Transatlantic pay gap narrows

2005

The remuneration of UK CEOs has increased by almost 80 per cent since 1997 as the pay gap between British bosses and their American counterparts narrows.

Research presented at the Royal Economic Society's annual conference by Professor Martin Conyon of Wharton Business School and Dr Graham Sadler of Aston Business School compared the pay of CEOs in 1997 and 2003.

They found that the US CEOs earned more than 50 per cent more than British CEOs in 1997 after factors such as size of firm and business sector had been discounted.

The average total annual remuneration - including share options and other benefits - for US bosses in 1997 was 120 per cent more than their British colleagues.

But by 2003, the average total annual figure for a UK CEO had risen steeply from £955,000 to £1.7m.

The total average package for US CEOs in 2003 was £2.8m - some 70 per cent higher. Excluding share options, however, the difference in basic salary fell to only 25 per cent.

The figures were drawn from a study more than 1,500 US CEOs and almost 200 of the UK's largest companies.

According to the researchers, the narrowing trans-Atlantic gap is largely due to UK executives receiving a growing proportion of their remuneration in the form of share options, performance-related bonuses and equity-linked pay schemes

“Executive pay is increasingly performance-based," said Professor Conyon “It is not fat-cattery. The proportion of risk-free pay is falling and the proportion of risky pay is rising."

Last year, an analysis of the annual reports of the the UK’s ten biggest companies by consultants Independent Remuneration Solutions (IRS) analysis found that basic salary accounted for only 16 per cent of total remuneration as bosses received a bewildering – and far from transparent - array of benefits including bonuses, share options and pension contributions.

However other studies suggest that 'performance-related' pay is not what it seems. Research by executive compensation consultancy, Halliwell Consulting, in 2003 found that most FTSE 100 companies pay their directors performance-related incentives even when they fail to perform.

Another analysis by market historian David Schwartz found that there is actually an inverse relationship between pay and profitability in the UK – the more the boss gets paid, the worse the company tends to perform.

According to Schwartz, "In 18 of the 30 sectors, shares of companies run by the highest-paid executive in the sector disappointed investors, rising by less than the sector average. There was no systematic benefit associated with paying executives above the odds."