Greg Wright: Bosses are back to their old tricks as the Spring dies out

In the heady days of early 2012, shareholders started to flex their muscles after they were angered by the sight of bosses taking home pay which seemed to bear no relation to their company’s performance. The eye-watering bonuses seemed to be widening the divide between rich and poor, as the UK economy creaked its ways towards recovery.

After years of public anger over corporate greed and lack of accountability, there was a hope that sanity might be returning to the boardroom.

Yesterday, the TUC claimed that bosses were “back to their old tricks” after an independent survey found that directors at FTSE 100 companies had seen their total earnings rise by about 14 per cent last year.

The reasons for this rise are complex and reflect the new ways in which management pay is being structured. The study by Income Data Services found that this rise in total earnings was driven by a 58 per cent increase in share-based long-term incentive payments.

In its research, IDS pointed out that basic pay rises were relatively restrained and average cash bonuses fell. FTSE 100 directors have, in particular, benefited from share-based schemes designed to incentivise long-term performance. These schemes, known as long-term incentive plans (LTIPs), are usually linked to total shareholder return.

During the latest year, the median LTIP award for FTSE 100 directors increased from £764,462 to £1.2m. At the same time, the median annual bonus went into reverse and declined by 8.8 per cent, from £606,900 to £553,200.

As Steve Tatton. the editor of IDS’s directors’ pay report, observed: “With nearly two-thirds of FTSE directors benefiting from an LTIP award in the latest year, the higher share-based payouts clearly made up for any ground lost in lower annual bonuses. This year’s double digit total earnings rise for FTSE 100 directors was largely fuelled by LTIP awards, and this is the second year in a row that payouts from these schemes have been buoyant.

“But this boost to overall earnings took place without any of last year’s talk of a shareholders’ spring, with fewer institutional investors voting down remuneration reports.

“This was perhaps because the vesting of large share awards is currently less visible to investors than salary increases and bonus payouts,” Mr Tatton added.

However, these deals could be easier for shareholders to spot in the future.

Changes to reporting requirements could mean there’s more scrutiny of LTIP schemes.

The new requirement to include a single total pay figure for top executives, following the introduction of new reporting rules last month, could make the scale of long-term incentive payments more obvious.

Currently, most listed companies’ annual accounts do not include vested share awards in the main table detailing with directors’ pay, and their value is calculated from separately published information.

“By putting the transparency of these schemes at the heart of new reporting requirements, the Government is likely to ensure that LTIP schemes are the subject of much tougher questioning by shareholders in the future,” Mr Tatton said.

Frances O’Grady, the TUC’s General Secretary, said that Britain’s top bosses were seeing their pay grow 20 times faster than the average worker.

She said yesterday: “It’s one thing replacing bonuses with long-term incentive plans, but FTSE 100 companies are simply exploiting this change to make their fat cats even fatter.

“The time has come for legislation to put ordinary workers on the pay committees of companies.

“This is the only way to bring some sanity to the way in which directors are paid.”

According to the IDS study, the average pay for a director of a FTSE 100 firm was £3.3m over the last year. We need to ask a simple question. Is anyone really worth that much? If this bald figure was plonked in front of most shareholders, few would rubber-stamp it without asking some tough questions.

These revelations underline the need for bolshy shareholders, who will study the small print of the directors’ report. They mustn’t be scared to kick out packages which seem ludicrously generous. Long live the revolutionary spirit of 2012!