The National Institute of Economic and Social Research (NIESR), an independent body, took two years to survey 169 companies. Top directors' pay rose by 77 per cent in real terms between 1985 and 1990. Average earnings in the same companies rose 17 per cent.
The survey found that:
Top pay is related to the growth in sales by the company, but only weakly to returns for shareholders, the real owners of the business.
Directors' pay grew faster in firms which grew by acquisition rather than by organic growth, and in firms which borrowed heavily and derecognised unions.
From 1985 to 1987, during the corporate boom, directors' pay grew at nearly 15 per cent and shareholder returns by 27.
But between 1988 and 1990 directors' pay went on growing at the same rate while shareholder returns fell to less than 6 per cent.
The institute commented: 'This would imply that either managerial skills were becoming increasingly valued by shareholders or that top executives were increasingly able to influence their own pay levels . . . It seems perverse that top directors are rewarded for organising takeovers, benefit again from any increase in sales associated with such a takeover but are isolated from any costs in terms of shareholders' returns.'
Directors' rolling contracts, page 15
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