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Executive pay to stay frozen in 2010

Executive pay to stay frozen in 2010
 
Senior executives are sharing the pain of the recession felt by shareholders and other employees, with typically only finance directors receiving pay increases, according to Watson Wyatt's 2009 Executive Reward Survey.
 
Salaries for UK executives were frozen in 2009 the median salary increase for chief executives and other directors (but excluding finance directors) was 0 per cent. Companies are budgeting for zero salary increases in 2010 for executives, compared with a budget for other employees of 2 per cent.
 
Finance directors, whose skills are in high demand in the current economic climate, saw a median increase of 2.9 per cent.
 
We are witnessing a departure from the long-running trend of executives' salaries increasing at a faster rate than those of other employees, said Sue Bartlett, a senior executive reward consultant at Watson Wyatt. We are now seeing a much closer correlation between the performance of companies and the compensation executives are actually receiving.
 
This year the median salary increase for employees below management level was higher than for executives, at 2.5 per cent, and the increases awarded to executives and others were lower than had been budgeted in the previous year. This shows the impact of the credit crunch and recession, and the expectations for 2010 are that salaries will not catch up for the lost ground.
 
Bonus payments received (in respect of the previous year's performance) were significantly lower for executives. For chief executives the median bonus paid this year was 29 per cent of salary compared with 61 per cent in the previous year and a median bonus opportunity of 135 per cent.
 
Some commentators might be surprised that executives are receiving bonuses, even at this reduced level, said Sue Bartlett. However, some bonuses relate to the performance of companies that were late in being affected by the slowdown.
 
The Watson Wyatt survey found that more companies are deferring payment of annual bonuses, usually into shares for a period of three years. This trend reflects increased pressure from shareholders and regulators, particularly in the financial sector, where deferral is being insisted upon to reduce risk-taking, said Sue Bartlett.
 
Pension provision continues to reduce, with more companies closing defined benefit plans even for existing members.
 
Watson Wyatt also collects data for chairmen and non-executive directors. The 2009 data shows the same pattern as for executives, with the most common approach being no increase in fees in 2009 and none predicted for 2010.
 
With the time, responsibility and reputational risks associated with being a non executive director becoming ever more onerous, keeping fees at their current level may make it increasingly hard to recruit and retain the board members most able to meet these challenges, said Sue Bartlett.

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