FTSE chiefs earn £3.1m a year despite recession

Recession or not, the UK's top executives are still earning a typical £3.1m a year each – with a "poor correlation" between their pay and shareholder value, according to two of the country's leading authorities in the field. The level of remuneration will fuel the debate about boardroom excesses, with a crucial vote on pay at Marks & Spencer due next week. Shell and Tesco are two of the other leading British companies that have suffered from adverse publicity about "fat cattery". MM&K, a business consultancy, and Manifest, which advises institutional investors on how to vote at corporate AGMs, say that the typical pay of a FTSE-100 boss rose by 5 per cent since the slump began in 2008.

This contrasts with the pay of many private-sector staff further down the organisations they lead who have agreed to minimal pay rises or to pay freezes to help preserve jobs and the future of their companies.

There is also an embarrassing comparison with earnings per share for these companies – down 1 per cent over the same period. Looking over a ten-year horizon, the researchers found that despite widespread share-price declines, CEO remuneration has quadrupled.

Most striking of all is the rise of the shorter-term bonus as a method of incentivising directors, ironically just as it is being punished in the banking sector for causing such damage. Such bonuses now amount to a potential 300 per cent of salary.

The survey shows that chief executives of larger companies are the "clear winners in the remuneration race", now enjoying up to 300 per cent of their salaries as annual bonuses compared with CEOs in smaller organisations (with a £100m to £1bn market capitalisation) where bonuses are typically capped at a still-healthy 100 per cent. For larger companies, maximum bonus levels as a proportion of their salaries are about 25 per cent higher than in 2006 – and their salaries are 16 per cent higher too.

Commenting on the findings, Cliff Weight, director of MM&K, said: "Many performance-related pay schemes appear designed to satisfy the CEO and in fact offer little incentive for anything above just 'adequate' performance. If this wasn't bad enough, we found most strategies were not based on adequate benchmarking meaning and many committees replicated the errors of their peers.

If committees want to avoid criticism at the AGM and look shareholders in the eye, they've got to change and be more diligent and challenging. The key determinants of a successful incentive remuneration strategy revolve around choosing the right blend of short and long-term performance criteria together with rigour and toughness in the target setting."

The survey also identifies a shift from longer-term incentives, typically over three years, to annual bonuses, mirroring the approach that caused so many problems in the banking sector. Furthermore, as most remuneration strategies now involve the use of Long Term Incentive Plans (LTIPS), reward horizons have shortened to only three years. A decade ago, when share options were the favoured long-term incentive, the horizon average was seven to ten years.

What they call "management myopia" is "accentuated among larger companies whose complex schemes contain multiple reward thresholds". This means that the typical CEO enjoys rewards for even the most basic levels of performance regardless of whether they attain an "exceptional" outcome for the company with many requiring a modest earnings-per-share growth of RPI plus 8 per cent to vest the maximum award.

Despite almost two decades of attempts to reform boardroom practice from the 1992 Cadbury Report onwards, the role and performance of remuneration committees remain unsatisfactory, according to this latest evidence.

A spokesman for MM&K and Manifest added: "Remuneration committees are struggling to maintain their independence from their chief executives and are adopting increasingly expensive, short-term reward strategies. Far from behaving as a truly independent body, many remuneration committees have been unwilling to challenge their directors on behalf of shareholders and have become captives to the internal views of management."

PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Accounts Payable

£12 - £15 per hour: Cameron Kennedy Recruitment: Excellent opportunity to join...

Technical BA - Banking - Bristol - £400pd

£400 per hour: Orgtel: Technical Business Analyst - Banking - Bristol - £400pd...

Account Management Strategy Manager

£38000 - £42000 per annum + competitive: Real Staffing: Required skills:Previo...

Business Analyst Consultant (Financial Services)

£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice