The Advisors' Blog

– Subodh Mishra, ISS Governance Exchange

More than three-quarters of FTSE 100 companies have modified remuneration practices in the past 12 months to meet shareholder expectations and respond to new rules on disclosure and voting, according to a report from Deloitte. The Sept. 4 report of FTSE 100 directors’ remuneration shows that “companies are seeking to better align the interests of directors and shareholders by focusing more on the longer term, increasing the shareholding requirements for directors and introducing simpler remuneration structures.”

According to Deloitte, 35 companies studied this year implemented new long-term incentive plans, “more than at any time in the last ten years.” Last year, almost half of FTSE 100 companies operated more than one long-term plan, the report notes, while bonus share matching plan were removed by 13 companies, “demonstrating a move towards simpler arrangements.” “A particularly striking finding from this year’s analysis is that in over a quarter of the performance share plans the participants will not receive any shares for five years,” said Stephen Cahill, a partner in Deloitte’s remuneration team. “Overall, almost half the long-term plans in place are now based on time periods longer than three years.”

Meanwhile, shareholder expectation for directors to hold a minimum number of shares are being met, the report finds, with most companies (96 percent) now having such guidelines in place. In a statement announcing key findings, Cahill said the past year has seen over a quarter of companies increase the minimum requirements, resulting in a median requirement to hold shares with a value of 200 percent of salary, compared with 150 percent last year. In the largest companies, he noted, this rises to 300 percent of salary.

Separately, there has been no change in the median potential bonus that may be paid in FTSE 100 companies generally, the report finds, but the median has decreased in the top 30 companies and actual bonus payout amounts continue to decrease. The median bonus payout across all FTSE 100 companies in 2013 was 70 percent of the maximum opportunity, compared with 87 percent four years ago. (There is a maximum bonus opportunity based on company performance. Depending on the extent to which the performance targets are met a proportion of the bonus will be paid, up to the maximum for outstanding/exceptional performance.)

In the top 30 companies, payouts were lower with a median of 58 percent of the maximum opportunity. In 11 companies, compared with only three last year, the level of the bonus payout was reduced by the remuneration committee to better reflect the overall company performance.

There has been no change in the potential size of the median long-term award. The vesting of awards relating to performance periods ending in 2013 has also been lower than the previous year with a median of 40 percent of the maximum that could have been earned, according to Deloitte. “The variability of these plans is demonstrated by the fact that over a quarter of recipients received no payout award and only one in five received the full award,” said Cahill.