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Bonuses are back as base salaries take a tumble

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1st Oct 2010
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UK executives’ salaries suffered the second largest fall in Europe this year, but bonus payments were back to pre-recession levels.

Bonus payments for UK board members rose significantly over the last year, but salaries fell in real terms as increases lagged behind inflation, according to figures from management consultancy Hay Group.

UK board executives saw a marginal increase of 0.9% in their base salaries, averaging around £630,000 a year. However, an inflation increase of 2.8% has undermined this rise, resulting in a fall in real terms of 1.9% - one of the highest drops in Europe.

Despite falling in value during the crisis, annual bonuses have proved resilient. The average UK board executive’s bonus stands at £714,000, having risen by 17% year on year.

Total cash remuneration (i.e. base salary and annual bonus combined) went up by 14% overall, making the UK joint fourth in Europe.

While long-term incentives (typically share-based rewards such as share options) continue to make up a substantial part of executive pay in the UK, companies have reigned in the value of these awards over the last year.

Simon Garrett, director of executive reward at Hay Group, said: “Many expected the banking crisis and recession to prompt a fundamental shift in top executive pay. But in reality, most changes have been incremental and cautious.”

“We believe that, now more than ever, remuneration committees need a clear understanding of the interaction between reward and corporate strategy, and the value gained from compensation paid to top executives. Without this, a sustainable long-term approach to executive compensation cannot succeed.

“Boards now have no choice but to treat executive pay as a strategic tool if they want to excel in an increasingly competitive market.”

 

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