Strategy & Operations » Leadership & Management » FD total earnings fall for FTSE 350 in 2017

Total earnings for finance directors in the FTSE 350 fell between 2016 and 2017 while basic salary increased, according to research conducted by KPMG.

In 2017, the median total earnings for FTSE 100 finance directors were £2.13m, down from £2.21m in 2016. For FTSE 250 finance directors, total earnings were £906,000, compared to £966,000 in 2016.

Basic salary, however, increased to £552,000 in 2017 from £539,000 in 2016 for FTSE 100 finance leaders and to £359,000 from £345,000 for FTSE 250 finance directors.

The research was conducted as part of the KPMG Board Leadership Centre’s Guide to Directors’ Remuneration 2017, a report which tracks the latest executive and non-executive directors’ pay in FTSE 350 companies.

The report also found that almost a third of FTSE 350 companies have introduced or increased shareholding requirements for CEOs this year, according to Big Four firm KPMG.

Over 50% of FTSE 350 businesses have also introduced or extended holding periods for director long term incentive plans (LTIPs), in a bid to achieve greater alignment between boardroom pay and long-term performance.

The number of votes against annual remuneration reports has also risen.

The median shareholding requirements for CEOs in FTSE 100 companies have increased to 250% of salary, up from 238% last year. However, the requirement remained at 200% for FTSE 250 CEOs.

Almost a fifth of FTSE 100 and nearly three quarters of FTSE 250 businesses introduced or increased their post-vesting holding periods for long term incentive plans, accounting for 57% of businesses across the FTSE 350. The median holding period is two years.

This comes at a time when Brexit is causing uncertainty around whether leaving the EU will also mean losing strong leaders at FTSE 100 companies.

Chris Barnes, partner and head of reward at KPMG in the UK, said: “Long-term incentive plans continue to gain traction in the remuneration mix for executive directors as shareholders look for ever greater alignment between pay and long-term performance. The introduction and extension of holding periods and shareholding requirements in the listed community shows that UK plc is moving in the right direction.”

Barnes added: “The trend will be encouraging for the Financial Reporting Council, which recently proposed a five-year lock in period for LTIPs as part of its consultation on a new UK Corporate Governance Code. While the Code is not mandatory, UK corporates appear to know which way the tide is turning.”

In this year’s AGM season, only two FTSE 350 companies received majority votes against their annual remuneration report, and no votes were received against policy. However, shareholder dissent increased on both counts compared to 2016 with ignificant votes against annual remuneration reports rising from 9% to 10% between 2016 and 2017. Most companies last put their remuneration policies to binding votes in 2014, when 5% of companies received significant votes against, while in 2017 6% received significant votes against.

Barnes said: “The majority of companies continue to receive high levels of support for their executive remuneration packages from shareholders. But, there was a slight increase in challenges to those agreements over the past year, which suggests that more needs to be done in reshaping remuneration policy before it meets the expectations of stakeholders.

“In particular, pension contributions for directors are still much higher than for average employees and the gap is widening, which will draw scrutiny from investors who contest the use of cash supplements in executive remuneration.

“Typically, voting down a package is due to a lack of disclosure for targets, significant increases in base salary or when there isn’t a clear link between pay and performance.”

This announcement follows new regulations announced earlier this year stating that companies must publish the required payment practices information, otherwise both the company and individual director will face criminal charges and unlimited fines.