Top earnings increase by 8.8%

Boardroom pay: Million-pound club grows despite tighter performance criteria
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The Independent Online

Fresh evidence that corporate "fat cats" are enjoying increased rewards at a time when other employees are being urged to exercise restraint comes with the publication today of figures showing that, in the past year, top executives' pay rose by 8.8 per cent, more than twice the current inflation rate.

The latest annual report on UK boardroom pay by the remuneration advisers, Monks Partnership, also shows that the number of top directors earning more than pounds 1m rose by almost 20 per cent, from 16 to 19.

Among the newcomers to the "million-pound club" are Sam Chisholm, chief executive of BSkyB; Henry Sweetbaum, chairman of the builders' merchants Wickes; Sir Christopher Lewinton, chairman of the industrial conglomerate TI, and Sir Ian McLaurin, chairman of Tesco (who has previously enjoyed earnings of about pounds 1m when pension contributions are taken into account).

The median rise in total earnings for the highest-paid director - usually the chairman or chief executive - reverses the trend of the past five years, when increases declined from 17.3 per cent in 1989 to 5.8 per cent in 1994.

However, the rises were not universal. According to the analysis of the annual reports in circulation in mid-September of nearly 1,500 listed companies, about one-quarter received no increase, while another quarter received 13 per cent or more.

Three-quarters of the highest-paid directors saw their total earnings increase over 1994. The biggest change occurred in building materials and construction, where executives in recent years have seen the smallest increases in total pay. In the past year, their pay rose by an average of 12.5 per cent.

Ninety per cent of industrial and commercial companies with more than pounds 400m turnover operate annual bonus plans for board directors, although only about half the companies in the study actually paid a bonus. The typical bonus in the industrial sector was 19.2 per cent of fixed pay, while in the financial sector it was slightly higher at 23.2 per cent.

However, developments in corporate governance on the back of the Cadbury and Greenbury reports are producing changes to companies' incentive plans. About 90 per cent of companies have executive share-option schemes, but increasing numbers are moving towards longer-term incentive plans, which may reward directors with company shares instead of cash.

David Atkins, editor of United Kingdom Board Earnings, said the small rise in the number of highest-paid directors earning more than pounds 1m - compared with the previous year's doubling from eight to 16 - could be attributed to two factors. Performance criteria used to calculate bonuses were more stringent. Second, more large companies, where the potential million-pound earners are likely to be found, are introducing longer-term plans paying in shares rather than cash.