UK Board Remuneration Handbook 2023

Professional colleagues sitting around a table looking at laptop

Author

Peter Boreham

UK and European Practice Leader
Author

Nic Stratford

Partner

Remuneration practices and trends

As the major effects of the pandemic begin to abate, 2022 was a return to a more ‘steady-state’. However, after a long period of low inflation and pay moderation, higher inflation led to higher UK executive salary increases. These were between 3% and 5%, although generally these remained below the level of the workforce.

Mercer’s 2023 UK Board Remuneration Handbook covers the latest FTSE350 board remuneration practices and trends.

Key trends during the 2023 AGM season

Salary
- Typical executive salary increases in 2022/23 were higher than we have seen since 2008’s financial crisis, as higher inflation led companies to award executives increases in the range of 3%-5%
- However, these executive salary increases were typically below increases offered to the wider workforce as moderation and pay equity continues to be a principle expected by shareholders
Annual bonus outcomes
- Median bonus payments in respect of 2022 performance were lower than in respect of 2021, but have reverted to the pre-pandemic average level and were higher than companies’ stated target level of around 50% of maximum
- Given UK economic growth for the coming 12 months is forecast to be weak, investors might begin to focus more on the level of payouts if bonuses in respect of 2023 remain significantly above the target level
LTI outcomes
- LTI payout levels varied significantly between different companies and sectors
- While median LTI vesting levels were slightly higher than in 2021, they remain below the pre-pandemic average level of payout
Pension
- Almost all FTSE250 companies have now aligned executive director pension contributions to the wider workforce
- The remaining handful of companies that have not yet aligned pensions for incumbent executive directors may find that over time they come under greater scrutiny on this issue
Total earnings
- In broad terms, the median actual total single figure levels are slightly lower than last year by c.10% for CEOs and c.5% for CFOs at FTSE350 companies
Compensation design
- Performance share plans remain the predominant LTI vehicle in the UK market with only a handful granting restricted shares to Executive Directors, typically with a 5-year time horizon and performance underpin(s). Restricted share plans are very common below Board creating a potential disconnect in the design of remuneration for Executive Directors compared to other employees
- ESG measures continue to increase in prevalence, most notably in annual bonus plans. Companies with more clearly defined ESG strategies have also included ESG metrics in their long-term incentive (mostly extractive industries)