No sign of austerity in British boardrooms

Jun 03 2009 by Nic Paton Print This Article

We all know the past year has not been easy and that, if you have a good chief executive in the current climate, it makes sense to try and hang on to them. But can that really justify sharp pay rises for Britain's top 100 chief executives given that the value of their companies has fallen collectively by nearly a third?

In these hair-shirt times, the revelation in research by governance consultancy Manifest that the average total remuneration for a FTSE-100 chief executive rose seven per cent last year to stand at £2.6 million is unlikely to be something many top companies will be crowing about.

The increase has come against the backdrop of a 30% drop in the value of the FTSE-100 in the same period and continuing deep public anger over executive reward.

It also comes just as the U.S Securities and Exchange Commission, in its continuing drive for more transparency and openness around corporate pay, has unveiled proposals that companies disclose in general terms how they compensate lower-ranking employees and just executives.

The Manifest research of 774 companies has also revealed that average remuneration for a FTSE-100 chief executives rose a whopping 295 per cent over the past decade, compared with a rise of just 44 per cent for employee, meaning the ratio of average CEO pay to employee pay had risen from 47 times to 128.

By comparison, pay for the bosses of smaller FTSE-250 companies was less than half the amount at £1.2m, though still up five per cent on the previous year.

The report argued: "In terms of pay, size matters. Bigger companies have bigger salaries, bigger bonuses, much bigger long-term incentives and bigger pensions. Added together this gives them much bigger total remuneration."

But with clear signals coming out of the White House that substantial change is still going to be needed around executive and performance-related pay, the longer term question is how or when shareholders are likely to rebel over this level of remuneration, even if the arguments of needing to retain the best and not losing talent to, among others, the U.S still stand.

Big names such as Shell have already seen remuneration reports voted down by shareholders angry at the awarding of bonuses despite management failing to hit agreed targets. Lloyds TSB is also bracing itself for a showdown with investors later this week, amid continuing disquiet and anger over its pay plans for its top executives.

The SEC plan, meanwhile, will require firms, in general terms, to show how lower-ranking employees are paid, especially when it affects the company's overall risk management.

This could in particular apply to financial firms, where traders have received big bonuses for executing trades that could potentially put an entire company in danger.

Currently, companies are required to explain executive-pay plans for only their five highest-paid executives.

It is also expected to require companies to reveal information about the overall design of their pay structure and how compensation relates to an employee's performance over the long term.