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Increase in UK Executive Pay Sparks Anger

Brian Groom, Financial Times
Monday, 30 May 2011 | 2:05 AM ET

Chief executives of FTSE 100 companies saw their median earnings soar 32 percent to £3.5 million last year, prompting complaints that rewards are out of line with share prices and employees’ pay.

Big Ben
Don Klumpp | Iconica | Getty Images
Big Ben

The median increase – the midpoint between the top and bottom earners – was more than treble the 9 percent rise in the FTSE 100 index over the period, according to a survey by MM&K, the reward consultancy, and Manifest, the proxy voting agency.

The findings came as workers suffer the most prolonged squeeze in real wages since the 1920s. Average earnings grew less than 2 percent last year, barely half the rate of inflation. FTSE 100 chief executives’ average total pay last year was 120 times that of the average employee, a multiple that has risen from 45 times since 1998, according to the report.

Brendan Barber, general secretary of the Trades Union Congress, said the figures proved directors’ pay arrangements “bear little resemblance to economic reality”.

Vince Cable, business secretary, has been consulting on greater transparency on how managers are rewarded, with the result due this summer.

The median salary rise for the chief executives was just 2 percent, but their total earnings were boosted by a 70 percent increase in pay-outs under long-term incentive plans and share option schemes.

According to Manifest, the top earner was Michael Spencer of Icap, the interdealer broker, on £23.7 million, followed by Michael Davis of Xstrata , the miner, on £21.2 million and Bart Becht of Reckitt Benckiser, the consumer goods group, on £17.7 million

The overall rise was a recovery from 2009, when FTSE chiefs’ median earnings fell 2 percent. But MM&K and Manifest said total pay had quadrupled over 12 years, whereas share prices had not increased in that time.

The study found remuneration committees struggled to maintain their independence from chief executives and were adopting increasingly expensive, short-term reward strategies. It identified a shift from longer-term incentives, typically over three years, to annual bonuses, “mirroring the approach that caused so many problems in the banking sector”.

Sarah Wilson, chief executive of Manifest, said: “There is a level of frustration that remuneration committees are developing a ‘tin ear’ and don’t see high levels of voting dissent as something to be concerned about.

“Remuneration committee chairmen need to reach out to their key investors directly rather than assuming that box-ticking compliance with trade association guidance is going to see them home and dry.”

The business department said: “Executive pay is an issue which requires careful consideration and was included in our consultation on long-termism, which closed in January 2011.

“We are now considering the complex issues around long-termism and will publish the next steps of this review in the summer. We will also shortly be publishing proposals to improve the quality of company reporting on directors’ pay as part of our wider review of narrative reporting.”


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