For the full story on 2015 trends in Director and executive reward, download our KMP report using the form at the bottom of the page.
Egan Associates believes that fixed remuneration increases at all levels of staff in 2015 will be modest, with the majority of organisations making annual pay adjustments in the range of 2% to 3%, although we also expect greater variation by company and industry sector.
Board fees will be contained broadly in alignment with fixed remuneration adjustments, except where there have been minimal or no adjustments over the past three years to Board fee levels or where the demands on Directors have substantially increased due to organisation transformation or growth through acquisitive initiatives.
We believe there will continue to be churn at the level of CEO and senior management as Boards determine that their current leadership team, although suited to the last three to five years, does not have the relevant competencies to lead the organisation through the near-term challenges of the changing economic and technology environments. Board renewal will remain a constant focus, with some Boards reducing their number and others increasing their membership as demands on Directors change.
In our opinion, 2015 will be the beginning of more open discussion and debate around performance hurdles for long term incentive plans, particularly in the listed company environment. Bespoke performance criteria will gain acceptance in substitution of relative Total Shareholder Return and increasing pressure will be applied to shift timelines from the medium term three-year plan out to five years.
Where this occurs we believe there will be downwards pressure on the proportion and duration of short term incentive awards deferred. There will also be demands placed on Boards, particularly chairs of Remuneration Committees, to formulate policies and practice guidelines for exercising discretion relating to the vesting of equity to good leavers and the adjustment of performance hurdles for changing conditions.
In terms of IPOs and significant transactions, we believe the focus will remain on balancing reward arrangements to retain the leadership team that fostered the organisation pre-IPO, which will entail management maintaining a high level of skin in the game.
More detail on 2015 remuneration trends is provided in our KMP Report, separated into relevant factors that will impact on pay adjustments for staff, management and CEOs:
- economic setting and workforce planning;
- the organisation’s business plans and challenges;
- the recent history of the organisation’s pay adjustments;
- criticality of retention, recruitment and succession planning; and
- legislative/government policy settings.
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