Big bonuses 'too easy' for bosses

Report says targets should be "difficult to achieve"

Many company directors rake in large bonuses even when their companies are doing badly, a report suggests.

The study, by PricewaterhouseCoopers, says performance targets for company directors are often set too low and are too easy to hit.

Many companies also "make it hard for shareholders to understand" the bonus targets set for directors. About 70% of companies set performance targets at just 3% real growth in earnings per share.

This target is easily hit by the majority of companies, Graham Ward-Thompson, a partner at PricewaterhouseCoopers and author of the report said.

He estimates 75% of companies can easily reach this target and in some cases the targets are even lower.

"A worthwhile target is something that is difficult to achieve," he said.

Too difficult for shareholders

In some cases, shareholders do not know what the directors' bonus requirements are.

In 49% of the cases examined, shareholders would not be able to tell by reading the company reports and accounts what the bonus criteria were.

"If the link between directors' remuneration and performance is to be effective, a greater level of clarity is need to ensure that shareholders understand the criteria on which directors are being judged," Mr Ward-Thompson added.

Excessive pay

The government has previously urged shareholders to take action on excessive pay where the performance of a company does little to justify it.

As the situation stands, executive pay is decided by remuneration committees, which usually comprise non-executive directors.

Directors' pay is estimated to have risen by about 20% in the past year compared to about 5% for average workers, previous surveys estimated.

The PricewaterhouseCooper survey was based on information in the annual report and accounts of 122 FTSE 500 companies for years ended between July 1998 and July 1999.