Executive briefing – March 2022

Welcome to the 2022 AGM season

Backdrop

We entered 2022 under the spectre of Omicron although, thankfully, it quickly became apparent that its consequences would be less severe than at first feared.  However, this first wave of optimism has since been overtaken by the war in Ukraine and rising inflation.

From an executive pay perspective, it is too early to meaningfully comment on December year-end results but analysis of September onwards year-ends including a handful of early reporting December year-ends suggests:

• Overall staff wage inflation is increasing in response to labour shortages and inflation with median salary increases approaching 4%. The National Living Wage is set to increase by 6.6% from April suggesting that rates will increase further as we progress through 2022. It should also be noted that increases are increasingly being targeted at both the lowest paid and on those with particularly scare skillsets, particularly related to digital roles;
• Against this backdrop Executive Director salary increases are also going up albeit, generally, at a lesser rate with a median increase of 3% (and a reduced number (15%) not receiving an increase);
• Bonus payments are also increasing as many companies have significantly out-performed targets set at the start of the 2021 when a harsher lockdown was anticipated. Median bonus payouts to date have been 80% of maximum (as opposed to c.45% of max in 2021).  Where significant payments have been made by companies which have taken furlough monies in 2021 (and potentially other elements of ‘state aid’) and failed to pay dividends, even where significant negative discretion was applied, some level of adverse voting is to be expected;
• LTIP grants and vestings have largely proceeded on a normal basis (which leads to the comments below) as share prices have risen from 2020 lows;
• 15% of companies have increased bonus potential and/ or headline LTIP grants levels for their Executive Directors for 2022.

A number of companies are facing increased pressure for talent from PE-backed companies and all of this has been building towards what may well be another difficult AGM season.

Yesterday, the IA issued additional guidelines in response to the negative impact of the war in Ukraine on certain share prices. In particular, it calls for:

• LTIP award levels to be scaled back where there has been a substantial fall in the share price rather than deferring any decision until vesting and potentially scaling back then
• While only a small number of companies are expected to need to defer setting performance targets for LTIPs, it notes that many members are likely to be supportive of a delay of up to 6 months for those with Russian operations which are materially affected provided such delay is consistent with that company’s general messaging on the impact of the war.

If you wish to discuss anything arising from this briefing, please ask your usual contact at FIT or call us on 020 7034 1111 or email us at Info@fit-rem.com. 

This paper is intended to be a summary of key issues but is not comprehensive and does not constitute advice. No legal responsibility is accepted as a result of reliance on the contents of this paper.

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