Labour Research December 2015


Monster pay packets keep fat cats purring

Eye-watering remuneration packages remain the order of the day for top executives.

A Labour Research analysis of remuneration in the boardrooms of the top 350 companies ranked on the London Stock Exchange shows 535 executives were on at least £1 million a year.

The top 40 earners are shown in the table below. Once again, Sir Martin Sorrell, chief executive of at the advertising and PR group WPP heads the table.

Sorrell survived a shareholder revolt at the group’s annual general meeting when almost a quarter of investors refused to back his £43 million remuneration package. Some shareholders argued that the pay was “more than enough” and criticised the chief executive for all the add-on perks included in his package.

Sorrell’s 2014 package included £274,000 on flights for his wife to accompany him on business trips. He was also paid £50,000 a year to stay in his own homes, including his New York flat, while on business, on the basis that this saves the company money on hotel bills.

The other executive to receive over £20 million was Tony Pidgley, founder and chief executive of housebuilder Berkeley. The vast majority of his £23.3 million package came through the long-term performance bonus scheme which paid out £19.8 million.

Our analysis is based on the remuneration reports of these companies, which have to publish an audited “single figure” for the remuneration of each director. The remuneration 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.

Executive Company Financial year end Total remuneration (£000) % change
Sir Martin Sorrell WPP 12/14 42,978 44.0%
Tony Pidgley Berkeley 04/15 23,296 520.1%
Ben van Beurden Shell 12/14 19,510 n.a.
Jeremy Darroch Sky 06/15 16,889 246.1%
Erik Engstrom RELX Group 12/14 16,176 197.9%
Peter Long TUI Travel 09/14 13,333 28.3%
Rob Perrins Berkeley 04/15 12,357 444.1%
Tidjane Thiam Prudential 12/14 11,834 36.0%
Breon Corcoran Betfair 04/15 11,627 811.2%
António Horta-Osório Lloyds Banking Group 12/14 11,544 54.4%
Mike Wells Prudential 12/14 11,393 -4.1%
Rakesh Kapoor Reckitt Benckiser 12/14 11,237 64.3%
Paul Richardson WPP 12/14 11,219 22.3%
Christopher Silva Allied Minds 12/14 9,658 1,189.8%
Bob Dudley BP 12/14 9,289 4.9%
Andrew Griffith Sky 06/15 8,861 261.8%
Johan Lundgren TUI Travel 09/14 8,423 58.9%
Simon Borrows 3i 03/15 8,278 156.9%
Michael Dobson Schroders 12/14 8,155 -3.1%
Hendrik du Toit Investec 03/15 8,130 44.9%
Christopher Bailey Burberry 03/15 7,943 n.a%
Grenville Turner Countrywide 12/14 7,744 n.a%
Paul Polman Unilever 12/14 7,714 24.3%
Carolyn McCall EasyJet 09/14 7,678 -1.3%
Stuart Gulliver HSBC 12/14 7,619 -5.2%
Greg Fry Berkeley 04/15 7,305 587.2%
George Weston Associated British Foods 09/14 7,155 22.7%
Alan Clark SABMiller 03/15 7,072 9.4%
Andrew Goodsell Saga 01/15 7,026 325.0%
Mike Pulli Pace 12/14 6,911 361.7%
Chris Grigg British Land 03/15 6,761 25.3%
Dave Forsey Sports Direct 04/15 6,760 4,406.7%
Mark Clare Barratt Developments 06/15 6,673 3.8%
Peter Crook Provident Financial 12/14 6,594 32.3%
Richard Solomons Intercontinental Hotel Group 12/14 6,528 108.5%
Tim Steiner Ocado 11/14 6,447 537.7%
Willie Walsh International Airlines 12/14 6,390 28.5%
Benoît Durteste Intermediate Capital 03/15 6,370 63.1%
Richard Cousins Compass 09/14 6,298 13.8%
Rob Roger Spire Healthcare 12/14 6,223 n.a.

A breakdown in remuneration bands for 535 executives in the latest survey and the 557 executives included in last year’s survey is shown in the table below. The table shows an overall movement of executives from the lower to middle bands as remuneration has ratcheted up. 

Number of executives ranked by total remuneration

Total remuneration Latest year survey Cumulative total 2014 survey Cumulative total
£20m+ 2 1
£10-£20m 11 13 8 9
£5m-10m 46 59 45 54
£4m-£5m 46 105 36 90
£3m-£4m 54 159 70 160
£2m-£3m 112 271 126 286
£1m-£2m 264 535 271 557

The numbers in the bottom two bands decreased. That, in part, is due to some executives dropping out of this year’s survey as smaller long-term bonuses were paid in the latest financial year than in the previous year. 

Nevertheless, the total remuneration bill for the 535 came to £1. 56 billion against last year’s survey total of £1.52 billion for the 557 executives. 

The median (or midpoint) remuneration package was £2.04 million against £2.03 million in last year’s survey. In the 2015 survey, year-on-year comparisons could be made for 438 executives, and the median rise in their packages was 8.1%, down on the 9.2% median rise in last year’s survey. 

However, in the latest survey period, official figures show the rise in weekly earnings for the whole economy has ranged from 1.1% to 3.1% for September 2014 onwards. So the gap between the boardroom and workforce has widened by a considerable margin.

Looking at the individual rises, 52 executives were awarded remuneration packages that were at least 100% bigger than the previous year. Where comparisons could be made, 260 out of the 438 saw their remuneration packages grow over the past two financial years. 

Pensions mean feather-cushioned retirements

The total remuneration packages include pension payments. And when the time comes to leave the boardroom, executives can continue to enjoy a substantial income in retirement, as the TUC found in its latest annual PensionsWatch survey.

Now in its 13th year, PensionsWatch analyses the latest trends in retirement provision for senior executives, by looking at the most recent annual reports of FTSE 100 companies. This year, the pension arrangements of 316 top executives came under scrutiny.

The average employer contribution to top executives’ pensions in the last year was 34.1% of their salary and, in some cases, the contribution was more than 50% of the salary. However, executives have been increasingly taking cash top-ups to their salary in place of formal pension arrangements. The huge sums going into cash payments totalled £34 million in 2014.

More of the UK’s top directors than ever (70%) opted to receive cash payments in lieu of contributions to their pension scheme last year, the TUC found. The decision by executives to do so is, in part, driven by tax rules about pension scheme contributions. But some executives receive the salary top-ups in addition to payments into pension schemes.

The typical cash amount received by senior executives in lieu of a pension contribution is £152,926 (or 29% of their salary). The top three cash payments in lieu of pension contributions went to Richard Solomons, chief executive of the InterContinental Hotels Group (£3.2 million), Douglas Flint, chair of HSBC bank (£750,000) and António Horta-Osório, chief executive of Lloyds Banking Group (£556,890).

Not only are executives getting far larger proportionate contributions, it also means they are increasingly disconnected from the realities of the UK’s pension system. If fewer of those at the top table have a financial stake in workplace pensions, it raises concerns about boardroom commitment to providing good quality retirement provision, the TUC said.

TUC general secretary Frances O’Grady said: “While pension benefits for most workers have been drastically cut back in recent years, FTSE bosses are diverting pension contributions to top up what are already colossal pay packets. Dramatic differences in pension provision mean that pay inequalities are amplified in retirement.”

The number of executives enrolled in defined benefit schemes (or final salary schemes) has been falling as schemes are abolished or closed to future accrual. Nevertheless, the TUC found 52 executives at 17 FTSE 100 companies still accruing benefits.

The top three pensions payable to executives are: Ben van Beurden, chief executive of Royal Dutch Shell, who can look forward to an annual pension of £852,716. That equates to nearly £16,400 a week, or 141 times the current basic state pension of £115.95 for a single person. 

Ian King, chief executive of defence contractor BAE Systems, has built up a £794,973 a year pension, so will receive 131 times the basic state pension each week. And Sir Andrew Witty, chief executive of drugs giant GlaxoSmithKline, can look forward to £684,331 a year, or 113 times the basic state pension a week.

Dividend income

The remuneration packages analysed do not include dividend income from an executive’s shareholding in their company, but these can come to substantial sums. For example, Tony Pidgley, chief executive of Berkeley, has a 6.37 million shareholding which, with a total dividend of £1.80 a share, gave him an extra £11.46 million income to go with his remuneration package of over £23 million in the year to April 2015. 

And Rob Perrins, managing director at Berkeley, received £2.63 million in dividends to go with his £12.36 million remuneration package.

Lord Wolfson, chief executive of clothing retailer Next, had a remuneration package of £4.66 million in the year to January 2015. To that he could add £2.27 million from his 1.52 million shareholding in the group.

Michael Spencer, chief executive of financial services group ICAP, made it into the top 150 with his remuneration package of £3.32 million in the year to March 2015. But he also picked up a further £836,000 in dividends from his 3.8 million share stake. And Mark Dixon, chief executive of office rental group Regus, ranked 176th with his £2.77 million remuneration package. But £4.01 million from his 323.44 million share stake pushed him well up the total income rankings.

For others, dividend income was the big earner. For example, Steve Morgan of housebuilder Redrow, received a £15,000 salary in the year to June 2015, which he donated to the Morgan Foundation, a charity of which is he is a trustee. On top of that he received £38,000 in benefits from Redrow, making a total remuneration package of just £53,000. 

However, he has a beneficial stake of 149.39 million shares in Redrow — the firm he founded over 40 years ago — which paid out a total of £8.96 million last year, pushing him into the top 20 of earners.

Tim Martin, founder of the Wetherspoon pub group, was another whose main income came from dividends. As chair of the group he received a remuneration package of £355,000. But with a 12p a share dividend on his stake of 33.47 million shares, he received £4.02 million in dividends.

A proviso has to be made over the shareholdings as “beneficial share interests” have to be detailed in the remuneration report. However, the interest can include family members.

Shareholders' votes have little impact

As business secretary in the coalition government, Vince Cable brought in the new regulations to give shareholders a binding vote on executive pay policy, but still only an advisory vote on pay awarded to individual directors. However, shareholder revolts against excessive executive pay have been relatively scarce. And where there have been revolts, they have been all but bloodless, including the revolt over Sir Martin Sorrell’s £43 million package.

Investors in drugs group AstraZeneca, insurance group RSA, household goods giant Reckitt Benckiser, oil and gas firm BG and HSBC bank have all voted against the remuneration policies of these firms. Yet the discontent votes were not in sufficient numbers to make a difference. 

Earlier this year, shareholder activist group ShareAction accused City firms that invest trillions of savers’ money of failing to challenge companies over excessive pay and bonuses. 

Blue-chip City firms, including BlackRock, HSBC’s global asset management division and Schroders, were found to have mostly sided with company management on controversial decisions over pay, which showed they were “not exercising their stewardship responsibilities,” ShareAction said.

Pay ratios

Vince Cable, out of government and no longer an MP, said he believes the regulations on top pay have had an impact. However, he would now go further he told a High Pay Centre event in October. 

“There are a couple of things we didn’t do that I would now be in favour of,” he said. One is the requirement on companies to publish a pay ratio between the top and the rest of the workforce.

That may come about in a roundabout way as the government has said it will bring forward rules by the first half of next year to make companies with more than 250 workers disclose the pay gap in their workplaces.

Workers on boards

Cable’s other suggestion is the inclusion of workforce views on pay deliberations for top bosses. The issue of workers on boards and remuneration committees was discussed when the new rules were being drawn up. “The prevailing view was that it wasn’t the right approach, but having reflected on it, there is a case for strengthening the employee voice in pay,” Cable said.

He suggested that companies could be required to consult the workforce on executive pay — “it would exercise a little bit of extra scrutiny”.

The TUC wants to go further and has long called for worker representation on company remuneration committees.

• 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. The latest annual reports for three companies — Bellway, Debenhams and WH Smith — were not available in time to include in the analysis. 

The survey also set a total remuneration cut-off point of £1 million, so anyone below £1 million wasn’t included in the analysis, except where mentioned in the relation to some of the dividend payments referred to.