This is what counts as restraint in executive pay: bonuses that quadruple your salary

Pound foolish.
Pound foolish.
Image: Reuters/Toby Melville
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Large British businesses have entered a “new era” in executive pay, according to a report from Deloitte published today. The median salary for an executive director at a FTSE 100 firm rose by only 2.5% this year, to around £840,000 ($1.3 million), a similar increase to the previous year. And fewer investors voted against executive pay packages during the latest round of shareholder meetings, suggesting greater support for supposedly more modest pay policies. Shareholder votes on pay policies become binding, rather than simply advisory, for London-listed companies starting in October. Deloitte reckons this could be the initial sign of restraint in response to the new rules.

But as always with executive pay, the meaning of restraint is relative. On average, FTSE 100 companies say that their maximum annual bonus—which is mostly paid in cash—is capped at 150% of salary, a ceiling that has not changed in recent years. But what was actually paid to their executives this year was 100% of salary, down from 120% the year before. Long-term incentive plans—which pay out mostly in shares—added another 200% of base salary to the typical executive’s pay package, the same as in the previous year.

Seems pretty generous. However, a growing number of companies are deferring bonuses—typically a third of the award for three years—while executives are usually required to cash out on shares over a stretch of years. Those policies are riskier for executives now that more than 80% of FTSE 100 firms have the power to rescind awards from previous periods if company performance falters, up from around 60% last year.

Still, restraint in executive pay remains an elusive goal. Some 70% of companies paid extra-large bonuses for exceeding performance targets set last year. Either British bosses are almost all above average (kind of like a corporate Lake Wobegon) or targets could be a lot tougher. If this is considered more prudent pay, shareholders are setting the bar low.