Fat cats keep getting fatter

May 08 2003 by Brian Amble Print This Article

The average total earnings for leading executives of FTSE 100 firms rose by nearly a quarter last year according to figures from Income Data Services (IDS).

The data comes amid a spate of recent protests by shareholders and investors groups over excessive pay packages for some top executives and ‘rewards for failure’. Executives at Aviva, Corus , Shell, Schroders, Reed Elsevier, Reuters and Telewest are amongst those who have recently infuriated shareholders with huge pay awards despite presiding over falling share prices, mass redundancies, or both.

One of the bosses who has recently faced criticism from shareholders, Niall Fitzgerald of Unilever, who earns more than £2m-a-year as chairman and has a pension pot of more than £11 million, has described the huge payoffs to unsuccessful directors as "a potential cancer in our society".

The IDS figures showed that the total earnings of top executives in 2002- including basic salary, share options and other bonuses - rose by 23 per cent. Ignoring bonuses and options, the basic pay of leading executives of FTSE 100 companies still grew by an average of 11.2 per cent.

The story is the same for FTSE 250 companies, where the basic salaries of chief executives rose by 9.7 per cent while their total earnings rose by 12.9 per cent.

IDS also revealed that these earnings increases had risen from the previous survey three months earlier. This was despite what IDS called “a background of a continuing difficult business climate and increased investor concern about inappropriate top pay packages".

In April, a survey by the Chartered Institute of Personnel and Development (CIPD) also found that executive pay had risen three times more quickly than average earnings during 2002.

According to IDS, The UK's highest paid executive in 2002 was Bart Becht, chief executive of household products group Reckitt Benckiser, who took home £5.1m in pay, share options and bonuses.

The highest basic salary was paid to Barclays Bank chief executive Matthew Barrett, who received £1.1m before bonuses.

According to April's CIPD Annual Reward Survey, excessive executive pay may be doing more than just damaging the public's perception of the business community in general. More than a quarter of HR professionals believe that their CEO is overpaid and one in five said that workers' commitment to their jobs is undermined by the disparity between the rewards earned by managers and frontline staff.

John Philpott, chief economist at the CIPD, said: "There is a perception that pay structure and awards are somewhat unfair in UK organisations. People want to see a direct connection between the reward and some objective measure rather than just the whim of the remuneration committee."

Failure to resolve the issue could damage long-term economic growth, he added. "It could well be that people at the top of the organisations have taken their eye off the ball because they are too concerned about their pay packets," he said. "That has a knock-on effect further down the organisation where people don't play ball. This may be a bigger story than just corporate greed."

Recent pronouncements from ministers suggest that the government is preparing to act to curb executive excesses and bring an end to lavish "golden goodbye" deals.

In a speech to the Association of British Insurers' conference last month, Trade and Industry secretary Patricia Hewitt called for an end to "directors receiving extraordinary pay-offs for delivering falling profits, dwindling investment, redundant workers and out-of-date skills.

"This damages our economic prospects, threatens our stability and is just plain wrong," she said.

And in a GMTV interview, Welsh Secretary Peter Hain said that the pay-offs awarded to boardroom executives were "literally obscene" and gave the impression that "the very few at the top can get away with almost anything".

Recent plans floated by the Department of Trade and Industry to curb such excesses include cutting the length of company director contracts from a year to six months and inserting performance criteria into executives' contracts.

The proposals were welcomed by the Association of British Insurers, which represents the institutional investors that hold a quarter of the shares traded on the London Stock Exchange, but strongly opposed by the Confederation of British Industry.

Speaking at the Institute of Directors Convention at the end of April, CBI chief Digby Jones said that shareholder activism, not legislation, was the way forward.

"Regulation is not best placed to deal with complex contractual issues because its focus is on the rules, not the spirit of the wording," he said. "It would be totally impractical for the law courts to pass judgment on whether a chief executive has failed."

"Major firms fish for talent in a global pool," Jones added. "If UK terms and conditions are less favourable, management talent will go elsewhere."