AIM-quoted companies are expected to re-assess the way they reward their key employees in the wake of declining share values and increased stakeholder scrutiny on remuneration, coupled with the spill over of public and governance pressures in other sectors.
According to analysts from business advisory firm PricewaterhouseCoopers, remuneration committees are under increasing pressure to strike a balance between the expectations of executives and investors when it comes to executive pay. The assessment comes as AIM companies prepare to meet stricter rules that were imposed at the end of March and which demand greater transparency of individual director’s remuneration.
David Snell, AIM leader at PwC, said: “The AIM market is at a significant point in its 15 year history, with early signs of market recovery. With many companies still suffering from depressed share prices, finding appropriate executive incentivisation whilst managing investor sentiment will be a critical success factor for companies. Transparency in this area provided by the recent changes to the AIM rules should encourage investors to provide much needed growth capital.”
Average salaries for chief executives and finance directors of AIM companies with market values of less than £15 million are £157,000 and £104,000, respectively. Where the market value exceeds £200 million, these figures rise to an average of £320,000 and £196,000. The average maximum bonus potential is 60% for both CEOs and FDs – a lower level than their FTSE counterparts.
Paul Wolstenholme, reward director at PwC, says that given the current state of the AIM market, any changes to existing remuneration structures for key executives may be unpopular with stakeholders unless remuneration committees can demonstrate that there is a strong business justification for them. He believes that any changes should be focused on performance-based elements of remuneration such as bonus or equity incentives. “This should also lead to a greater proportion of an individual’s remuneration package being linked to short and long-term value creation,” he said.
Wolstenholme added that institutional shareholders and regulators were taking a more active involvement in governance and remuneration at AIM companies. He said that as a result, remuneration committees would be looking to ensure that top performers were appropriately retained and motivated whilst ensuring that there was a clear relationship between pay and performance.
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