The top brass at FTSE 100 companies have enjoyed bumper bonus payouts this year, despite a majority of firms linking remuneration with ESG metrics, research from PwC has shown.
Nearly 90% of companies in the UK’s blue-chip index had embedded either environmental, social or governance measures in their annual bonus and/or long-term incentive plan for 2022, according to analysis following the end of the AGM season.
So far, adopting ESG metrics has not put a damper on FTSE 100 chief executives’ pay, which soared to £3.9m on average in 2021/22, up from £3.2m the year before, the same analysis from PwC showed.
The 22% pay rise was the result of record bonus payouts, as certain sectors enjoyed a post-Covid bounce back and top executives reaped the benefits of lower performance targets set during the pandemic.
The average CEO bonus for the year was 86% of the maximum available compared to 58% last year. Whereas 22% of FTSE 100 bosses did not receive a bonus in 2020/21 only 5% did not receive one this year.
The hike in firms adopting ESG within compensation plans is a massive jump from a year ago when only 60% of Britain’s biggest businesses included ESG metrics as part of their executive incentive plans.
Social measures in annual bonus plans continue to be the most common form of ESG metric at 54%, PwC said. This has been driven by initiatives around diversity and inclusion, health and safety, and employee engagement.
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However, it noted an uptick in companies adopting environmental metrics, such as curbing emissions, with 49% using these targets in 2022 compared to 40% in 2021.
Environmental measures are also “featuring widely” in long-term incentive plans, the Big Four firm added, with metrics relating to decarbonisation being the most common.
Andrew Page, executive compensation leader at PwC UK, warned that as executive pay becomes “increasingly interlinked” with how well companies tackle ESG challenges, “there will be greater scrutiny over the performance targets used,” including pressure for them to be vetted by third parties.
With many workers being offered below-inflation pay increases, Page expects executive pay awards will be subjected to intense shareholder scrutiny come the 2023 AGM season.
“We also expect shareholders to focus on windfall gains. As most long-term incentives were granted at the onset of the pandemic, many companies will be committed to reviewing windfall gains rather than making an adjustment,” he said.
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