Labour Research December 2019


Top fat cats continue to rake in millions

The Labour Research annual survey of top bosses’ pay once again finds that the highest-paid executives continue to be awarded enormous sums.

A Labour government would look to put more money in workers’ pockets after the general election. The Tories have meantime pledged to freeze taxes, though some will harbour the suspicion that at some point, a Tory government would once more entertain tax cuts for the rich — a policy that would no doubt appeal to the top executives in the latest Labour Research annual survey of executive pay.

Labour leader Jeremy Corbyn told the 2019 party conference in September that a Labour government would “get more money” into workers’ pockets, “rather than line the pockets of multi-millionaires”. He added that “we will give people a democratic voice at work, allowing them to secure better terms and pay for themselves”. 

As it stands, top companies continue to line the pockets of multi-millionaire executives, albeit this year, the Labour Research annual survey of executive pay finds slightly fewer with remuneration packages of £1 million a year or more. Nevertheless, while numbers may be down, another survey finding is that average remuneration packages have grown fatter — by 4.8%.

In total, there were 451 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 decrease of 54 executives recorded on the previous year’s survey. The fall in numbers can be put down to smaller remuneration packages for some — 49 companies dropped out as remuneration of executives fell below the £1 million benchmark used in our surveys.

Table 1: Number of executives ranked by total remuneration

Remuneration (£m) Latest survey Cumulative total 2018 survey Cumulative total
£20m+ 3 9
£10-20m 11 14 9 18
£5-10m 29 43 31 49
£4-5m 30 73 34 83
£3-4m 58 131 65 148
£2-3m 93 224 116 264
£1-2m 227 451 241 505

The total remuneration bill for the 451 came to £1.32 billion this year. If the median (midpoint) is used, the annual average package comes to £1.98 million or, in weekly terms, £38,100 a week. 

Pay data for the UK workforce as a whole reveal the huge gap between these boardroom salaries and the shop floor. The Annual Survey of Hours and Earnings (ASHE), published by the Office for National Statistics, gives a snapshot of pay in April each year. For 2019, the average (median) annual salary of a full-time worker was only £30,353, including bonuses. So the average executive in the survey earned £7,700 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 362 executives, and the median percentage increase in their packages is 4.8%. This is down on last year’s median increase of 8.6%, but well above the 1.4% increase in the 2016 survey and 2.7% in 2017. 

The UK workforce has been less fortunate. The median increase for full-time workers’ annual pay published in ASHE 2019 was 2.7%, meaning the gap between boardroom pay and the average worker has once again widened.

Table 2: Executive packages over £6 million

Executive Company Financial year end Total remuneration (£000) % change
Jeff Fairburn Persimmon 12/18 38,967 -14.8%
Mike Killoran Persimmon 12/18 25,964 -29.2%
Dave Jenkinson Persimmon 12/18 24,986 22.7%
Kenneth Alexander GVC 12/18 19,100 4.5%
Ben van Beurden Shell 12/18 17,817 128.1%
Darren Throop Entertainment One 03/19 15,238 719.2%
Rakesh Kapoor Reckitt Benckiser 12/18 15,207 69.0%
Kevin Loosemore Micro Focus Int 12/18* 15,149 N/A
Ivan Menezes Diageo 06/19 11,654 29.6%
Pascal Soriot AstraZeneca 12/18 11,3656 8.9%
Bob Dudley BP 12/18 11,027 -2.9%
Paul Polman Unilever 12/18 10,377 0.6%
Brian Cassin Experian 03/19 10,344 62.0%
Arnold W Donald Carnival Corp 11/18 10,332 6.3%
Benoît Durteste Intermediate Capital 03/19 9,526 92.2%
Mike Phillips Micro Focus Int 12/18* 9,394 N/A
Barry Stowe Prudential 12/18 8,850 -7.2%
Nicandro Durante British American Tobacco 12/18 8,837 -13.7%
Erik Engstrom RELX Group 12/18 8,414 -3.8%
Tony Pidgley Berkeley 04/19 8,257 0.0%
Dr Brian Gilvary BP 12/18 7,977 12.1%
Simon Borrows 3i 03/19 7,877 15.0%
Rob Perrins Berkeley 04/19 7,809 0.0%
Kerry Williams Experian 03/19 7,550 47.2%
Mike Wells Prudential 12/18 7,434 -13.2%
Craig Hayman AVEVA 03/19 7,345 N/A
Albert Manifold CRH 12/18 7,283 -5.0%
Kathryn Mikells Diageo 06/19 7,030 -1.3%
Peter Harrison Schroders 12/18 6,735 -4.6%
Lloyd Pitchford Experian 03/19 6,391 50.4%
Frierich Joussen TUI Travel 09/18 6,359 121.2%
Antonio Horta-Osório Lloyds Banking Group 12/18 6,270 -2.5%
Kate Swann SSP 09/18 6,247 -15.4%
André Lacroix Intertek 12/18 6,226 -45.5%

* Financial period was 18 months to December 2018.

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

Each company has to publish a remuneration report as part of its annual report and accounts and these reports have to provide a “single figure” for total remuneration of each director. The Labour Research analysis is based on the audited “single figure” for each executive director who received over £1 million in total remuneration from these companies.

A breakdown of how the single figure is arrived at has to be provided in the remuneration report 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.

Where remuneration reports give a remuneration figure in dollars or euros, the figure has been converted to sterling using average exchange rates, but the annual percentage change is based on the original remuneration figure.

In the executive remuneration increase table, the top increase went to Canadian businessman Darren Throop. He’s the founder and chief executive officer (CEO) of the Entertainment One global entertainment studio that produces the pre-school animated TV series, Peppa Pig. 

His 719.2% increase came on the back of a “special award” of shares worth £13.18 million, giving him £15.2 million. That special award came at an opportune time for Throop as Entertainment One has since been taken over by US toy company Hasbro.

Two directors of holiday group TUI Travel saw their packages increase. Dr Elke Eller and David Burling received increases of 304.3% to £4.91 million and 220.5% to £4.49 million respectively.

In fourth spot, József Váradi, CEO of the Hungarian-based low-cost airline Wizz Air, received a 216.6% increase to £3.59 million.

James Kidd, deputy CEO and chief financial officer at information technology multinational AVEVA completes the top five increases. His package increased by 186.9% to £3.07 million.

Overall, just over half (55%), or 199 of the 362 executives, saw their remuneration package increase over the past two financial years.

At the other end of the scale, four saw their packages shrink by over 90%, although the quartet had some of the biggest increases in last year’s survey. Simon Peckham, chief executive of company turnaround specialist Melrose Industries saw his package shrink by 97.5% to £1.05 million, which works out at £20,170 a week. 

In the survey period, inflation as measured by the Retail Prices Index (RPI) has ranged from 2.4% up to 3.3%, with a 2.7% increase in December 2018 — the most popular month for a company’s financial year to end. It means most executives won’t have seen in a cut in their cushy living standards.

Just over half (51%) or 185 out of the 362 executives, where yearly comparisons could be made, saw their package rise by at least 4.2%. This is well above the increase in inflation and so an increase in real terms.

The table on page 11 provides a breakdown in remuneration bands for 451 executives in the latest survey and the 505 executives featuring in last year’s survey. The table shows that in six out of the seven bands, the number of executives decreased over the past two years. The one exception was the £10 million to £20 million band where numbers showed a net increase of two.

In terms of named executives, Jeff Fairburn, chief executive of housebuilder Persimmon who headed last year’s table, again tops the pay league (see table above). Last November, the company announced that Fairburn was stepping down “by mutual agreement and at the request of the company” due to the continued “negative impact” that his huge bonus was having on the York-based group. 
Fairburn left at the end of 2018 and his final full-year package came to £38.97 million. That’s the equivalent of £749,370 a week.

Two other Persimmon directors fill the next spots. Finance director Mike Killoran, had a 2018 package worth £25.96 million — or a weekly sum of £499,310.

Meanwhile, Dave Jenkinson was promoted from group managing director to Fairburn’s replacement as chief executive. His 2018 package came to £24.99 million or £480,510 a week.

Kenneth Alexander, CEO of GVC which owns the Ladbrokes and Coral betting shops, takes fourth spot with £19.1 million or £367,310 a week. Ben van Beurden, CEO of oil multinational Royal Dutch Shell completes the top five packages with £17.82 million — the equivalent of £342,630 a week.

All three of the above companies were the subject of substantial shareholder votes against their remuneration report, according to the public register maintained by the trade body, the Investment Association. But they all managed to avoid censure this year.

Others haven’t been so lucky, and 25 companies that feature in the long listing of 451 directors were subject to shareholder revolts against remuneration policy. At one company — software group Micro Focus International — there was a majority vote against the remuneration report, with 50.3% against okaying it. The revolt came on the back of the company giving executives, including chair Kevin Loosemore, an extra year to hit targets and cash in on a £286 million bonus. Even so, Loosemore received £15.15 million in the 18-month financial period ending December 2018, while director of mergers and acquisitions Mike Phillips got £9.39 million.

Online food retailer Ocado suffered a triple whammy of votes. Around a quarter of shareholders voted against chief executive Tim Steiner’s bonus of up to £100 million over five years, which he will receive if the share price triples. They also voted against the 2018 remuneration report and against an amendment to the chair Lord Rose’s share- matching award. 

JD Sports saw a pay revolt when almost a third (30%) of shareholders voiced their fury at Peter Cowgill’s £2.55 million package, which included a “special bonus” of £1.7 million. 

Others hit by rebellions include Barclays, where chief executive Jes Staley suffered a 29.2% vote against the substantial contributions made by the bank towards his pension.

At IT firm AVEVA’s annual general meeting, there was a 21% vote against chief executive Craig Hayman’s £7.35 million package. And at DIY chain Kingfisher which owns B&Q and Screwfix, chief executive Veronique Laury — who is set to leave the business — was hit by a 24.2% vote against a £0.86 million bonus as part of her £1.77 million package.

Executive remuneration transparency regulations

From next year, regulations around executive remuneration transparency come into force. 

Large listed companies have to disclose and explain the gap between their chief executive’s pay and that of their average employee. And they will have to report on how their boards take a range of stakeholder interests, beyond shareholders, into account. 

No doubt ratios will increase public, media and shareholder scrutiny of executive remuneration. But will companies just bluff it out? 

BEIS committee recommendations

In March this year, MPs on the business, energy and industrial strategy (BEIS) committee published a report arguing that firms must do more to link CEO pay to that of the workforce, and called for companies to be required to appoint at least one employee representative to their remuneration committee.

However, the government rejected these two key recommendations. This was despite Theresa May’s promise as incoming prime minister in 2017 that there should be workers on the board. 

Labour MP Rachel Reeves, chair of the BEIS committee, attacked “extravagant CEO pay packages” and criticised the government’s response as a “missed opportunity”. She pointed out that the success of a business “is rarely solely down to the chief executive”. 

And she described as “disappointing” the government’s rejection of the committee’s recommendation that workers should sit on company pay committees. 

She said: “The appointment of a worker would bring some much-needed scepticism, challenge and perspective on executive rewards and help to curb some of the extravagant CEO pay packages we have seen in recent years.”

Labour Party policy

As part of its election manifesto, Labour last month said it would reorganise corporate governance by including workers and consumers on the boards of listed companies (see pages 13-15). 

Shadow chancellor John McDonnell said a Labour government would rewrite the Companies Act “so that directors have a duty to promote the long-term interests of employees, customers, the environment and the wider public”.