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Companies take another look at pay and perks as an economic slowdown looms.
Tim Burke, CFO Europe Magazine
May 5, 2008
As companies continue to be battered by credit market turmoil, many are reappraising pay and perks from the boardroom to the back office.
Hay Group, a consultancy, recently quizzed more than 1,000 companies in 80 countries about how global financial events were impacting their strategies. More than 30% said they were freezing base salaries or at least thinking about it. As Hay's vice president Tom McMullen says, that's about "as serious as you can get" as a signal of distress without firing people or cutting their wages. But 20% of respondents will do just that, saying they'll freeze or "decrease staffing levels" — to put it politely — in the near future.
Against this back-drop, Alliance & Leicester, a UK-based bank with a large mortgage lending arm, couldn't have picked a worse time to relax the performance target on an option-award scheme for top executives, dropping the return on equity requirement from 24% to 21%. The move, in March, was pilloried in the press.
The reality is more complicated, asserts the bank. In fact, some parts of the company's performance share plan have been made tougher for the new financial year. In 2008, executives will be rewarded only if the company hits a higher target for earnings per share. Alliance & Leicester hopes that more demanding targets will help the bank overcome difficult conditions by pushing employees — those who remain employed anyway — to go the extra mile.