Bosses at top British companies have come under fresh attack by an independent watchdog for remuneration disproportionate to corporate performance.
In an interim report published on Monday, The High Pay Commission on Monday revealed that between 2000 and 2010, while the average turnover and pre-tax profit of FTSE-350 companies (the 350 most capitalised companies with primary listing on the London Stock Exchange) rose by 80 and 51 per cent, respectively, the average salary, bonus and total earning of directors rose by 64, 187 and 108 per cent, respectively.
Said the Commission in its report: “Overall, our results show that nearly all the components of boardroom pay, with the exception of share option gains, increased at a faster rate over the last 10 years than corresponding measures of corporate performance.”
The Commission’s chairman, Deborah Hargreaves, said: “The evidence exposes the myth that big bonuses and high salaries result in better company performances. There has been massive growth in what has been termed as performance-related pay; yet, no such corresponding leap forward in company performance.”
The report, using the change in remuneration structure in BAE Systems as an example, has brought to light the staggering gap between performance and pay of directors in British corporations.
In 1978, the reported yearly earning of the top paid director at British Aerospace was just £29,000. By 2010, the salary and benefits, plus bonus, of the highest paid director at BAE Systems, the company British Aerospace has evolved into, was £2,363,000. That represents a pay increase, excluding share-based incentives, of 8,048 per cent, which compares to a corresponding rise since 1978 of 556 per cent in the median earnings of all UK full-time male employees, the report said.
Addressing a more important question of the role of incentives in the long-term survival of these companies, the Commission also studied the ability of these companies to continue to stay in the FTSE 350 list over the past decade.
“If survival in the FTSE 350 is interpreted as sign that incentive schemes deliver long-term performance, then our results indicate they have not delivered. Of 757 companies that have featured in the FTSE 350 over the decade, just 124 or 16.4 per cent of the total have remained on the index since 2000. The question is, what role have incentives played in this? Since 2000, the average value of LTIPs (Long Term Incentive Plan) in survivors has gone up by 488 per cent, but the average value of LTIPs received in non-survivors has gone up by 1,476 per cent. However, over the same period, earnings per share growth in the two groups of company has been similar.”
John Cridland, director-general of the Confederation of British Industry, said: “At a time of austerity, when everyone is seeing their income squeezed, executive pay is a particularly sensitive issue. High rewards for real business achievements which secure growth and jobs for thousands of employees are necessary and acceptable, but soft targets or payment for failure are not.”
