Boards can expect investors to closely scrutinise executive pay this AGM season, after analysis revealed a steep rise in CEO compensation.

A study by Deloitte, a professional services firm, reveals that the median FTSE 100 chief executive saw their pay rise in 2022 by a sharp 12%, or from £3.72m in 2021 to £4.14m last year. The figures are based on analysis of the first 55 companies to issue their 2022 annual reports.

While everyone expects ESG to be on the agenda of investors this season, the analysis indicates pay could be an agenda-topping target too.

According to Mitul Shah, a partner in Deloitte’s remuneration practice, last year’s AGM season was relatively quiet on pay. However, pay bounced back following the pandemic when a pause was imposed.

“We are expecting a more challenging 2023 AGM season as investors closely scrutinise pay out-turns, with a particular focus on potential windfall gains made by executives on the back of incentive awards granted in 2020 during a dip in the market.”

Below average

Deloitte also found that the median bonus pay-out so far is 76% of the maximum allowable while more than 90% of the 2023 CEO salary increases were below the average pay rise for the workforce.

That likely reflects the ongoing cost-of-living crisis and punishing inflation levels. The median CEO pay rise for 2023 is 3.5%, while the figure is 6% for the general workforce.

Deloitte also found that more than 90% of the FTSE 100 companies use ESG measures in their incentive plans. More than 40% use “environmental metrics”. These are typically centred on scope 1 and 2 emissions but Deloitte found five companies using scope 3 emissions (greenhouse gases in the supply chain) as part of their long-term incentive calculations.

Investors have already voiced their concern over executive pay this year. In February, Aviva, a fund manager, published its engagement priorities placing pay and the cost-of-living crisis at the top.

The investor said it expected pay rises “to be below average” and reminded companies to be “mindful” of pay ratios. It argued that it would be “inappropriate for highly paid executives to be fully insulated from the impacts of inflation”.

Norges Bank, Norway’s oil fund and one of the world’s largest investors, has also issued warnings. Appearing at Davos in January, chief executive Nicolai Tangen said: “At a time when the cost of living is climbing, it is not sustainable to increase executive pay aggressively while average wages lag far behind. There has never been a worse time for corporate greed.”

Investors are expected to take a close look at the response from corporates to climate change. But in an age when there is heightened awareness of social issues, exorbitant executive pay levels still attract attention. Some execs and their boards may be in for a rude awakening.