Fat-Cat pay pushed up by 'performance-related' bonuses

2005

Claims that Fat Cat pay is being increasingly linked to performance are "a myth", as a new report reveals that CEO pay is being pushed up by "booming" bonuses, benefits packages and huge pension payments.

Research published this week into the pay of the CEOs of Britain's 10 biggest quoted companies has found that bonus and pension payments now dwarf basic salaries.

According to an annual analysis carried out by pay consultancy Independent Remuneration Solutions (IRS), the basic average CEO salary of £968,000 adds up to an average of only 16 per cent of their total pay.

But the plethora of additional benefits raises their average total remuneration package to £5.9m, an increase of seven per cent on 2003.

The survey looked at the remuneration of the CEOs of BP, Royal Dutch/Shell, Vodafone, GlaxoSmithKline, AstraZeneca, HSBC, HBOS, Barclays, Royal Bank of Scotland and Lloyds TSB.

Average bonuses increased by 28 per cent, to £1.3m, while the average pension benefit in 2004 was £1.1m, 118 per cent of salary.

Bonus plans paid out 121 per cent of the target to CEOs when their company's average share price went up four per cent, the figures showed.

The IRS research comes after a similar exercise carried out 18 months ago by compensation consultancy, Halliwell Consulting. It revealed that eight out of 10 FTSE 100 companies offered 'incentives' to Directors even if they failed to meet analysts' expectations. The link between pay and executive performance was a "nonsense", Halliwell said at the time.

Meanwhile IRS also found that the average CEO has a pension pot worth £7m, compared with shares and options worth £5.8m. On average, pension awards not related to performance accounted for 20 per cent of annual pay.

"Most CEOs have much more in their pension pot than they have invested in shares of their company. Should it not be the other way round?" asked the report's author, IRS Director Cliff Weight.

In the same study last year, Weight slammed companies for failing to make clear in their annual reports the real sums being paid to their executives, saying that "CEOs are getting bread, butter, jam and cream."

The same lack of transparency has muddied the waters this year, the report said, because the real value of a CEO's pension and share awards – and thus their total remuneration package - is not disclosed in companies' annual reports.

And Weight reiterated his criticism of companies reporting practices, saying that the link between pay and performance remains a "myth".

One exception to this was Glaxo, who Weight praised for "leading the way in terms of well-balanced incentives and linkage of wealth to company performance".

Glaxo CEO, Jean-Pierre Garnier, was the UK's highest paid chief executive last year, with total remuneration of £9.2m. More than £7m of this was variable compensation, including a contribution of £800,000 into his pension.