CEO pay still soaring

2004

The Average pay of Britain’s Chief Executives has soared by an average of 168 per cent over the past five years, according to research by pay consultancy Independent Remuneration Solutions.

The total remuneration awarded to bosses of the UK's largest companies climbed an average 22 per cent a year in the five years to 2003, according to a joint survey carried out by IRS and proxy voting agency Manifest.

The findings are based on an analysis on data contained in the 2003 annual reports of 800 quoted companies.

The average salary, excluding pensions, of chief executives of companies turning over £10bn or more last year, was £2.6m. This was in comparison to £187,000 for the bosses of companies turning over less than £30m.

Two-thirds of the pay to chief executives of larger companies came from ‘performance’ incentives, IRS said, some of which were difficult to trace. Less than a fifth of the pay to CEOs of smaller companies was awarded this way.

Earlier this year, IRS reported that the bosses of the UK’s ten biggest companies saw their total remuneration packages rise by more than 12 times the rate of inflation in 2003. The bulk of these rises took the form of an array of benefits including bonuses, share options and pension contributions.

But closer examination of the nature of these benefits reveals that the link between pay and performance is nonsense.

Indeed, an analysis of the relationship between pay and profitability by market historian David Schwartz revealed that in the UK at least, the more the boss gets paid, the worse the company tends to perform.

And last year, executive compensation consultancy, Halliwell Consulting found that more than six out of ten FTSE 100 companies offer long-term incentives, often worth more than twice a Directors salary, on the basis of profit growth performance. But eight out of ten of these firms - 43 companies - had ‘incentives’ which would be given to Directors even if they fail to meet analyst expectations.

The IRS report also comes only days after supermarket giant Sainsbury’s awarded its Chairman ‘performance-related’ share options worth 2.4 million despite his presiding over an 8.5 per cent drop in annual profits.

IRS director Cliff Weight, the report's author, blamed the government for not forcing companies to detail share options, long-term incentive plans and pension awards alongside pay and bonuses in company annual reports.

"There is no incentive for companies to clearly disclose total remuneration awarded," he said.

"Because of a lack of transparency and the complex pay plans pushed by some advisers, total remuneration awarded to chief executives has soared without many realising it."