Companies look to non-financial measures for executive pay

UK companies are increasingly looking at long-term performance when determining executive pay, a new report has revealed.

The research by PricewaterhouseCoopers (PwC) stated that the number of UK companies offering annual bonus plans to executives on purely financial measures has fallen by almost half over the past year, from 33 per cent in 2005/06 to 17 per cent in 2006/07.

There has, however, been dramatic growth in the number of reward packages offered on a combination of financial, non-financial and individual measures, increasing from 13 per cent to 31 per cent.

Rather than merely looking at hard financial targets, PwC says that these findings highlight that the trend is moving towards including broader corporate activities such as levels of customer satisfaction and employee engagement.

Maximum bonus opportunities for FTSE chief executives have risen to 123 per cent of their salary from 103 per cent last year.

Duncan Brown of PwC said: "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."