As
an early step it is probably a good idea to explain how pay works in the
UK. When I say ‘pay’ I am referring
to how the most senior executives get paid at the top of large companies. These companies are those that are
listed on the FTSE350, and so incorporated in the UK.
It
is worth remembering that it gets a bit more complex when you have people of
various nationalities (i.e. non UK) and also when individuals run business
units that operate outside of the UK.
Pay
structure
Senior
executive pay is typically comprised of
- a base salary
- an annual bonus
- a long-term incentive scheme (or schemes)
- pension arrangements
Executives
may receive some benefits as well, but these are generally small in comparison
with the other elements of reward.
These
elements can be divided into two categories, (i) that which is fixed, and (ii)
that which is variable, i.e. performance-related.
The
salary, pension and any other benefits are not performance related.
The
annual bonus and long-term incentives are performance related and payment is
subject to meeting certain performance criteria.
At
any one company, these incentives are almost all based on performance against
pre-determined targets with only a small fraction based on the remuneration
committee’s discretion.
We
can delve into more detail on each of these elements soon…
