Mercer: UK Cos. Ready for More Pay Scheme Modesty

November 17, 2006 ( - A new Mercer Human Resource Consulting survey in the UK has found a growing sense of awareness by executives that they need to be more conservative in their executive reward strategies.

But, according to a Mercer news release, the consultant still believes companies are not home free when it comes to effectively linking pay and other rewards to business performance.

The news release said that median salary hikes were at 5% of base pay in 2006, down from the median increase in 2001 of 9.1%.

Meanwhile, median annual bonuses were 37.5% of salary in 2006 compared to 41% in 2005. But there were wide variations in terms of bonus payments. For example, bonuses for Group Chief Executives paid up to 200% of salary while those for Finance Directors were between 0% and 160%. Bonus ranges for many positions were significantly narrower in 2001, when Group Chief Executives’ bonuses varied from 10% to 82% of salary, Mercer said.

The survey also found the majority of bonus plans used a combination of financial and non-financial measures, most often with a balanced split of 50:50.

“While executive reward packages continue to attract attention and their increase rate outstrips those awarded to other employees, pay increases for senior managers have been fairly consistent over the last couple of years and have stabilized considerably compared to five years ago,” said Richard Lamptey, principal at Mercer, in the news release. “This stability is due to a number of factors, particularly the advent of stronger and better informed remuneration committees. Media and shareholder scrutiny, increased disclosure requirements and the pressure to control costs have also played a part.”

Performance share plans remain the most prevalent form of long-term incentive (LTIs), with 42% of survey participants operating this type of incentive, up from 36% last year. The proportion of companies offering bonus matching and other forms of LTIs, such as cash plans, remained broadly stable in 2006.

The study covered reward arrangements for 47 top management positions in 62 major UK organizations, including FTSE 100 companies and other large multinationals.