• Women make up only 3% of AIM company boardrooms, compared to 10% in the FTSE 100;
• Executive director salary increases in AIM and FTSE SmallCap companies outpace FTSE 350;
• Bonus levels at smaller listed companies suggest greater link between performance and reward than in FTSE 350.

Women are even less likely to be appointed to the board of an AIM or FTSE SmallCap company than to a large FTSE 350 giant, according to a new study of listed companies with market capitalisation above £100 million by Deloitte, the business advisory firm. Only 3% of current board members in AIM-listed companies and 5% in FTSE SmallCap companies are female, compared to 6% in FTSE 250 companies and 10% in the FTSE 100.

Despite lagging behind on gender balance, AIM leads the way when it comes to youth in the boardroom. Over a third of executive directors in AIM companies are under the age of 45 compared to only around a quarter in FTSE SmallCap and none in FTSE 250 companies. The average length of service for an AIM executive director is only four years compared to eight years in FTSE SmallCap, ten years in FTSE 250 and 12 years in FTSE 100 organisations.

As might be expected, salaries in smaller companies are lower than those in larger entities. However, salaries have risen at a faster rate for directors of smaller companies, than for larger ones, over the last year. The median increase was 9.2% in AIM companies and 7.0% in FTSE SmallCap companies compared to 6.5% in FTSE 250 companies.

Bill Cohen, partner and remuneration specialist at Deloitte, said: “Remuneration trends tend to start with the larger FTSE 100 companies and filter down to smaller companies over a period of one or two years. Pay increases for directors have been falling quite substantially in larger companies, particularly as variable pay opportunities increase. It is likely that increases in smaller companies will follow suit.

“The salary for the top full time executive of the largest FTSE 100 company is likely to be around six times the salary of the same role at a company with a market capitalisation of around £100 million. As the size of a company doubles, the salary of the chief executive typically increases by around 20%. For other executive directors the increase is more likely to be around 18% for a doubling in size of the company.”

Although the size of the pay package may be different, the remuneration structures in FTSE SmallCap companies tend to be similar to those in larger companies. Typically an executive director will participate in an annual bonus plan and increasingly in a performance share plan1, rather than a more traditional share option plan. However, the share option plan is still the most common type of remuneration in AIM companies.

Most directors in FTSE SmallCap and AIM companies participate in an annual bonus plan. The median maximum bonus in these plans is 75% of salary compared to 100% in FTSE 250 companies and 150% in the largest UK companies. However, the median payout was much lower in smaller companies at 32% of salary in AIM companies and 38% in FTSE SmallCap companies compared to 65% of salary in FTSE 250 and over 70% in FTSE 100 organisations.

Bill Cohen commented: “Given the potential size of annual bonus payments it is important to ensure that performance targets are appropriately stretching. FTSE SmallCap and FTSE 350 companies have generally performed at a similar level over the same period, which suggests that there may be a stronger link between the level of award and company performance in smaller companies.”

Over three quarters (76%) of AIM companies still use a share option plan, in contrast to the FTSE SmallCap, where just over a third of directors participate in a share option plan, and the FTSE 250 where only one in four directors continue to be granted options.

Now that AIM companies are required to recognise options as an expense, the choice of share plan can be made on the basis of what best supports the business strategy and some companies may choose to replace the option plan with another form of share plan. Share option plans are likely to remain an appropriate form of remuneration for many high growth companies.

Another key finding is that directors of smaller companies, particularly the chief executive, are more likely to hold a significant number of their own company shares, often due to the original owner managed status of the business. Almost one fifth of AIM directors, and 10% of those in FTSE SmallCap companies hold more than 3% of the equity of the company. This compares with only 4% in FTSE 250 companies and, not surprisingly, even less in FTSE 100 companies.

Bill Cohen added: “This can have a significant impact on remuneration structures as these individuals do not participate in bonus plans or share plans as often as other executives and therefore the overall level of their remuneration may be significantly lower.”

The type of pension provision offered to directors in smaller companies is usually of a defined contribution nature. Only 18% of FTSE SmallCap companies offer participation in a final salary plan to a newly appointed director, compared to around a quarter of FTSE 250 companies and over a third of FTSE 100 companies. The value of a defined contribution plan is significantly less than a final salary plan. A director in an AIM or FTSE SmallCap organisation is likely to be provided with a company contribution of between 10% and 15% of salary, either to a defined contribution plan or as a salary supplement. This compares less than favourably with a director in a FTSE 100 or 250 company participating in a final salary plan, who might have an annual pension value of between 30% and 40% of salary.

Ends

Notes to editors
For more information, read the summary on Directors' Remuneration in smaller companies.

Footnote
1 An award of free shares, the vesting of which is dependent on corporate performance targets typically being measured over a three year period.

About the report:
The ‘Be Equipped: Directors’ remuneration in smaller companies’ report provides detailed analysis of basic salary, salary increases, annual bonus payments, details of annual and long term incentive design, pensions, notice periods and termination payments and other aspects of remuneration policy. It also includes an analysis of the structure of the board and board committees and the fees paid to non-executive chairmen, deputy chairmen and non-executive directors.

In the report, smaller companies are defined as those companies which are outside the FTSE 350 index but listed on either the London Stock Exchange main market or on the Alternative Investment Market (AIM). The report excludes companies with a market capitalisation of less than £100 million and the constituents of the FTSE Fledgling index. The group therefore consists of most of the constituents of the FTSE SmallCap index and AIM companies with a market capitalisation of greater than £100 million.

About Deloitte:
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Known as an employer of choice for innovative human resources programmes, it is dedicated to helping its clients and people excel. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT. 

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority. 

The information contained in this press release is correct at the time of going to press.