Extract from IDS Executive Compensation Review 309

Bonuses and incentives fuel top directors’ pay

Whenever ‘fat cat’ pay is in the spotlight the focus is usually on the earnings of the 350 or so executive directors on the boards of FTSE 100 companies. The remuneration of this group often sets the pace for other top executives. For the last 16 years, therefore, we have used annual accounts to monitor boardroom pay trends in the FTSE 100.

Rising potential annual bonus payouts, along with higher potential long-term incentive awards, seems to have quickened the pace of earnings movements for FTSE 100 directors over the past year. Our latest analysis shows that the average total earnings for FTSE 100 lead executives, which includes all monies received from cashed-in long-term incentives, has risen by 43.3 per cent over the last 12 months. Although this increase figure may seem extreme, it signifies a deeper trend. The current corporate governance climate, with its clear evidence on meeting shareholder expectations, has fostered a ‘high reward for high performance’ culture and the consequence has been the steady escalation of FTSE 100 directors’ earnings. This article includes a full aggregate summary of the pay of FTSE 100 lead executives taken from our comprehensive survey of top pay in the FTSE 350 published separately in the Directors’ Pay Report 2006.