■ Average bonus drops from £539,000 to £426,000
■ Annual bonuses are overwhelmingly dependent on financial performance
■ Remuneration committees imply that missing financial targets were more a product of general volatility than individual executives’ performance
UK listed propco chief executives’ bonuses plummeted by 21% during the past financial year as total shareholder returns for the sector turned negative.
Total annual bonuses paid to chief executives fell from £12.9m to £10m among FTSE main market companies whose financial year ended between September 2016 and March 2017.
COMPANIES THAT REPORTED TOTAL PROPERTY RETURNS
OFTEN USE THEM AS A METRIC FOR ANNUAL BONUSES
The average bonus paid to chief executives dropped from about £539,000 to £426,000 while boturnuses as a proportion of base salary fell from 109% in 2015-16 to 85% in 2016-17.
Overall, chief executives received 61% of the maximum annual award they were eligible for – down from 80% the year before.
Helical’s Gerald Kaye received the biggest annual bonus of the year at £1.4m, or 300% of his £470,000 salary. This was a combination of Kaye hitting all his financial targets for the company and Helical’s remuneration policy setting the industry’s biggest maximum annual bonus – which was approved by 98% of its shareholders last year.
AVERAGE CHANGE IN FINANCIAL METRICS AND BONUSES
The biggest fall in annual bonuses went to Toby Courtauld, chief executive of Great Portland Estates, whose bonus slumped from £828,000 to £169,000, a 79.6% fall. Like many others, Courtauld met all his personal targets but this did not extend to financial targets, none of which the company met. These targets included 4.4% growth in NAV, which fell by 5.7% in the financial year.
A spokesman for Great Portland Estates said: “There were very high targets to meet – and they should be high targets – and the remuneration is very heavily reliant on shareholder performance, which took a hit after the Brexit vote.”
Annual bonuses are overwhelmingly dependent on financial performance and as total shareholder returns dipped from 12.4% to -1.4% in the past two financial years among the 24 companies, chief executives were bound to feel a squeeze.
Ten companies paid less than 50% of the maximum payable, which is generally considered the threshold for “on-target” performance. By contrast, only two companies missed the 50% mark in 2015-16.
CHANGE IN EPRA NAV PER SHARE IN THE 2016-17 FINANCIAL YEAR
Remuneration committees across the industry implied that missing financial targets was more a product of general volatility than individual executives’ performance. Bosses in the 18 companies that included personal or strategic goals met 84% of those, and all of them met at least half of them. However, that portion of the remuneration package only contributed toward 25% of the maximum potential on average.
Because of the contrast between financial and personal achievement, Derwent London and Shaftesbury’s remuneration committees cut how much the non-financial targets contributed toward their annual bonuses.
In Derwent’s case, strategic targets can add up to a quarter of the maximum award, which is 150% of the base salary. The company’s chief executive, John Burns, hit 80% of those targets, which means his personal targets alone would have netted him 20% out of a possible 25% of the maximum under normal circumstances. The remuneration committee cut that to 15%, arguing that the strategic success had not translated to a strong financial performance.
SHARE PRICE MOVEMENT IN THE 2016-17 FINANCIAL YEAR
It said: “These results demonstrate the extremely strong year that the group has had on an operational level. However, the committee recognises that this is not reflected in the financial or share price performance of the group, which has been dominated by the market effects of the Brexit vote.”
Shaftesbury’s directors, similarly, met 82% of their personal goals but received only 60% of the maximum available for that portion of the bonus. The West End specialist said that 60% was “more reasonable” because it had to put the performance into context, which included concerns about occupier demand in the wider West End market.
CHIEF EXECUTIVE BONUSES, FOR YEAR ENDING SEPTEMBER 2016-MARCH 2017
Company |
Chief executive |
Annual bonus (£’000) |
% of maximum potential |
|---|---|---|---|
| Helical | Gerald Kaye | 1,425 | 100 |
| SEGRO | David Sleath | 895 | 99.9 |
| Hammerson | David Atkins | 833 | 68.5 |
| LondonMetric Property | Andrew Jones | 751 | 89.2 |
| Landsec | Robert Noel | 677 | 58.7 |
| Intu | David Fischel | 671 | 96.1 |
| Workspace Group | Jamie Hopkins | 562 | 100 |
| Capital & Regional | Hugh Scott-Barrett | 439 | 70 |
| Shaftesbury | Brian Bickell | 437 | 60.3 |
| NewRiver REIT | David Lockhart | 431 | 100 |
CHIEF EXECUTIVE’S TOTAL PAY, FOR YEAR ENDING SEPTEMBER 2016-MARCH 2017
Company |
Chief executive |
Total pay (£’000) |
|---|---|---|
| SEGRO | David Sleath | 3,344 |
| Landsec | Robert Noel | 2,721 |
| Helical | Gerald Kaye | 2,642 |
| Hammerson | David Atkins | 2,624 |
| LondonMetric Property | Andrew Jones | 2,362 |
| Capital & Regional | Hugh Scott-Barrett | 2,112 |
| Workspace Group | Jamie Hopkins | 2,047 |
| Shaftesbury | Brian Bickell | 1,991 |
| British Land | Chris Grigg | 1,945 |
| Intu | David Fischel | 1,795 |
BONUSES PAID VERSUS BONUSES AVAILABLE
Company |
Maximum bonus available (£’000) |
Actual received (£’000) |
|---|---|---|
| Helical | 1,425 | 1,425 |
| British Land | 1,260 | 418 |
| Hammerson | 1,216 | 833 |
| Landsec | 1,154 | 677 |
| Derwent London | 957 | 222 |
| SEGRO | 896 | 895 |
| Capital & Counties | 860 | 184 |
| Great Portland Estates | 845 | 169 |
| LondonMetric Property | 842 | 751 |
| Shaftesbury | 725 | 437 |
| Estimates based on salaries paid in 2016-17 | ||
WHAT ABOUT SHARE SCHEMES?
These numbers do not include long-term incentive plans, which in some years make up the bulk of a chief executive’s pay package but are paid only every few years.
Including them would make year-on-year changes seem more dramatic than they actually are.
The total pay packages of Hansteen’s co-chief executives, Ian Watson and Morgan Jones, for example, dropped from £26m to £987,000 in the past year but this came as a result of a three-year incentive plan that was paid at the end of 2015 and will repeat in 2018.
Meanwhile, their base salary was unchanged and their annual bonus rose by 38% from £194,000 to £286,000.
WHICH PROPCOS ARE INCLUDED?
These figures refer to 24 property investment and development companies in the FTSE main market, all of which reported between September 2016 and March 2017. Each company has executive directors and a remuneration policy that includes annual bonuses.
Assura was not included in the rankings or performance-related charts because chief executive Graham Roberts died last July and so was not paid a bonus. His total pay would have been the highest in the industry, partly because the company let his long-term value creation plan shares vest following his death.
Grainger and Unite were included, although chief executives Helen Gordon and Richard Smith were not paid their full base salary because they started midway through their financial years.
TYPICAL PROPCO PAY PACKET
FTSE 100 chief executive |
FTSE 250 chief executive | FTSE Small Cap chief executive |
|---|---|---|
Salary |
||
£688,000 |
£449,500 |
£397,000 |
Annual bonus |
||
£755,000 |
£319,000 |
£297,500 |
Maximum annual bonus |
||
150% of salary |
134% of salary |
113% of salary |
Total pay |
||
£2.7m |
£1.3m |
£1.9m |
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