Fewer executive bonuses determined by financial measures

The number of top UK companies offering annual bonus plans to executives on purely financial measures has fallen by more than half over the past year.

Levels of customer satisfaction, employee engagement and environmental measures are now increasingly favoured over hard financial targets when it comes to organising executive bonuses. In 2005/6, 33% of top companies based such bonus schemes on financial measures alone, while in 2006/07, this fell to 17%. According to the 2007 Annual and long-term incentives report by PricewaterhouseCoopers (PwC), there has been a growth in the number of such reward packages offered on a combination of financial; non-financial and individual measures – 13% in 2005/6 rose to 31% in 2006/07.

Duncan Brown, director in the HRS consulting practice at PwC, said: “We are seeing a continuing shift towards variable pay in UK plcs and a growing emphasis on long-term performance when determining executive pay. Additionally, the broader corporate stakeholder and corporate responsibility agenda has stimulated growth in the use of non-financial measures in bonus plans alongside those more traditional measures focused on financial and shareholder return. Some of the most popular new measures are operational performance and customer-related ones, which mean that if customer service levels fall then so could executive bonuses.”