End of the bonus bonanza? by Ann Francke, Chief Executive, CMI on 15-May-2014

Company Directors in the UK have seen their bonuses shrink by an average of 23% (from £64,594 to £49,767) over the last 12 months, says Ann Francke, Chief Executive of the Chartered Management Institute.

The National Management Salary Survey 2014 (done in collaboration with XpertHR) shows that rewards for most top bosses have not mirrored 'runaway pay' headlines, suggesting that companies may be re-evaluating their approach to remuneration. This year's figure (£49,767) is the lowest in several years, with Directors' bonuses previously running at an average of £68,043 across the last 10 years. The number of Directors receiving bonuses has also declined over that period, from some 85% of Directors picking up bonuses between 2006-08, falling to 53% this year. Executives across all levels have seen a similar long-term reduction, from 59% to 36%, in the same period.

The data, taken from more than 68,599 executives in 279 UK organisations, shows that pay including bonuses rose for all executives by just 2.5% on average over the last year, less than the previous three years (3.9, 3.0 and 3.0% in 2011-13) – trailing behind retail price inflation over the last year. Average salaries across all executive levels, including bonus payments, now stands at £42,230, compared to £42,710 twelve months ago. Managers' basic salaries have increased by 2.7% this year – the smallest increase since 2011 – and overall, are equal to an average of £38,081.

However, bonuses remain a valuable part of annual pay for those lucky enough to receive them. The average bonus for a manager was worth 14.5% of their salary – which equates to 7.5 weeks' work per year. In contrast, Directors get a total of 18 weeks' extra pay as an average annual bonus payment – 34.5% of their average salary.

The data also highlights the disparity between those working in small and large firms. Increases in total pay plus bonus for Directors in businesses with a turnover of under £25m stands at 2.3%, but in those businesses with a turnover between £1–5bn the increase is 6.9%.

The astronomical pay packages that have been making recent headlines are the preserve of a lucky few. For most directors, this year has seen pay-outs reduced, putting the brakes on the gap between top bosses and managers at other levels of our businesses. Many employees will hope that this marks the start of a new approach to bonuses and a move to share the benefits of growth more widely as the economy picks up.

Further to the findings on pay, the Survey shows that labour turnover among managers for the last 12 months is at a record low, with striking differences compared to the height of the recession three years ago. It stands at just 4.8% compared to 20% two years ago, which was driven by a spike in resignations. Now, managers may be holding tight to current roles as a result of 'jobtimism' – hoping that the return of economic growth means they will reap the benefits of staying in their current job.

Managers have been squeezed through the recession with cuts to their teams and increases to their workloads. We saw a few years ago that many left for pastures new, opting to walk away from their roles as they had little to lose. This data shows more managers are sticking put and with the economy on the up it isn't surprising that many are 'jobtimistic' about their prospects and looking to reap the benefits of loyalty to their employer. Having survived tough times, many will be keen to see the rewards of better times.

So, employers need to look at repaying that loyalty. Cash remains tight for plenty of organisations, but it's not just about pay; it means providing new challenges, training and opportunities to develop new skills. The economic outlook is better than it's been in years but every business needs the best from its managers and leaders to help drive strong and sustainable growth.

With managers sitting tight, the research also shows that – for the third year in a row – a majority of businesses have problems finding the right staff, with 77% of companies experiencing recruitment problems. Over half (53%) of employers identified the lack of managers with the right skills as the biggest issue. The recruitment process itself was also cited as an issue with 11.2% of employers finding the procedures too lengthy and 9.5% struggling with the cost of recruitment exercises.

"Clearly senior managers are not on the bread line," says Mark Crail, Content Director at XpertHR. "But the figures show that the great majority of executives, and even Directors, are not enjoying vast runaway bonuses either. We know the figures here present a realistic picture of what is really happening because the data is derived, on an anonymous basis, from employer payroll and HR systems and is used by employers to manage their pay budgets – so it has to be accurate."

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