Labour Research December 2017


Executive pay grows fatter

Top executives’ pay is 72 times that of the average worker — and government proposals to reveal the pay gap between boardroom and shop floor seem unlikely to shake things up very much.

A Labour Research analysis of remuneration in the boardrooms of the top 350 companies ranked on the London Stock Exchange shows 477 executives were on at least £1 million a year.

In this year’s survey of executive pay, year-on-year comparisons could be made for 391 out of the 477 executives. The median rise in their packages was 2.7% against the 1.4% increase reported in last year’s survey.

While these medians are much lower than the 8.1% rise in our 2015 survey and the 9.2% rise in 2014, 28 executives were nevertheless awarded increases to their remuneration packages of at least 100% on the previous year. 

The biggest rise went to Chris Silva, who, in his final year as chief executive of life sciences group Allied Minds, saw his package grow by 760.2% to £6.74 million. He may no longer work there, but the co-founder of the group will still receive a basic salary of over £400,000 a year for the next two years as part of his golden handshake.

Lee Feldman, chair of online gambling group GVC, takes second spot with a 454.1% rise to £6.73 million, while two GVC executive directors take fourth and fifth spots. Chief executive Kenneth Alexander, saw his package increase by 373.6% to £16.17 million, and Richard Cooper, who has since stood down as chief financial officer to “pursue private business interests”, received a 360.4% increase, taking him to £8.14 million.

Sandwiched by the GVC trio is Martin Bennett, chief executive of emergency repairs business Homeserve, who got a 412.0% rise to £3.18 million.

Where comparisons could be made, overall 212 — or 54% of the 391 — saw their remuneration packages increase over the past two financial years.

In the survey period, inflation as measured by the Retail Prices Index has ranged from 2.0% up to 3.6%, but was rising by 2.5% in December — the most popular month for a company’s financial year to end. It means that most executives won’t have seen any cut in their highly pampered living standards.

In money terms, a 2.7% rise can mean a huge amount at these sorts of levels. Even at the survey’s £1 million a year cut-off point, a 2.7% increase would mean an extra £27,000 a year — not far off the entire salary the average worker earns in a year.

A breakdown in remuneration bands for 477 executives in the latest survey and the 513 executives included in last year’s survey is shown in the table below. The table shows that numbers held up above £10 million a year, but were down in the each of the other five bands. The fall in overall numbers is due in part to an increasing number of mining and investments companies in the FTSE 350, which are excluded from the survey. And the fall in the £1 million-£2 million bracket is in part due to some executives dropping out of this year’s survey, as well as smaller long-term bonuses being paid in the latest financial year rather than the previous one. Over 40 executives that featured last year dropped out this time around.

Number of executives ranked by total remuneration

Remuneration (£m) Latest survey Cumulative total 2016 survey Cumulative total
£20m+ 4 5
£10-20m 8 12 7 12
£5-10m 35 47 37 49
£4-5m 31 78 32 81
£3-4m 50 128 56 137
£2-3m 127 255 130 267
£1-2m 222 477 246 513

Nevertheless, the total remuneration bill for the 477 came to over £1.4 billion — an average package of £2.94 million against last year’s survey total of £1.5 billion for 513 executives — an average package of £2.91 million. 

The median (or midpoint) remuneration package was £2.07 million against £2.08 million in last year’s survey.

Recent figures from the Annual Survey of Hours and Earnings 2017 by the Office for National Statistics (ONS) show that the median salary (including bonuses) of a full-time worker was £28,758 in April 2017 against £28,195 the year before. That means the median executive package was 72 times greater than the average worker’s salary in this year’s survey, against 74 times the year before.

Executive packages £6 million and over

Executive Company Financial year end Total remuneration (£000) % change
Sir Martin Sorrell WPP 12/16 48,148 -31.6%
Tony Pidgley Berkeley 04/17 29,192 35.8%
Rob Perrins Berkeley 04/17 27,963 154.4%
Arnold W Donald Carnival Corp 11/16 23,731 194.9%
Jeremy Darroch Sky 06/17 16,343 253.8%
Kenneth Alexander GVC Holdings 12/16 16,172 373.6%
Rakesh Kapoor Reckitt Benckiser 12/16 14,609 -42.7%
Pascal Soriot AstraZeneca 12/16 13,389 68.1%
Sean Ellis Berkeley 04/17 12,740 323.3%
Nigel Greenaway Persimmon 12/16 12,106 n.a
Erik Engstrom RELX Group 12/16 10,563 -7.5%
Greg Fry Berkeley 04/17 10,027 n.a
Paul Richardson WPP 12/16 9,315 -19.1%
Andrew Griffith Sky 06/17 9,228 292.0%
Benoît Durteste Intermediate Capital 03/17 8,970 63.4%
Bob Dudley BP 12/16 8,523 -32.7%
Richard Cooper GVC Holdings 12/16 8,141 360.4%
Nicandro Durante British American Tobacco 12/16 7,630 68.0%
Flemming Ornskov Shire 12/16 7,593 -39.0%
Simon Borrows 3i 03/17 7,544 29.6%
Barry Stowe Prudential 12/16 7,468 10.4%
Albert Manifold CRH 12/16 7,276 83.6%
Ben van Beurden Shell 12/16 7,046 54.1%
Mike Wells Prudential 12/16 6,895 -30.3%
Christophe Evain Intermediate Capital 03/17 6,888 60.4%
Sir Andrew Witty GSK 12/16 6,830 2.5%
Chris Sivla Allied Minds 12/16 6,749 760.2%
Lee Feldman GVC Holdings 12/16 6,728 454.1%
Adrian Hennah Reckitt Benckiser 12/16 6,482 -6.9%
Peter Crook Provident Financial 12/16 6,315 -15.8%
Peter Harrison Schroders 12/16 6,293 39.0%
Karl Whiteman Berkeley 04/17 6,173 56.6%
Paul Polman Unilever 12/16 6,101 -18.7%
Vittorio Colao Vodafone 03/17 6,018 15.2%

Since Labour Research resumed examining executive pay three years ago, Sir Martin Sorrell, chief executive of the advertising and PR group WPP, has headed the table of highest-paid FTSE executives. And this year is no exception. 

His £48.15 million package is down on the £70.42 million he received in 2015. But it’s almost £20 million more than the £29.12 million raked in by second-placed Tony Pidgley, chair of luxury housebuilder Berkeley. 

Pidgley’s remuneration package moved him up from last year’s fifth place, while Berkeley’s chief executive Rob Perrins moved to third spot from 10th with £27.96 million. The other two executives who complete the five highest paid executives — Arnold W Donald of cruise group Carnival on £23.73 million, and Jeremy Darroch, chief executive of Sky, on £16.34 million — didn’t make the top 20 last year.

Remuneration committees have also been busy bumping up the basic salaries of executives. This year, the median rise in basic salary was 2.5%. This compares favourably with regular pay rises in the whole economy which have ranged from 1.7% to 2.7% since September 2016, according to the ONS.

As it is, 25 executives had basic salaries of at least £1 million in the latest financial year, with Douglas Flint, who retired as chair of the HSBC bank earlier this year, on a basic £1.5 million a year in 2016. That’s a basic of over £28,800 a week — about £1,100 more than the basic pay of an average full-time UK employee for a whole year.

The Labour Research survey 

The Labour Research survey covers the FSTE 350 companies, but excludes mining companies as they have no UK operations, and investment trusts where boardrooms are usually made up of part-time, non-executive directors who are paid accordingly. 

The Labour Research 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.

Our survey also sets a total remuneration cut-off point of £1 million. 

Where remuneration reports give a remuneration figure in dollars or euros, the figure has been converted to sterling using the average exchange rate for that company’s financial year.

Publishing pay ratios

When she became prime minister, Theresa May spoke of the “irrational, unhealthy and growing gap” between pay at the top of business and for those lower down the corporate hierarchy. A Green Paper on corporate governance was produced and consulted on last autumn. 

The government’s response to the consultation — delayed by the 2017 general election — was finally published at the end of August, but led to accusations from unions that May’s minority government has watered down the plans.

Under new corporate governance laws, due to come into effect by June 2018, some 900 publicly-listed companies will have to reveal the pay ratio of chief executive pay to the average pay of their UK workforce. 

The ratio should be accompanied by a narrative explaining changes to that ratio from year to year and how the ratio relates to pay and conditions across the wider workforce. In addition, a revised UK Corporate Governance Code, which sets out standards of good practice for listed companies, will give company remuneration committees “a broader responsibility for overseeing pay and incentives across their company and require them to engage with the wider workforce to explain how executive remuneration aligns with wider company pay policy (using pay ratios to help explain the approach where appropriate)”.

TUC general secretary Frances O’Grady described it as “a feeble proposal, spelling business as usual for boardrooms across Britain”.

The government is to invite the City watchdog, the Financial Reporting Council (FRC), to revise the UK Corporate Governance Code to “be more specific about the steps that premium listed companies should take when they encounter significant shareholder opposition to executive pay policies and awards, and other matters”. 

Shareholder votes against pay excess

In a nod to naming and shaming companies that ignore shareholders on the pay of executives, the government has proposed a public register of listed companies where a fifth of investors have objected to executive annual pay packages. This new scheme will be set up and overseen by the end of 2017 by the Investment Association, a trade body that represents UK investment managers.

Executives that would have been named this year include WPP’s Sorrell, as 21.3% of shareholders voted against, or abstained over, his remuneration.

And while this year could not have been said to have seen a “shareholder spring” with widespread discontent over executive pay, there have been other notable revolts. For example, shareholders at drugs giant AstraZeneca gave the remuneration committee a bloody nose and there have been other large votes against executive pay at supermarket group Morrisons, household products group Reckitt Benckiser and energy group Drax to name but a few.

Workers on the board

The TUC has long called for workers on the board, to bring what O’Grady says is “a much-needed dose of reality”. 

While May had initially promised to force companies to have an employee representative on the board (during her bid to become Conservative Party leader in July 2016), she nevertheless backtracked later in the year saying businesses would not be mandated to implement the move. 

However, the government’s response to the consultation says that it will “invite the FRC to consult on the development of a new Code principle establishing the importance of strengthening the voice of employees and other non-shareholder interests at board level as an important component of running a sustainable business”.

Nevertheless, the government merely offers more consultation, as it will “invite the FRC to consider and consult on a specific Code provision requiring premium listed companies to adopt ... one of three employee engagement mechanisms: a designated non-executive director; a formal employee advisory council; or a director from the workforce”.

Whatever is agreed, any requirement will be included in the UK Corporate Governance Code, which operates on a “comply or explain” basis.

Unions have called this a cop-out. Len McCluskey, general secretary of the Unite general union, said: “Once again the big business lobby has brought the Tory party to heel.” The GMB general union called the government’s proposals “a pathetic climbdown”.

Private limited companies

Most of the new measures proposed by the government will only apply to companies listed on the London Stock Exchange or the Alternative Investment Market. However, the government has also asked the FRC, to work with the Institute of Directors, the CBI, and other members of the business lobby, under the guidance of a business figure with relevant experience, to develop a voluntary set of corporate governance principles for large private companies.

The government says it will introduce secondary legislation “to require companies of a significant size to disclose their corporate governance arrangements in their directors’ report and on their website, including whether they follow any formal code”. It adds: “This requirement will apply to all companies of a significant size unless they are subject to an existing corporate governance reporting requirement.”

More importantly, at present private limited companies in their annual reports only have to publish their total directors’ pay bill and the pay of its unnamed highest paid director for the past two years. 

Greater transparency is needed with the pay of individual directors revealed — matching the present demands made of Stock Exchange companies to disclose the pay and benefits of executives in their annual remuneration reports.