French chief executives enjoyed the highest pay in Europe last year, outstripping their colleagues in the UK, a new survey has suggested. But the really big money to be earned is still across the water in the U.S.
Research by HR consultancy Hay Group has concluded that the average total remuneration for chief executives of French companies was €5.9m (£4.4m) in 2007 with UK pay coming a close second at €5.85m (£4.3m).
Hay calculated total pay as including salary, bonus, the expected award from long-term incentive (LTI) schemes based on performance conditions and the probability of an executive achieving targets through the track record of the company and its shares.
Within this, it found that UK companies paid their chief executives the highest base salaries, at about €1.4m a year on average, followed by the French at €1.25m (£1m).
Non-executive chairmen of UK companies were also awarded higher fees than anywhere else in Europe, on average €740,000 (£549,000). British companies also paid the second highest bonuses, at 1.6 times salary or close to €2.2m (£1.6m), behind German firms, which paid bonuses approaching two times salary.
Long-term incentives in the UK were among the lowest of the countries studied, at 1.35 times basic salary, or €1.9m (£1.4m) additional pay. But the survey of the largest 100 companies in Europe and the U.S. also concluded that French companies paid out the highest long-term incentives, typically 2.7 times salaries against an average across Europe of about 1.2 times.
German companies, by comparison, paid out the highest annual bonuses but the lowest long-term incentives.
Total pay for German chief executives was the lowest in Europe, alongside the Netherlands, said the study.
Across the board total pay, including long-term incentives, for top executives at European companies averaged about €5m (£3.7m), it added. But this was still dwarfed by the largesse showered on U.S bosses, where total pay was on average two and a half times that of European chief executives, at about €13m (£9.7m) on average.
Although the fact that the market capital of U.S. companies was on average around 40 per cent bigger than the Europeans, this size difference alone could not explain the pay gap, Hay argued. But Hay did stress that much more of the U.S package was in bonuses and long-term incentives.
While British and mainland European packages provide a broadly even balance between base salary, annual bonuses and long-term incentives, US companies delivered much more of the CEO's package through annual bonuses and share-based, long-term incentive arrangements. In fact the basic salary of a European chief executive, at €1.3m (£970,000), exceeded the U.S. base salary by 20 per cent.
Simon Garrett, director of executive reward at Hay Group and author of the report, said: "Chief executive compensation is a great deal lower in Europe than in the U.S. as a direct result of the substantially larger bonuses and share-based, LTI awards made by American companies. But it would be simplistic to suggest U.S. CEO packages are therefore more focused on rewarding long-term performance.
"Historically U.S. tax and accounting rules held down base salaries and discouraged LTIs driven by hard-edged performance conditions. As a result, U.S. CEOs' bonuses and LTIs grew and were often really about delivering more pay than motivating them to perform," he added.
"By contrast shareholder activism in Europe (and particularly the UK) has meant that the values of many European LTI awards have been reduced by tougher performance conditions. This sentiment seems to be spreading and I think U.S. shareholders and regulators are now starting to demand more bangs for the LTI bucks. "Of course, in a highly volatile market the values of incentive programmes are harder to judge. Share options, commonly used in the U.S. and France, can be valueless if share prices fall far enough. However, performance shares, more common in the UK, can shine for chief executives that preserve more shareholder value than their peers," he concluded.