Leading executives of the UK's biggest companies now earn £3.3 million a year on average thanks to large bonuses and performance-related incentive plans, a report has revealed.
Actual salary accounted for 22 per cent of the average figure paid to the chief executives of FTSE 100 Index companies in 2005, while long-term incentive plans (LTIP) amounted to 30 per cent and bonuses made up 19 per cent. Pension plans contributed 16 per cent.
Growth in total pay slowed last year to seven per cent, according to the report by pay specialist Independent Remuneration Solutions (IRS) and proxy voting agency Manifest.
Since 1998, average chief executive salaries have risen by 69 per cent, while total remuneration has gone up from £1 million to £3.3 million - a jump of 230 per cent. In the same period, average UK earnings went up 38 per cent and retail prices by 18 per cent.
According to IRS, annual bonus plans have become more complex but easier to achieve. Many companies now defer part of the bonus into shares.
Among companies with turnover in excess of £10 billion, even those where profits have decreased have not lowered their bonuses.
"These very large companies seem to have adopted the 'guaranteed bonus' approach," the report said. "This is a marked contrast to smaller companies where there is a direct linkage of profits and bonus - for them, if profit drops the bonus drops sharply."
Options remain the most popular form of long-term incentive in smaller companies, the report found. ..SUPL: