Directors of Britain's largest companies are awarding themselves huge pay rises and even bigger share options packages without toughening up their performance targets.
Base salaries for executives at FTSE 100 companies rose 12.8 per cent in 2001, giving a massive boost to associated share options packages which tend to be awarded as a multiple of salary. In more than three-quarters of cases where share incentive schemes were made more generous, there was no strengthening of performance targets.
The findings are published today in Corporate Governance 2001 from the Pensions Investment Research Consultants (PIRC) organisation, which campaigns for better behaviour in boardrooms.
The PIRC report is in sharp contrast with a separate survey by the Confederation of British Industry. The CBI finds that employees lower down the pecking order were experiencing more pay freezes and lower rises than last year.
Stuart Bell, PIRC's research director, said: "Basing share awards on ever-increasing annual salary creates a powerful multiplier effect which has the potential to create a boardroom pay explosion in the coming years. This creates a major challenge for shareholders to curb excess."
FTSE 100 bosses were the worst offenders in 2001. Overall cash remuneration, including bonuses and benefits, surged by 20.2 per cent among blue-chip companies, compared with rises of 10.2 per cent among mid-cap firms and only 0.2 per cent among small caps.
The average basic salary for a FTSE 100 director was £386,000, against £224,000 for a midcap director and £169,296 for the boss of a smallcap company. Total annual cash bonuses, excluding the value of share option awards, were £297,152 in the FTSE, £117,176 for midcap directors, and £53,377 among small caps.
The highest multiple of salary potentially awarded each year was at Reuters, where the chief executive, Tom Glocer, could receive shares worth 750 per cent of his basic salary, and Cable & Wireless, where the multiple was 600 per cent for chief executive Graham Wallace.
While chief executives were awarding themselves large pay increases, some were freezing the salaries of their employees. The CBI found that one in six companies in the services industry announced pay freezes in the three months to November. Of those who did receive a pay increase, the amount was at its lowest level in past seven years, the CBI said.
The number of services companies refusing to raise staff pay represents a dramatic surge in salary freezes in the sector. Compared with the 16 per cent who said they were not raising employees' remuneration in this survey, only 2 per cent said they had banned increases in the last CBI report of May to July.
Of those employees who did receive a pay rise, the average increase was 2.8 per cent in the third quarter, compared with 4.4 per cent in the three months to the end of July and 3.9 per cent at the same time a year ago.
The gloom was echoed in the manufacturing sector. One in 10 manufacturers kept a lid on salaries in the third quarter and average increases were just 2.6 per cent, compared with 2.9 per cent in the second quarter and 3.1 per cent a year ago.Reuse content