Boardroom pay soars as share prices plummet

Jul 31 2003 by Brian Amble Print This Article

A month after a MORI opinion poll found that the overwhelming majority of people in the UK regard the directors of large public companies as untrustworthy and overpaid, a survey by the Guardian newspaper has revealed a catalogue of fat cat excess on a huge scale amongst the UK’s top companies.

The Guardian has found that boardroom pay in the UK rose seven times faster than average earnings last year, with the senior directors of the UK's top FTSE-100 companies receiving an average 23 per cent rise.

Average earnings in the year to January 2003 grew by 3.2 per cent. Over the same period, the FTSE-100 index recorded its biggest ever annual fall, dropping 24.4 per cent.

The fall meant that value of FTSE-100 companies in 2002 was almost 50 per cent lower than their peak three years earlier. Boardroom pay over the same period rose by more than 84 per cent.

The average basic salary for a FTSE-100 chief executive in 2002 was £596,817. Bonuses, share options and other incentives pushed their total average pay package to £1,677,685.

Last year's rise is higher than the 17 per cent recorded by The Guardian’s 2001 survey recorded an average rise of 17 per cent, with a 28 per cent rise in 2000.

The Guardian’s figures show that 190 executive directors were paid more than £1m last year - up from 130 in 2001. The fattest fat cat was Brian Gilbertson, chief executive of the mining company BHP Billiton whose total package was £9.1m.

Mr Gilbertson left the company after a boardroom row with a ‘golden goodbye’ worth an additional £16m.

The Guardian investigation also revealed that:

  • All eight full-time directors of the supermarket chain Tesco earned more than £1m. Their total wage bill topped £20m.
  • Seven directors of Unilever and six at BP also received more than £1m in 2002.
  • Helen Weir, the finance director of retail group Kingfisher, was the only woman to receive a package in excess of £1m. But this was only because she was paid a ‘relocation allowance’ of £340,000 to move 40 miles nearer to her London office.
  • 10 executives received pay-offs of more than £1m after they quit or were fired.
  • Abbey National paid £4.5m to get rid of five main board directors whose strategy had driven the bank to a £1bn loss.
  • Bob Mendelsohn, the former chief executive of the insurance group Royal & SunAlliance, was paid off to the tune of £1.4m despite presiding over a 90 per cent fall in the company’s share price and 12,000 job losses. He also walked away with an annual pension of £354,000. Mendelsohn had previously said that he would not accept a pay-off if he failed to improve the company’s fortunes.
  • Five FTSE-100 directors were paid ‘golden hellos’ of more than £500,000 to accept new jobs.
  • Eight directors have pension pots in excess of £10m. The biggest belongs to Sir Richard Sykes, the former chairman of GlaxoSmithKline, who has more than £15.2m invested, earning him £729,000 a year in income.
  • GlaxoSmithKline’s chief executive, Jean-Pierre Garnier, has a guaranteed annual retirement income of £929,000.
A revised version of the Combined Code of Corporate Governance drawn up by the Financial Reporting Council (FRC) earlier this month called on companies to "avoid rewarding poor performance” and "take a robust line on reducing compensation to reflect departing directors’ obligations to mitigate loss".

But the proposals stopped short of forcing firms to comply under threat of legal sanctions, allowing instead companies to explain any departure from the code in their annual reports. Whether this ‘softly-softly’ approach will do anything to curb the growing gulf between executive excess and shop floor belt-tightening is something that only time will tell.