Executive remuneration in FTSE-Listed companies
Executive remuneration in FTSE-Listed companies
Employers globally are facing challenges with the attraction and retention of certain specialist skills, particularly in the technology and digital space. And many companies, across all sectors, are now having to compete directly with Technology, Media and Telecommunications (‘TMT’) companies for such critical skills. Competing on pay levels alone is not a viable option for many, so understanding how pay is structured across the TMT sector will help companies respond better to these challenges.
Our report “Executive remuneration in FTSE-listed companies” covers executive pay trends in 2022 across FTSE-listed TMT companies. With this year’s reporting season coming to an end, we have analysed executive remuneration and board fee quantum and policy information for companies in the FTSE 350 and FTSE Small Cap. Our report also includes commentary on diverse pay practices in the TMT sector, external issues that we see affecting executive remuneration and the areas where we see divergence in market practice between TMT and the other FTSE sectors. The analysis is based on remuneration data publicly disclosed by companies for 2021/22.
To assist with data interpretation and allow reflection on the most appropriate comparators, we present our data in three market capitalization groups – FTSE 100, FTSE 250 and FTSE Small Cap. It is interesting to note that, while there is some variety of market capitalisation and revenues, we observe that TMT companies are not headcount heavy businesses. We see this consistently across the FTSE 250 and FTSE Small Cap. But not the FTSE 100 where, as shown in our report, the significant increases in employee figures between quartiles are driven by a small number of very large telecommunications companies. Size of headcount differs between organisations for many reasons and there is not a best fit answer to link headcount to business success, however, it is clear that many tech businesses deliver their revenue with sub 2,500 employees. And often significantly fewer.
Our key findings include:
- At the median, CEO total remuneration across other FTSE sectors is higher than across the TMT sector
- We see some significant year-on-year increases to pay levels across the TMT sector, particularly in terms of salary and bonus outcomes
- There is a strong emphasis on variable pay in both CEO and CFO total remuneration package paid in year across the TMT companies
- We see higher reliance on short-term pay across TMT sector in comparison to the rest of FTSE 350 with respect to total remuneration package paid in year
- Performance share plan remains the most prevalent type of long-term incentive plan across the TMT sector. The adoption of restricted share plans has remained relatively low in the sector, particularly outside the FTSE 100
- We note that Environmental, Social and Governance (‘ESG’) metrics are becoming increasing prevalent in LTIPs, particularly across FTSE 100 general industry companies. This practice has not been widely adopted across the TMT companies yet.
We also cover key areas and issues we anticipate being of influence in 2023 based on some clear pictures that have emerged from our data analysis:
- The declining presence of TMT in the UK listed market
We question whether there is a link between the increasingly strongly held view that a tech business should IPO in the US ‘because it’s a better market for a tech business’ and the approach to executive remuneration we see adopted for listed TMT businesses in the US. We envisage that the expectation of companies to adhere to established pay models in the listed environment will have a stronger impact on IPO decisions in the future, and the consideration will become fully embedded in the decision matrix which drives access to capital and markets.
- A focus on the shorter term
With future performance ever harder to predict, and the average tenure of a FTSE 100 CEO only just exceeding one cycle of LTI performance measurement plus a related holding period, we can see more TMT companies looking at the use of restricted shares (rather than performance shares), or keeping participation in a performance share plan very tight (and using restricted shares more broadly in the business).
- The influence of ESG will continue
We expect to see much greater consideration being given to how to make an ESG measure in an executive programme work effectively. And we expect this practice to spread more widely across the TMT sector in line with the other FTSE sectors.
- Who wants to be an Executive Director?
If we look at remuneration practices across TMT companies, outside the Executive Directors, we see a practice which is quite different. For example, different (higher) pay positioning for certain skills, much higher use of restricted share awards than disclosed practice would suggest and greater discretion in determining bonus outcomes. Put simply, the role of an executive director as a figurehead is proving to be just that.