Labour Research December 2018


Fat cats lap up the cream

The annual Labour Research survey of the pay of top executives finds that the highest paid among them continue to scoop up eye-wateringly huge remuneration packages.

More top executives are on remuneration packages of £1 million a year or more, finds the annual Labour Research survey of executive pay. Moreover, their remuneration has increased, on average, by 8.6%.

In total, there were 505 top executives from the top 350 companies quoted on the London Stock Exchange who were on £1 million or more in their employers’ latest financial year. That’s a net increase of 28 executives recorded in the previous year’s Labour Research survey. The total paybill for the 505 came to £1.66 billion. If the median (midpoint) salary is used, the annual package comes to £2.08 million or, in weekly terms, £40,080 a week. 

Pay data for the UK workforce as a whole put those average annual salaries in context and show the huge gap between the boardroom and the shop floor. The Annual Survey of Hours and Earnings, published by the Office for National Statistics, gives a snapshot of pay in April each year. The 2018 survey said that the average (median) annual salary of a full-time worker was only £29,574, including bonuses. So the average executive in the survey earned £10,500 more in a week than an average worker earned in a year.

In terms of pay rises, year-on-year comparisons could be made for 416 executives. The median rise in their packages is 8.6%. That puts the median increase back to the levels recorded in our 2014 and 2015 surveys when the rises were 9.2% and 8.1% respectively. In between, the medians were lower — at 1.4% in the 2016 survey and 2.7% in last year’s survey. 

The UK workforce was less fortunate. Looking at the financial periods covered by the latest survey, the rise in average earnings for the whole economy ranged from 2.0% up to 3.3%. That means the gap between the rise in executive pay and the average worker was at least 5.3 percentage points, meaning boardroom pay has pulled further away from that for the shop floor.

In the executive pay league table, the top four increases went to executives of company turnaround specialist Melrose Industries. Their fortunes increased due to each of them receiving £41.77 million in long-term incentive payments last year, when nothing was paid the year before.

These increases were worth an eye-watering 7,625.2% to executive vice-chair David Roper, boosting his package to £42.33 million; and 7,611.3% to executive chair Christopher Miller taking his 2017 package to £42.34 million. 

Group finance director Geoffrey Martin earned more — £42.58 million but his increase was 5,202.1%. Melrose chief executive Simon Peckham was the highest earner of the quartet with £42.76 million, but his percentage increase was 4,232.7%.

It was that relative rarity — a female executive — who completed the top five increases. Avril Palmer-Baunack, chief executive of car auction group BCA Marketplace, received a 2,629.7% increase, taking her package for the year ending March 2018 up to £29.97 million.

Overall, 252 — or three out of five — of the 416 executives, saw their remuneration package get fatter over the past two financial years.

At the other end of the scale came Rob Perrins, chief executive of luxury housebuilder Berkeley. His remuneration package shrank by 72.1% last year. However, he still earned £7.81 million — the equivalent of over £150,000 a week — so save any sympathy for others.

In the survey period, inflation as measured by the Retail Prices Index (RPI) has ranged from 3.2% up to 4.1%. The 4.1% rise was in December 2017 — the most popular month for a company’s financial year to end. It means that most executives won’t have seen in a cut in their rather pampered living standards.

In fact, well over half — 56% of the 416 executives, where yearly comparisons could be made, saw their package rise by at least 4.2%. These 234 executives would have seen their living standards increase. Even matching RPI inflation, at the survey’s £1 million a year lower cut-off point, a 4.1% increase would mean an extra £41,000 a year. 

Table 2 provides a breakdown in remuneration bands for 507 executives in the latest survey and the 477 executives featuring in last year’s survey. The table shows that in five out of the seven bands used, the number of executives increased. 

Table 2: Number of executives ranked by total remuneration

Remuneration (£m) Latest survey Cumulative total 2017 survey Cumulative total
£20m+ 9 4
£10-20m 9 18 8 12
£5-10m 31 49 35 47
£4-5m 34 83 31 78
£3-4m 65 148 50 128
£2-3m 116 264 127 255
£1-2m 241 505 222 477

At the very top, there was a net increase of five executives on £20 million a year or more, and a net increase of one in the £10 million to £20 million band.

The two bands that recorded net decreases of four and 11 were between £5 million and £10 million and between £2 million and £3 million respectively. 

Table 1 shows the 42 executives whose latest remuneration packages were over £6 million.

Table 1: Executive packages £6 million and over

Executive Company Financial year end Total remuneration (£000) % change
Jeff Fairburn Persimmon 12/17 47,087 2,117.2%
Simon Peckham Melrose Industries 12/17 42,764 4,232.7%
Geoffrey Martin Melrose Industries 12/17 42,578 5,202.1%
Christopher Miller Melrose Industries 12/17 42,335 7,611.3%
David Roper Melrose Industries 12/17 42,334 7,625.2%
Mike Killoran Persimmon 12/17 36,690 2,491.8%
Avril Palmer-Baunack 
BCA Marketplace 03/18 
29,972 2,629.7%
William Kozyra TI Fluid Systems 12/17 26,228 511.1%
Dave Jenkinson Persimmon 12/17 20,369 1,371.4%
Kenneth Alexander GVC Holdings 12/17 18,125 -6.9%
Timothy Knutson TI Fluid Systems 12/17 14,123 430.0%
Sir Martin Sorrell WPP 12/17 13,930 -71.1%
Rakesh Kapoor Reckitt Benckiser 12/17 12,480 -18.2%
Gary Hoffman Hastings 12/17 11,829 1,381.7%
André Lacroix Intertek 12/17 11,683 114.3%
Nicandro Durante British American Tobacco 12/17 11,423 37.4%
Paul Polman Unilever 12/17 10,229 39.3%
Arnold W Donald Carnival Corp 11/17 10,019 42.1%
Erik Engstrom RELX Group 12/17 9,920 -13.0%
Barry Stowe Prudential 12/17 9,622 25.3%
Pascal Soriot AstraZenica 12/17 9,435 -34.2%
Ivan Menezes Diageo 06/18 9,063 166.6%
Bob Dudley BP 12/17 8,960 -40.3%
Lee Feldman GVC Holdings 12/17 8,845 9.2%
Mike Wells Prudential 12/17 8,702 18.1%
Richard Harpin Homeserve 03/18 8,563 101.2%
Tony Pidgley Berkeley 04/18 8,256 -71.7%
Vittorio Colao Vodafone 03/18 7,984 26.1%
Ben van Beurden Shell 12/17 7,815 3.7%
Rob Perrins Berkeley 04/18 7,806 -72.1%
Albert Manifold CRH 12/17 7,596 13.3%
Peter Harrison Schroders 12/17 7,059 11.9%
Kathryn Mikells Diageo 06/18 6,936 225.9%
Simon Borrows 3i 03/18 6,847 -9.2%
Ben Stevens British American Tobacco 12/17 6,627 35.0%
Kris Hagerman Sophos 03/18 6,544 274.8%
Shaun Thaxter Indivior 12/17 6,523 67.5%
Kate Swann SSP 09/17 6,478 148.4%
António Horta-Osório 
Lloyds Banking Group 12/17 
Marco Gobetti Burberry 03/18 6,330 n/a
Hendrik du Toit Investec 03/18 6,088 19.4%
Stuart Gulliver HSBC 12/17 6,086 7.2%

In terms of personnel, it’s been all change at the top of the executive remuneration league as Sir Martin Sorrell, who has dominated the Labour Research survey since it resumed four years ago, has been deposed. 

In fact he has gone — period. Sorrell is now the ex-chief executive of advertising and PR group WPP having resigned in April this year after a board-level investigation into his personal conduct and use of company money. 

His final year package in 2017 came to £13.93 million and, despite his acrimonious departure, his multimillion-pound incentive arrangements are intact. His replacement at the top of the Labour Research survey table is Jeff Fairburn, chief executive of housebuilder Persimmon. And he has now left under a cloud. His £47.09 million package, including multimillion-pound incentive arrangements, has attracted widespread criticism, including from Persimmon shareholders. The company’s chair and the head of its pay committee quit last year, under fire from some investors for failing to reform a bonus scheme. 

The scheme was eventually cut back, but Fairburn still received £44.89 million under it last year. 

In October, Fairburn did himself no favours by walking away from an interviewer from BBC TV’s Look North news programme when asked about his huge bonus. Three weeks later, he left Persimmon “by mutual agreement”.

The other four top five spots in the remuneration league are taken by Melrose Industries executives. They each received over £42 million in 2017 on the back of incentive payments mentioned above. Their remuneration packages came under fire at the company’s annual general meeting (AGM) when over a quarter of shareholder votes failed to back Melrose’s remuneration report.

Shareholder dissent

In a move to increase transparency, accountability and scrutiny of listed companies by shareholders, media and the wider public, more information is now available through the website of the Investment Association (IA), the trade body whose members own over one-third of UK listed companies and manage the pensions of millions of UK households. At the end of last year, the IA set up a public register of listed companies that have faced significant shareholder rebellions. It includes companies listed on the London Stock Exchange which have received votes of 20% or more against any resolution, or withdrew a resolution, prior to their annual general meeting so far this year.

The register reveals there have been significant shareholder rebellions over executive remuneration at a number of company AGMs this year including those mentioned above at Persimmon and Melrose Industries. 

The biggest rebellion, however, was at Royal Mail over the remuneration packages of its retiring chief executive Moya Greene and her replacement Rico Back. Over 70% of those voting rejected the company’s remuneration report on a turnout of 61%. 

The revolt is thought to be the largest at a UK public company in at least a decade. Despite this, the vote is merely advisory and the company is under no obligation to change its pay arrangements. However, Orna Ni-Chionna, chair of the remuneration committee, said the board would be talking to shareholders and shareholder representative bodies as part of a scheduled review of the company’s remuneration policy due to take place in the autumn. 

Women executives

Earlier this year, many headlines were written on gender pay as organisations with over 250 employees were, for the first time, required to publish their annual gender pay gap. The regulations apply to an organisation’s or company’s workforce and exclude boardrooms. 

Over the past 20 years, Cranfield University has been publishing annual reports on women in the boardroom of the top 100 and top 250 companies, and recording the changes over the decades. 

Its main findings in its Female FTSE board report 2018 were mixed and, while the percentage of women on FTSE 100 boards has increased from 27.7% in October 2017 to 29% in June 2018, the percentage of female executive positions has flatlined at 9.7%. In contrast, the percentage of women on FTSE 250 boards increased marginally from 22.8% to 23.7%, but the percentage of female executive directorships has dropped from 7.7% to 6.4%. Meanwhile, the number of all-male boards has increased to 10.

Cranfield’s 2018 report examined if there was a relationship between the percentage of women on the FTSE 100 boards and the gender pay gap. It looked at the top 10 FTSE 100 companies with the highest representation of women on the board — between 42% and 55%. 

For these 10 companies, the mean gender pay gap for their workforces varied from 2.8% to 51.5% with an average of 16.3%.

Only six of the bottom 10 FTSE 100 companies with the lowest representation of women on the board reported on their gender pay gaps. Here the mean gender pay varied from 11.9% to 30.7%, with an average of 17.8%, so not very different from the top 10 companies.

The Labour Research survey of executive pay found that just 36 or 7.1% of the 505 executives from FTSE 350 companies were women. Thirty-five companies feature in the list as the multinational retailer Kingfisher has two women on over £1 million a year. 

The median salary of the 36 women executives was £1.77 million. 

Only one woman executive features in the top 10 overall rankings by remuneration package: BCA Marketplace’s Avril Palmer-Baunack takes seventh spot with £29.97 million. 

You have to go down to the 33rd and 38th spots to find the next two women. They are Kathryn Mikells, chief finance officer of drinks multinational Diageo, who received a package of £6.94 million; and Kate Swann, chief executive of food and drink concession group SSP who received £6.48 million.

Pay ratio reporting

After the introduction of gender pay gap reporting, the next step in putting the pay divide in the spotlight will start from next January. 

Companies listed on the London Stock Exchange with more than 250 UK employees will have to justify the pay gap between bosses and their workers under regulations laid before Parliament earlier this year. Companies will have to disclose and explain the difference — the “pay ratio” — every year. And large companies will also have to publish a narrative explaining the changes to the pay ratio from year to year and set the ratio in the context of pay and conditions across the workforce.

The regulations will come into effect from 1 January 2019, with an initial pay ratio reporting date scheduled for 2020.

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.

The 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, but the annual percentage change is based on the original remuneration figure.