Pay surge sees boom time in boardrooms
A Labour Research analysis of remuneration in the boardrooms of the top 350 companies ranked on the London Stock Exchange shows 557 executives were on at least £1 million a year, and the midpoint rise in their remuneration packages was 9.2%.
New disclosure regulations which came into force at the end of 2013 make it easier to see how top executives have been rewarded by their companies.
Announcing the reforms in June 2012, business secretary Vince Cable said: “Over the last decade directors’ pay has quadrupled with no clear link to company performance. At the same time company reports have become increasingly complex without giving shareholders the information they need.”
Cable added: “These regulations will significantly improve reporting. For the first time companies will be required to set out every element of pay that a director could be entitled to and how it supports long-term company strategy and performance.”
Under the new regulations, the remuneration reports of large and medium-sized companies have to give an audited “single figure” for the remuneration of each director.
The remunerations reports also have to provide a breakdown of how the single figure is arrived at and includes: basic salary, cash bonus, long-term share bonuses, golden handshake, pension payments and a cash figure for other benefits that directors receive, such as use of company car, life insurance, private health benefits and housing allowance.
The regulations certainly seem to make it easier to discover how an executive has been remunerated over the year. And at certain companies, the figures give an idea of how understated their pay had been under the previous regulations.
The latest remuneration report of media group Reed Elsevier provides remuneration figures based on the old and new regulations. They show that chief executive Erik Angstrom’s remuneration under the new UK rules was £5.45 million in the financial year ending December 2013, but only £4.07 million when complying with the previous disclosure requirements. That’s a not inconsiderable difference of £1.36 million.
A breakdown in remuneration bands for the latest financial year and previous one is shown in Table 1 for the 557 executives included in the Labour Research analysis of those executives with remuneration packages of at least £1 million. The table shows an overall movement of executives from the lower to middle bands as remuneration has ratcheted up.
Table 1: Number of executives ranked by total remuneration
|Total remuneration||Latest year||Cumulative total||Previous year||Cumulative total|
In October, tens of thousands of workers took to the streets on TUC demonstrations demanding “Britain Needs a Pay Rise”. However, there is no such worry in the boardroom as the median rise for the 557 was a very healthy 9.2%.
That’s well ahead of the rise in average earnings for the whole economy, which, in the survey period of September 2013 to July 2014, rose by no more than 2.1% — but in one month even showed a negative figure of 1.4%.
The top 40 executives ranked by their total remuneration package are shown in Table 2. Add in Mark Clare, chief executive of housebuilders Barratt Developments on £6.03 million, and that covers the 41 executives who received at least £6 million.
Table 2: Executives with the highest total renumeration
|Executive||Company (financial year end)||Total remuneration (£000)||% change|
|Sir Martin Sorrell||WPP (12.13)||29,846||70.1%|
|Stephen Stone||Crest Nicholson (10.13)||14,108||1,252.9%|
|Kevin Loosemore||Micro Focus Int (4.14)||12,468||856.1%|
|Mike Wells||Prudential (12.13)||11,733||51.9%|
|Ian Gorham||Hargreaves Lansdown (6.14)||10,608||57.1%|
|Darren Throop||Entertainment One (3.14)||10,269||1,029.7%|
|Peter Long||TUI Travel (9.13)||10,122||50.2%|
|Don Robert||Experian (3.14)||10,104||-32.6%|
|Sam Walsh||Rio Tinto (12.13)||10,070||44.0%|
|Patrice Theroux||Entertainment One (3.14)||9,263||1,005.4%|
|Paul Richardson||WPP (12.13)||9,176||13.7%|
|Vittorio Colao||Vodafone (3.14)||8,927||-19.6%|
|Tidjane Thiam||Prudential (12.13)||8,656||-9.2%|
|Michael Dobson||Schroders (12.13)||8,414||72.8%|
|Adam Crozier||ITV (12.13)||8,365||187.1%|
|Suart Gulliver||HSBC (12.13)||8,033||6.7%|
|Angela Ahrendts||Burberry (3.14)||7,995||-26.7%|
|Bob Dudley||BP (12.13)||7,987||40.9%|
|Ivan Menezes||Diageo (6.14)||7,768||-6.0%|
|Antonio Horta-Osório||Lloyds Banking Group (12.13)||7,475||120.0%|
|Sir Andrew Witty||GSK (12.13)||7,207||64.3%|
|Peter Voser||Shell (12.13)||7,183||-51.5%|
|Geoff Drabble||Ashtead (4.14)||7,099||9.0%|
|Peter Prebensen||Close Brothers (7.14)||7,040||22.5%|
|Dido Harding||Talk Talk Telecom (3.14)||6,842||21.8%|
|Paul Polman||Unilever (12.13)||6,763||8.9%|
|Rakesh Kapoor||Reckitt Benckiser (12.13)||6,692||-20.4%|
|Martin Lamb||IMI (12.13)||6,688||-15.9%|
|Christos Angelides||Next (1.14)||6,559||11.0%|
|Giles Willits||Entertainment One (3.14)||6,554||888.5%|
|Pete Redfern||Taylor Wimpey (12.13)||6,512||116.4%|
|Nicandro Durante||British American Tobacco (12.13)||6,492||2.4%|
|Michael Mclintock||Prudential (12.13)||6,485||17.5%|
|Alan Clark||SABMiller (3.14)||6,463||n.a|
|Carolyn McCall||EasyJet (9.13)||6,435||74.2%|
|Paul Walsh||Diageo (6.14)||6,429||n.a|
|Andy Harrison||Whitbread (2.14)||6,374||85.7%|
|Xavier Rolet||London Stock Exchange (3.14)||6,294||4.6%|
|John Rishton||Rolls-Royce (12.13)||6,228||36.1%|
|Richard Brindle||Lancashire Holdings (12.13)||6,167||-4.5%|
Sir Martin Sorrell, chief executive of advertising and PR group WPP, tops the table with over £15.7 million. His £29.8 million remuneration package comprises a £1.15 million basic salary. But the lion’s share of £22.7 million was from long-term incentives. His total remuneration package was almost 26 times that of his basic salary.
It’s generally the case that long-term incentives make up a huge chunk of an executive’s remuneration package. Stephen Stone, chief executive of housebuilders Crest Nicholson, was on a basic of £498,047. But a £12.8 million incentive plan took his total to £14.1 million or 28 times his basic.
For Kevin Loosemore, the executive chair of software group Micro Focus, the total/basic multiple was 25 times, and for Mike Wells, who heads the US operations of finance group Prudential, it was 17 times. Ian Gorham, chief executive of investment group Hargreaves Lansdown, completes the top five remuneration packages and his total/basic multiple was 26 times. At the other end of the scale, with no long-term bonuses received in the latest financial year, the multiple for Dalton Philips, chief executive of supermarket group Wm Morrison, and Simon Lee, who has since left financial services group RSA, was 1.3.
The total remuneration bill for these 557 executives came to a staggering £1.52 billion — the median remuneration package was £2.03 million. The previous year’s figures were £1.38 billion and £1.79 million respectively.
Stephen Stone and his fellow Crest Nicholson director Patrick Bergin tops the list of remuneration rises along with three executives at multimedia entertainment group Entertainment One.
Stone’s rise was 1,252.9% and Bergin’s 924.7%. Meanwhile, Entertainment One’s chief executive Darren Throop received a 1,029.7% rise and chief financial officer Giles Willits 888.5%.
Patrice Theroux resigned from the group at the end of the 2014 financial year, but he left with a remuneration package that was 1,005.4% fatter than the year before. In all cases, the rises were on the back of long-term incentives being awarded in the latest year when none was awarded the year before.
The analysis also revealed that 23 of the executives have a basic salary of at least £1 million a year. To put that in context, £1 million is the equivalent of £19,230 a week. The average UK worker’s salary is at present around £27,000 a year, so a top executive would have earned by 14 January 2014 in basic salary alone what the average worker took the whole of 2014 to earn.
Sam Walsh, chief executive of mining multinational Rio Tinto, had the largest basic salary — £1.89 million, closely followed by Peter Rigby, chief executive of publishing and media event group Informa, with £1.86 million.
Two executives at HSBC Bank took third and fifth spots with Douglas Flint on £1.5 million and Stuart Gulliver with £1.25 million, while fourth spot went to Peter Voser, chief executive of oil giant Shell.
Just looking at basic salaries, the median increase was 2.8%. The latest median basic salary was £480,000 against £449,000 the year before. The total basic salary bill for the 557 came to £285.21 million in the latest year — up from £265.99 million the year before.
The top five increases in basic salaries all involved promotions. Christopher Fordham’s promotion to managing director at business publications group Euromoney came with a 147.9% rise in his basic to £375,000 a year, while promotion to chief executive at plastics group RPC for Pim Vervaat brought a 77.2% rise.
Jeff Fairburn’s move into the chief executive’s seat at housebuilder Persimmon brought a 55.9% rise. There were rises of 45% and 42.9% respectively for Stephen Young at aerospace engineering group Meggitt and Simon Segars at semiconductor group ARM as they took on the chief executive’s role.
After the performance-related and basic salary elements of their remuneration packages, pension payments are considerable for the executives.
PensionsWatch 2014 is the TUC’s latest annual analysis of executive pensions in top companies. The analysis covers the FTSE 100 companies rather than the larger group of the FTSE 350.
Over recent years, the UK workforce has been facing up to a changing vista on pensions. And the TUC’s 2014 report found that executives are being offered a smorgasbord of options to keep them in the style they have become accustomed to on their huge remuneration packages. While the number of executives in defined benefit (DB) — final salary — schemes has all but disappeared, companies are increasingly giving them cash in lieu.
Two of the largest cash contributions went to bankers. Douglas Flint, chief executive of HSBC, got £750,000 in 2013, while Antonio Horta-Osório, chief executive of Lloyds Banking, got £549,390.
The cash contribution to Horta-Osório was just one part of his pension arrangements as he received a £732,000 pension buy-out from his former employer, which went into his DB scheme along with an £18,170 contribution into a defined contribution — or money purchase scheme.
The TUC found that the typical cash contribution in lieu of pension was 16.6% of basic salary or £149,493.
Business secretary Vince Cable brought in the new regulations after what was called the “shareholder spring” of 2012. This saw a number of votes against the remuneration policy for directors at a number of high profile companies. But as the votes were not binding it was up the directors on the remuneration committee to take action if they felt inclined to do so.
The new regulations also give shareholders a binding vote on executive pay policy, but still only an advisory vote on pay awarded to individual directors.
In May, investors drew first blood under the new regulations as engineering group Kentz was forced to tear up its pay plans after they were rejected by investors.
Shareholders in Kentz rejected not only the pay policy but also the remuneration report, which covers bonuses and salaries paid out during the past year. Although this second vote is not binding, it sends a clear signal to the company about investors’ views on its pay deals.
In July, luxury retail group Burberry also faced a huge revolt over pay, with 53% of investors voting against the company’s remuneration report after it handed the incoming chief executive Christopher Bailey a one-off award of shares worth £15 million on his appointment after the end of group’s last financial year.
The group said the vote was “disappointing”. However, it is not binding, so the company will not be forced to change its policy.
In only addressing shareholders concerns, Cable missed a trick. The TUC has long argued for worker representation on company remuneration committees to bring a strong dose of reality.
Last year, the TUC argued that the UK’s short-termist approach (based on a model relying solely on shareholders to hold companies to account) has delivered neither economic success nor social justice. Instead, a fixation with short-term gains has led to poor productivity, low investment and wages falling as a share of GDP.
This, it said, has had the end result of hitting demand and hurting companies in the long run.
The TUC’s 2013 Workers on board report said that the UK’s corporate governance rules have failed to keep pace with the new world of share ownership.
With over 50% of UK shares held by overseas investors, and with UK institutional investors increasingly reliant on short-term share trading as a route to profit, deciding what lies in the best long-term interests of a company can no longer be left to shareholders alone, the report said.
Instead, Workers on board suggested that involving employees in the running of companies would not only be a genuine break with the past and the UK’s failed system of corporate governance, but would also harness the contribution of people who have the long-term development of the company at heart.
Another element in the failure to bring realism to the pay of executives is the use by remuneration committees of outside consultants for advice on pay.
In 2006, the legendary US investor Warren Buffet created the fictional pay consultants Ratchet, Ratchet and Bingo to signify his displeasure at what was happening over executive remuneration. The evidence from this survey suggests it is still a case of ratchet, ratchet and bingo for remuneration policy in boardrooms across the UK — shareholder votes or not.
• The Labour Research survey covers the FSTE 350 companies, but excludes mining companies as they have no UK operations and investment trusts where the boardroom is usually made up of part-time, non-executive directors who are paid accordingly.
It also set of total remuneration cut-off point of £1 million so anyone below a £1 million wasn’t included in the analysis.
Labour Research Department
For a complete listing of the executive salaries included in the analysis, see www.lrd.org.uk/payline/misc/ExecutivePay2013.xls
Living Wage Foundation
Workers on Board