PAYnotes: Interesting times in the world of reward – part one

I recently found myself thinking about a particular saying that I had always believed was an ancient Chinese proverb and indeed has been called the Chinese curse. The phrase is “May you live in interesting times” and it came to mind when thinking about the present state of the world of reward. 

A number of news items in the last few days made me recall the expression. The stories are only loosely related to one another, but together they represent what unhealthily optimistic thinkers would probably characterise as interesting “opportunities” or “challenges”.

In this, the first of two blogs on the subject, I will take a look at recent news items on bonuses and executive reward. In part two, I will consider the impact of gender pay gap reporting and the introduction of the National Living Wage.

An increase in bonuses for some

First of all there were some interesting numbers from the Office for National Statistics (ONS) about bonuses. They had analysed data from their Annual Survey of Hours and Earnings (ASHE) and concluded that bonuses were on the rise. No real surprise there, as we are progressing well on our recovery from the depths of the 2008 recession, which resulted from the crisis in the financial services sector. 

Overall bonuses in the last year have increased by 2.7 per cent and, in cash terms, now stand just 0.1 per cent below the record high level they achieved back in 2007-2008.

One issue the ONS analysis threw up was the level of bonuses in different sectors of the economy. It came as no great surprise that bonuses as a proportion of total pay in the finance and insurance sector have dropped considerably in the last few years. They now stand at 20 per cent for 2014-15, compared to 34 per cent in 2006-07. It is still somewhat sobering to see that for the rest of the economy the proportion has been fairly consistently at around just four per cent.

Sympathy for the CEO

Looking back over the last few years there has been precious little sympathy for chief executives with regards to their rewards. Indeed, quite the opposite. Ever since the financial crisis there has been a steady stream of hostility aimed at the size of salaries and excessive bonuses. In particular, it used to be the case that CEOs’ pay seemed to be happily marching forward, even as their downtrodden employees struggled to make ends meet in the face of a pay freeze.

Those days may now be over. For some time now we have seen public and shareholder pressure force CEO salaries to increase by no more than the typical level of those of other employees. 

The most recent report on FTSE 100 Chief Executives goes further. PwC report that over a third of CEOs have had no salary increase this year – last year it was a quarter. The median increase for those that did get one was just three per cent. Furthermore, whilst bonus payouts were up year on year, it was also by just three per cent – in other words very similar to the level the ONS reported overall.

Not that we should be too worried about our top executives hitting hard times. PwC report that the median single figure of remuneration for FTSE 100 CEOs had actually increased by 6.8 per cent and now stands at a humbling £4.28 million. The rise is mainly driven by the buoyant stock market at the start of this year – an effect that is likely to reverse 12 months on.

To be continued…

By Peter Brown