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16 technology


High tech, high performance, high pay?


The Grant Thornton 2014 survey ’Rewarding performance: Executive pay in the technology sector 2014’ is being launched in the context of a dynamic period of growth. Listed technology companies have significantly outperformed other sectors on both the main market and on AIM. Profits are robust, many technology sector firms are hiring and UK technology companies are confident about the business outlook. Amanda Flint of Grant Thornton writes


The accepted wisdom for technology companies is that salaries are typically lower but there are higher levels of variable pay in the form of performance-related bonuses and long-term incentives.


As for last year, total remuneration is higher for CEOs in the technology companies listed on the main market compared to the rest of the market. Both the technology sector and the rest of the market have seen increases in their total remuneration of 4% and 16% respectively. Although technology sector CFOs receive a significantly lower package than the CEOs, their total remuneration has increased by 27% on last year as compared with 14% in all other sectors. In both cases, fully-listed company executives receive total pay packages that are higher than the average in other sectors.


to the current position where vesting levels are low. However, if we look at long-term incentive plan awards this year the average award for both CEOs and CFOs on both markets is higher than for other sectors. So if share prices continue to grow, executives will be able to benefit from their efforts in three years’ time. This helps align the interests of executives with those of shareholders – both parties benefit from robust share price performance.


There is a marked difference from last year where LTIP awards for the AIM market were significantly lower than the rest of the market. However, this year the LTIP awards to AIM companies in the technology sector for both CEOs and CFOs are higher than the rest of the market both in real terms and as a percentage of salary. This may signal a recovery in the confidence of remuneration committees in making awards and anticipating future growth.


On AIM the picture is very different. Although both CEOs and CFOs have a higher total pay figure compared with last year – in fact over 50% higher than last year – their total packages are significantly lower than the average total pay in other sectors.


The other element of performance-linked pay is the bonus. Typically bonuses have key performance indicators around earnings, and other financial-based measures (and possibly some personal targets too). Therefore strong share price performance may not result in high bonus payouts unless the share price growth echoes strong profit performance that emerges at the end of the year.


Despite the increase in the overall quantum of bonus payments made compared to last year, the number of technology companies making bonus payments in both the main market and AIM is relatively low at 58% and 44% respectively (66% and 42% for the prior year).


It is not clear why AIM company executives’ pay lags behind other sectors. A significant proportion of pay is usually delivered under long-term incentives and executives normally benefit three years later. Three years ago, some remuneration committees were reluctant to make long- term incentive awards (or made very low awards) while economic conditions were challenging. This feeds through


www.businessmag.co.uk


For the main market there is a premium when it comes to bonuses, with mean bonuses paid to CEOs and CFOs in the technology sector being circa £211,000 and £131,000 respectively and higher than the average for all sectors. Conversely, for AIM company executives, bonus payments are significantly lower than the rest of the market. Average bonuses paid to CEOs


and CFOs in the technology sector are £69,000 and £21,000 respectively versus £95,000 and £60,000 for CEOs and CFOs in all sectors. This may mean that technology companies on AIM have less cash available to pay bonuses as compared to other sectors. What is noticeable though is that CEOs on AIM received significantly more bonus this year.


Salaries are up compared with last year in all cases and very significantly so for AIM company executives. But both CEOs and CFOs have lower salary levels than their counterparts in other sectors.


In summary, pay levels are higher than last year with a high proportion of pay subject to performance targets. More insight into executive pay in the technology sector will be available once Grant Thornton’s survey is published at the end of November. Where companies perform well it seems only equitable for executives to benefit and performance pay is an important element in technology company pay packages. So long as this delivers strong growth to shareholders, long may it continue.


Details:


Amanda Flint 023-8038-1197 amanda.flint@uk.gt.com


Matthew Courtiour 023-8038-1100 matthew.courtiour@uk.gt.com


www.grant-thornton.co.uk


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – NOVEMBER 2014


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