Companies are increasingly handing out large bonuses and fringe benefits to executives and managers as they struggle to hold on to top talent in Ireland's tight labour market, a new report has shown.
Some 67 per cent of Irish chief executives were in line for a bonus of up to 30 per cent of their salary this year, compared to 60 per cent in 2005, according to a survey carried out by the Irish Management Institute (IMI).
While they may not be in the league of Goldman Sachs chairman and chief executive Lloyd Blankfein or Morgan Stanley's John Mack who this year netted bonus packages worth $53 million (€40.3 million) and $40 million (€30.4 million) respectively, the proportion of chief executives receiving a bonus of more than half their salary also jumped, from 7 per cent in 2005 to 13 per cent this year.
The increase in bonus payments came at a time when even basic executive pay climbed at the fastest pace in five years. The average salary rose 6.3 per cent in the 12 months to June, after climbing 5.5 per cent a year earlier, according to the IMI.
"The increase in the salaries of executives is towards the higher end of what companies had predicted in the survey last year," says Tom McCarthy, chief executive of the IMI, which polled 5,285 managers working in 117 companies. "This would reflect the continued success of the various industrial sectors in Ireland and the high level of performance by our executives," he adds.
Managers at head of function level, who report directly to chief executives, received the biggest pay rise this year, at 9.3 per cent. They too have been the recipients of greater bonuses, with 59 per cent earning bonuses of up to 20 per cent of their salary and 12 per cent getting more than 35 per cent of their annual pay. At middle-management level, two-fifths received a bonus of up to 15 per cent of their salary, the survey found.
Some 90 per cent of companies in Ireland operate performance-related bonus schemes, though just 59 per cent award bonuses on an individual's own performance. The company's success during the year accounts for 58 per cent of bonus payments, while team performance is responsible for 17 per cent of bonuses.
The largest proportion of salary reviews, at 39 per cent, were held in December or January, while one-fifth held their reviews in April.
The scramble to hold on to talent doesn't end at higher bonus payouts. In 2006, 81 per cent of companies gave their executives a company car, up from 75 per cent the previous year. Some 24 per cent of organisations had provided between five and 10 cars, the survey found. The average amount spent on cars for each chief executive was €57,700, while the amount spent on cars at head of function level was €45,800. Almost a third of organisations set aside between €50,000 and €60,000 to buy a car for their chief executive, while a fifth spent between €60,000 and €70,000.
"The make and model of the company car given to managers varied according to the level of management, the preference of the company and the individual manager," the IMI report said.
The most popular make of car given to chief executives last year was BMW, followed by Mercedes-Benz, Volvo and Audi. For sales representatives, though, the most common car driven was made by Volkswagen, followed by Toyota, Ford, Volvo, Kia and Mazda.
Three-quarters of companies paid both the insurance and tax on executives' cars in 2006, the survey showed. Seventy-two per cent paid service and repair bills for managers but just 17 per cent met the cost of petrol for business purposes.
Organisations were also generous to staff when it came to medical insurance and pension payments last year. Medical insurance was offered to all employees at two-thirds of companies, with VHI the most widely used provider at 70 per cent.
Ninety-three per cent of companies operate a pension scheme for their executives, though in 60 per cent of cases membership of these schemes is mandatory. Half of the organisations had a defined contribution scheme in place, while 34 per cent of companies ran a defined benefit scheme.
"Significantly, this year a sizable number of responding companies indicated that they had both a defined benefit and a separate defined contribution scheme in operation at the same time," the report said.
The retirement age at 77 per cent of companies was 65, though 17 per cent of companies set the age at 60.
While fringe benefits have grown in popularity among Irish companies, employer and employee social insurance has been charged since January 2004 on benefits such as medical insurance, company cars and club subscriptions under the PAYE system. "The motivation of executives is a key factor in the success of a business and this prompts employers to continually review the range of tax efficient remuneration methods," the IMI said.
