Company bosses enjoy £500,000 pay increases
The incendiary debate over executive pay awards and bonuses was reignited yesterday when research revealed that the average pay package among the UK's top executives increased by £500,000 in the past financial year, while ordinary employees' salaries at a third of Britain's biggest companies remained frozen.
The research by the employment consultancy Hewitt New Bridge Street shows that despite the feeble economic recovery executive pay at Britain's FTSE 100 companies continues to soar. The median total remuneration for the highest paid directors in FTSE 100 companies is now just below £3m. It has risen from £2.5m a year ago, even as leading companies have been implementing massive job cuts.
Unemployment has risen in the period covered to nearly 2.5 million people out of work, and the average pay increase across the country, including bonuses, was just 2.7 per cent in the year to May, according to the Office for National Statistics.
The authors of yesterday's report played down the impact of their findings, arguing that the £500,000 median increase was driven by a change in the mix of companies making up the FTSE 100 index, the main index of the London Stock Exchange.
Like-for-like executive pay for leading FTSE 100 executives was up by 4 per cent on 2009, it said, adding that on the whole companies are becoming more transparent over pay awards. The spike in pay this year is also down to remuneration committees having set relatively weak targets for their bosses at a time when the economy was slowing, it said.
But what will infuriate staff at top companies – who in many cases have been subject to pay freezes, job cuts and extra workloads – is that their bosses have enjoyed disproportionately better pay, thanks to the bonus payments. Executive remuneration is comprised of two key elements: a fixed salary, and a variable bonus. Hewitt showed yesterday that bonuses earned by the highest paid directors in 2009/2010 totalled around 120 per cent of their salaries, up from 90 per cent last year. And these directors secured bonuses totalling about 75 per cent of the maximum potential bonuses set for them by their boards.
"To make the rich work harder you pay them more, to make the poor work harder you pay them less – or so it seems," said Billy Hayes, the general secretary of the Communication Workers' Union.
"This report exposes the enduring double standards when it comes to executive pay. It's incredible that the disgraced bankers' bonus culture has survived the anger of the public."
The CWU says it has fought hard for "very modest pay rises in companies like Royal Mail, BT and O2 over the last year, at a time when bosses like former Royal Mail chief executive Adam Crozier took home £2.42m". Mr Crozier is now chief executive of ITV.
Executives at the UK's banks were among those seeing their overall remuneration packages increase most, after largely failing to earn bonuses during the financial crisis. Stephen Hester, the chief executive of taxpayer-backed Royal Bank of Scotland, saw his package increase by 648.2 per cent.
And at a number of FTSE 100 companies, leading managers have relied on bonuses for a much greater percentage of their overall remuneration than the average figure.
While they were able to feign a degree of camaraderie with employees who have endured pay freezes, senior managers have continued to enjoy record bonuses. Indeed, despite the improved corporate earnings that many companies are enjoying, 35 per cent of leading firms still have pay freezes in place.
Hewitt said, however, that despite the pay hikes, the 2010 awards could represent a one-off bonanza for directors.
"There is this issue, that such big bonuses have been paid this year. But the pay awards have to be put in context," said Rob Burdett, a principal consultant at Hewitt. "Many of the targets were set in the middle of the financial crisis and at a time when corporate earnings would not have expected to be as high as they have been this year. Many are also subject to qualification. About 65 per cent of bonuses are part of a longer-term incentive plans, and in many cases are subject to clawbacks."
The consultancy also points to fewer examples recently of shareholder revolts over executive remuneration, and notes that the reduction in the number of Association of British Insurance (ABI) "red-top" warnings is evidence that shareholders "accepted the explanations provided by companies for these bonus levels".
James Upton, the assistant director of the ABI, said that while there have been fewer red flags, investors are scrutinising companies ever more closely. "Last year investors gave companies a clear message about what they would not support, and remuneration committees appear to have listened. This has led to fewer blatant breaches of best practice. However, investors continue to scrutinise these issues closely and many companies have received large votes not in support of management this year."
Last month, nearly 20 per cent of Marks and Spencer's shareholders publicly baulked at new chief executive Marc Bolland's £15m pay package, including bonuses he would have accrued at his former employer, William Morrison Supermarkets.
Marks and Spencer's former executive chairman, Sir Stuart Rose, also faced criticism for the £875,000 salary he got at the end of May when he became non-executive chairman. Last year, Sir Stuart took home total pay of £4.3m, including a cash bonus of £1.13m and deferred shares worth £1.69m, all as the group trimmed its dividend to shareholders. The retailer's shares are slightly down in the last 12 months, but its underlying profits in 2010 rose 5 per cent to £633m.
At mining giant Xstrata, only 68.9 per cent of shareholders, representing just 51 per cent of voting rights, backed its remuneration report. The dispute over pay came after chief executive Mick Davis's remuneration package rose 41 per cent to $7.75m (£4.88m) last year, despite Xstrata being forced to seek a £4.2bn cash injection.
The huge pay increases come as the UK economy is precariously balanced, with several economists predicting that slower growth or even a double-dip recession could be on the horizon.
What the big hitters took home
1. Stephen Hester Chief executive of RBS Group
2010 salary: £1.22m. Bonus: £0
2010 total: £1.227m
2009 (inc other emoluments): £164,000
% increase: 648.2
2. Tom Albanese Chief executive of Rio Tinto
2010 salary: $1.421m. Bonus: $947,000
2010 total: $9.039m
2009 total: $2.11m
% increase: 328.4
3. Michael Geoghegan Group chief executive of HSBC
2010 salary: £1.07m. Bonus: £4m
2010 total: £5.68m
2009 total: £1.67m
% increase: 240.4
4. Leslie Van De Walle Chief executive of Rexam
2010 salary: £762,000. Bonus: £788,000
2010 total: £3.23m
2009 total: £1.22m
% increase: 166.1
5. Simon Wolfson Chief executive of Next plc
2010 salary: £682,000. Bonus: £1.022m
2010 total: £1.737m
2009 total: £831,000
% increase: 109.0
6. Andrew Witty Chief executive of GlaxoSmithKline
2010 salary: £948,000. Bonus: £2m
2010 total: £3.13m
2009 total: £1.78m
% increase: 75.9
7. Ian Coull Chief executive of Segro
2010 salary: £575,000. Bonus: £433,000
2010 total: £1.06m
2009 total: £616,000
% increase: 72.2
8. Terry Duddy Chief executive of Home Retail Group
2010 salary: £820,000. Bonus: £615,000
2010 total: £1.475m
2009 total: £858,000
% increase: 71.9
9. Angela Ahrendts Chief executive of Burberry Group
2010 salary: £910,000. Bonus: £1.82m
2010 total: £3.162m
2009 total: £1.887m
% increase: 67.6
10. Justin King Chief executive of J Sainsbury
2010 salary: £900,000. Bonus: £1.085m
2010 total: £3.348m
2009 total: £2.048m
% increase: 63.5