Strong performances meant European banking chief executive officers received median bonuses of 121 per cent of base salary in 2006, taking t...

Strong performances meant European banking chief executive officers received median bonuses of 121 per cent of base salary in 2006, taking their median annual total cash compensation to £1.9 million ($3.7 million), according to a new survey by Mercer Human Resource Consulting. Insurance company chief executives received median bonuses of 101 per cent of base salary, bringing their median total cash compensation to £1.6 million, the survey found. According to the report, companies across Europe are strengthening links between their remuneration policy and business strategy, to ensure rewards closely reflect performance. If executives exceed their targets they can receive exceptional bonuses because the payments are more justifiable to shareholders. Over half the organisations surveyed have no maximum bonus for executive positions. Banking chief executives receive only 25 per cent of their total direct compensation as base salary, while insurance chief executives receive 29 per cent in this way. The remainder is paid through bonuses and long-term incentives, highlighting the emphasis on variable pay and its linkage with company performance within total compensation packages. Among the survey respondents, 39 per cent reviewed their long-term incentive plans in the last 12 months, or are currently reviewing them. Restricted stock and performance share plans are the most popular forms of long-term incentives, followed by incentive stock options, with the most common performance measure being total shareholder return relative to peer group. Insurance chief executive officers received median long-term incentives worth 210 per cent of base salary compared to 170 per cent of base salary for banking chief executives. The shift from options to restricted stock and performance-related share plans is more pronounced in Europe than the US. Increased interest in share plans with performance criteria has been driven by greater focus on pay for performance, the need to retain key executives and the introduction of share option accounting requirements. Median salary increases for financial sector executives across Europe ranged from 3.5 to 4 per cent of base pay in 2006 and are expected to remain at similar levels for 2007 and 2008, the survey found. However, high demand for certain types of executive fuelled some above-average pay rises during the past year: chief risk officers received average salary increases of 14 per cent during 2006, heads of treasury 12 per cent, communications 10 per cent and human resources 9 per cent. Among survey participants, over a third reviewed their pension provision for executives in last 12 months or are currently reviewing it, with an obvious move towards defined contribution pensions. According to the survey, there has been a renewed focus on a more harmonised approach to benefit provision across financial services executive population in Western Europe. The research is part of Mercers Pan-European Financial Services Executive Compensation Survey, which provides total compensation information for all key board positions in the banking and insurance industries. The survey also covers pay for the next three executive tiers, which is not disclosed in company reports.