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Pay & Performance

Top UK companies are increasingly incorporating non-financial factors such as customer satisfaction into executive bonus plans, accountancy firm PricewaterhouseCoopers (PwC) has found. PwC’s research revealed that the number of companies offering bonus plans based on purely financial measures has halved over the past year, falling from 33% in 2005/06 to 17% in 2006/07.

This has been accompanied by major growth in the number of bonuses packages testing performance on a combination of financial, non-financial and individual measures: up from 13% in 2005/06 to 31% in 2006/07. PwC’s Duncan Brown commented: “Some of the most popular new measures are operational performance and customer-related ones, which mean that if customer service levels fall then so could executive bonuses”. PwC also found the average maximum bonus opportunities for FTSE 100 chief executives to have risen to 123% of their salary, compared to 103% last year. FTSE 250 chief executives experienced a smaller rise, from 95% last year to 100% this year.

Not only are non-financial factors figuring more prominently in bonus packages, but research by Hay Group has suggested FTSE 100 executive directors are “good value” for money in terms of what they are paid. Hay found the total remuneration paid out to FTSE 100 executive directors last year was £515m – just 0.51% of the combined post-tax profits of the companies.

Simon Garrett, co-author of the report, suggested that: “Executive directors’ pay should be seen primarily as an investment choice. When you consider their impact and the value their companies add to the UK economy you have to conclude that, in aggregate, these executives represent pretty good value for money. After all their total pay is only around half that paid to premiership footballers!” Hay found FTSE 100 directors earned an average of £1.2m last year.

What do you think?