Rolls-Royce Proposes Major Overhaul of Executive Pay Structure

Rolls-Royce GB00B63H8491

In a significant move, Rolls-Royce is preparing to implement a radical restructuring of its board remuneration policy. The proposed changes, which have already garnered support from major shareholders, could see Chief Executive Tufan Erginbilgic’s total potential annual compensation rise to a maximum of £13 million. This represents more than a doubling of the previous cap. A formal shareholder vote on the new package is scheduled for the Annual General Meeting in March.

Leading investors have given their preliminary approval. Stephen Anness, Head of Global Equities at major shareholder Invesco, provided a clear justification for the support, stating that it is difficult to envision a more successful corporate turnaround and value creation. He emphasized that shareholders have benefited enormously and that management should be rewarded accordingly.

The remuneration committee, chaired by Lord Gadhia, secured this backing after outlining the key revisions:
* Annual Bonus: The maximum payout will increase from 200% to 300% of the base salary, which is approximately £1.2 million.
* Long-Term Incentive Plan (LTIP): The ceiling for long-term awards is set to rise from 375% to 750% of the fixed salary.
* Total Potential Value: When combined, these elements create a total compensation package that could exceed £13 million per year.

Context of a Dramatic Turnaround

The proposed pay revision comes against the backdrop of a remarkable financial and operational recovery at the engineering group. Since Erginbilgic assumed the CEO role in January 2023, the company's share price has surged approximately 1,280%, moving from 93.2 pence to a close of 1,285.5 pence last Friday. The firm's market capitalization now stands above £108 billion.

Performance forecasts are equally robust. For 2025, the company anticipates an operating profit in the range of £3.1 to £3.2 billion, a substantial increase from £2.46 billion the previous year. Free cash flow is projected to surpass £3 billion. The equity has hit a new record high on every single trading day of 2026 so far, fueled by strong order intake in the defence division and the ongoing recovery in civil aerospace.

A Nuanced View on Actual Compensation

Despite the headline increase in the maximum potential pay, analysis suggests Erginbilgic may actually earn less under the new structure in the near term, particularly when compared to his total compensation in the initial years of his tenure. This is due to a one-time share award granted upon his appointment.

When he joined, the CEO received 8.3 million shares as a sign-on award, then valued at £7.5 million. Those shares are now worth approximately £107 million and are due to vest in 2027 and 2028. His regular compensation for 2024 was £4.1 million. This figure was notably lower than the £13.6 million reported for 2023, which included a one-off payment to compensate for awards forfeited at his previous employer, Global Infrastructure Partners.

The board’s primary objective with the new policy is not necessarily to increase payouts but to ensure competitiveness and retain top talent. Following recent leadership changes at BP, where Erginbilgic previously worked, the supervisory board aims to mitigate the risk of him being poached by rivals.

Upcoming Milestones and Market Sentiment

The company will release its full-year results for 2025 on February 26. A detailed report on the revised remuneration policy will be published in March, ahead of the final shareholder vote at the 2026 AGM.

Analyst consensus currently rates the stock as a "Moderate Buy." UBS recently raised its price target from 1,350 pence to 1,625 pence, citing stronger growth expectations for the power systems business, which is being driven in part by rising demand from data centers.