West Midlands companies have it tough when it comes to attracting and retaining their most senior executives - the talent they're after is very much South-east biased. KPMG's Renu Birla and David Shammai examine the impact on local pay practices and find out what companies are doing to win over the right leaders... Executive directors' pay is never far from the limelight. Companies are closely watched by the media, government, shareholders and employees for any hint of pay excess. Boards of directors are under pressure to strike the appropriate balance between recruiting and motivating top calibre executives and being mindful of stakeholders' sensitivities. For large West Midland companies, the pay issue is exacerbated. The talent pool of senior executives is not only South-east biased but is lured by the promise of significant equity stakes in PE-backed companies. Once the right person is recruited, it is not the end of the story. A watchful eye needs to be kept on what is going on outside the region to spot incentives that might tempt key people away. KPMG researched the pay practices of FTSE 350 companies in the West Midlands region and compared them with the general FTSE 350 population, excluding investment trusts. The analysis highlighted some interesting practices. The table below illustrates median pay levels to chief executives and finance directors. In terms of base salary and total cash (base salary plus annual bonus entitlement) West Midland companies are keeping pace with the general market. Indeed, considering that most of them are Mid 250 - companies in the FTSE 350 but outside the FTSE 100 - they are ahead compared with national companies of similar size. Long-term incentives make up, perhaps unsurprisingly, a key element of a senior executive's pay package. As with large listed companies, there is a prevalence of multiple plans. Our analysis of the most common plans in national FTSE 100 and Mid 250 companies shows that performance share plans (PSPs) have increasingly gained in popularity while share options (SOPs) have declined. PSPs are now the most commonly used plan among FTSE100 and Mid 250 companies. The prevalence of long-term incentive plans by West Midlands companies broadly echoes the general market, although deferred annual plans and performance share plans are not as popular as they are elsewhere in the market. This may imply that West Midlands companies lag behind the general market trend of shifting away from share options. We also looked at the types of long-term plans voted on by shareholders in the FTSE over the past 12 months, up to March 2006. The findings reveal that there is a total market trend towards favouring performance shares and deferred bonus plans over options. The 2006 AGM season is now under way and early indicators suggest that this trend will prevail. Performance-led pay strategies: Our research indicates that West Midlands-listed companies are proactive about being competitive in the national market. They are also facing competition from the PE-backed company sector. Clearly, incentive plans and high pay packages do not tell the whole story. To ensure they have optimal remuneration strategies in place, companies need to be comfortable that their plans are aligned with company strategy and its value drivers. When the Association of British Insurers released its amended guidelines on remuneration earlier this year, one of the more notable additions called on remuneration committees to "...bring independent thought and scrutiny to the development and review process, together with an understanding of the drivers of the business which contribute to shareholder value". We believe this is a great opportunity for companies to demonstrate that their pay packages are designed to optimise key executive performance rather than to uniformly join the "me too" chorus. There are signs, among our own client base, that West Midlands companies are taking account of specific strategic considerations, or business drivers, when planning their pay strategy generally, and that can only be an attractive proposition to the South-east biased talent pool. ..SUPL: | 
