, a Partner of New BridgeStreet Consultants. “What’s more, the credit crunch will not reduce the threat to FTSE 250 companies from private equity to the same degree as larger businesses. Private equity houses will still be hungry, still acquisitive, and their attention is likely to be on smaller targets. Now, therefore, is not the time for FTSE 250 businesses to tread water. Their board directors need incentives to pursue ambitious goals, and the more highly leveraged their individual packages, the more motivated they will be.”
A ‘pay for performance’ culture is here to stay, the report finds, and leverage in the FTSE 250 market may well increase over the next few years. Therefore, the lower performance-related ratios in place at the moment – which are due to lower levels of annual bonus and long-term incentives – are likely to change, says New Bridge Street Consultants.
The main findings of the report:
- the median total remuneration of FTSE 250 Highest Paid Directors is around £1.1 million (£1 million in 2006). The median base salary is around £460,000. The corresponding figures in the FTSE 100 are £2.5 million and £780,000
- variable pay accounts for around 45% of a typical Executive Director's remuneration package, compared to only 37% in 2003 and 55% in the current FTSE 100
- the median total remuneration of Finance Directors is around £710,000 (£640,000 in 2006) with a median base salary of around £290,000. The corresponding figures in the FTSE 100 are £1.6 million and £485,000
- median annual bonus potential for Executive Directors is 100% of salary, compared to 140% for Highest Paid Directors in the FTSE 100
- the trend towards Long-Term Incentive Plans (LTIPs) in place of options continues, with nearly 70% of FTSE 250 companies now operating just LTIPs (compared to 57% in 2006 and 46% in 2005)
Those who argue in favour of base-salary-only models – on the premise that bonuses and share plans are now just too complicated and do not actually incentivise – are missing the point, said New Bridge Street Consultants. Rob Burdett said, “While we accept that talented executives do not work hard and strive to perform solely because it is in their financial interests to do so, surely it is fair that a good management team share in the success that they generate for investors?”
For a copy of the full report, or for additional information, please contact Robert Fenner or Tony Lederer at Grayling on 020 7255 1100 or email tony.lederer@uk.grayling.com.