LONDON, March 19 (Reuters) - BAE Systems Plc has frozen the salaries of Chief Executive Ian King and two other top executives, after group earnings were hit by U.S. budget cuts and delays to a deal with Saudi Arabia.
In its annual report published on Tuesday, Europe's largest defence contractor said it would freeze King's 2013 base pay at the previous year's level of 963,050 pounds ($1.5 million) in view of the tough economic climate and budget challenges.
Finance Director Peter Lynas and Linda Hudson, chief executive of BAE's U.S. arm, would also have their salaries frozen at their respective 2012 levels of 546,000 pounds and $1.05 million, it said.
"Against the performance background ... there will be no increase in base compensation and no increase in earnings opportunity owing through the rest of their pay packages," said Carl Symon, chairman of BAE's remuneration committee.
The salary freeze compares with 2012, when King's salary rose 3 percent from the previous year, and Lynas and Hudson's salary increased 5 percent and 3.5 percent respectively.
King also saw his 2012 bonus fall to 1.21 million pounds from 1.44 million pounds in 2011. Hudson and Lynas's bonuses increased to 1.01 million and 482,000 pounds, from 929,000 and 407,000 respectively.
BAE had a difficult 2012, in which it failed to resolve discussions with Saudi Arabia over the pricing of a contract for Typhoon aircraft and contracts were delayed or cancelled as U.S. politicians fought over cuts to the country's budget.
Its proposed $45 billion merger with European aerospace group EADS, seen by some analysts as reflective of the pressure the company is under to find growth, also collapsed in October following German political opposition.
In February it said underlying EPS, the metric by which it measures management performance, fell 2 percent to 38.9 pence from the previous year, having warned in December that the delay of the Saudi deal would hit 2012 earnings.
BAE has forecast another tough year and expects to see only modest growth in EPS this year, as spending cuts hit the U.S. military budget in a process known as "sequestration".