New research suggests the bosses of top firms made an average of £4m a year. But Incomes Data Services, which compiled the figures, says pay and bonuses have hardly risen at all. Instead the increase is due to a rise in value of long term incentive plans which have replaced cash bonuses. The study looked at the earnings of directors of the 100 largest companies quoted on the London stock exchange, in the 12 months to June.
However, earnings still increased by an average of 27%, largely due to the introduction of long term, share-based incentive plans for executives. These plans – which are now used by 90% of top companies – are designed to match bonuses more closely to the return that shareholders make, says BBC business correspondent Jonty Bloom. Incomes Data Services said many executives were benefiting from the recent overall improvement in stock market performance. It meant that the value of long term investment plans had risen to an average of £938,000 for directors, and to £1.6m for chief executives.
The study also pointed out that the plans were often calculated based on a firm’s performance in comparison with its competitors, rather than its own performance history. This meant that an executive might still be rewarded if the company’s performance had deteriorated, as long as competitors had done worse.