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Remuneration & Salaries

Will top execs also feel the pinch this year?

Mon, 05 Dec 2011 12:10

As the world continues to reel from the outfall of the European debt crisis and global financial market turmoil, much interest is set to fall on the salary increases and bonuses being awarded to top-level executives in coming months.

While executive pay packages across the world have been the source of sharp criticism in recent years, a leading executive head-hunter says extravagance is likely to be tempered this time around.

“There will be far fewer bells and whistles added on to the salary packages of top leadership in the current climate – whether they be existing or new appointments,” says Debbie Goodman-Bhyat, Managing Director of Jack Hammer Executive Headhunters and South African partner of IRC Global Executive Search Partners.

“There is, for instance, a clear line in the sand with regards to bonus payouts in the financial services sector, as several companies move towards longer term deferred bonus payments,” she says.

“Furthermore, new payment structures continue to be introduced, such as bonuses being paid out partly in cash and partly in shares or share options.”

Goodman-Bhyat estimates that the “individual performance” element of the bonus calculation is likely to be reduced to about 30-40% of the total award, with the balance more closely linked to the company’s performance.

“If the company is not doing well, the bonuses paid out will almost certainly be smaller than executives have become used to.”

On the matter of increases, executives are also likely to take home a less impressive raise than they have become accustomed to.

“In previous years, increases well over inflation rates were granted to executive teams. However this year, increases are more likely to be inflation-linked, with figures of between 6% and 8% expected to be the norm.”

Goodman-Bhyat says that the ongoing global financial crises have had a sustained effect on the earning power of top executives.

“Although there remains a strong demand for attracting and retaining top talent, many companies are increasingly tightening the purse strings in an effort to weather uncertain and dark economic times, and executive remuneration has not been immune to the effect of increased prudence.

“We continue to observe a fundamental restructuring of how top executives and specialists are paid, more often resulting in a move away from short term risk taking, in an attempt to instill a culture of ethical governance, and a long term approach amongst professionals tasked with driving growth in organisations.”