Two separate publications have recently thrown more light on executive pay in practice at the UK’s largest firms.
A new infographic from e-Reward provides a fact-filled update on the levels and trends in executive pay among the FTSE 100. Meanwhile a blog from the High Pay Centre strikes a rather different note by highlighting ‘Fat Cat Tuesday’, when it calculates that FTSE 100 Chief Executives’ earnings will have surpassed what the average UK employee is expected to earn in the whole of 2015.
One year on from the launch of new regulations aimed at increasing the transparency of executive pay reporting, most companies have now submitted their first annual reports under the new regime. Online remuneration news and research organisation e-Reward has published a new infographic reflecting its research into executive pay levels and practice at FTSE 100 companies.
The research shows that the median salary for a FTSE 100 chief executive is now £866,000, with Finance Directors on £513,000 and other Directors £477,000. In addition, just about all will receive bonus and long-term incentive payments, as well as benefits. The median bonus payment for a FTSE 100 chief executive in 2013/14 was £958,000, with over 75% of all Directors receiving at least £500,000. Most will have to wait between two to five years however before they see all of this, with three-quarters of all FTSE 100 Directors’ bonus arrangements subject to deferral, i.e. a portion of the bonus is withheld for a period of time after the initial award, and can be lost altogether if things go badly wrong subsequently. Long-term incentive awards, which pay out if objectives are achieved over a longer period of time – typically three years – contributed on average a further £1.9m to chief executives’ earnings for the year and £1m to the earnings of FDs.
Overall e-Reward concludes that the new reporting regulations have led to clearer and more consistent pay reporting in 2013/14, allowing shareholders and other interested parties to make like-for-like comparisons between companies. However, the resultant harsher spotlight on executive pay practices can be less than flattering. The infographic questions for example whether there has been a widespread tendency to reward executives for mediocre performance. Bonus levels over the last five years have remained fairly consistent as a percentage of the maximum award available, in spite of the peaks and troughs of the typical corporate profit curve over the same period. In fact bonus payments were closer to the maximum level possible in 2008/9 and 2009/10 – arguably the two toughest years – than they have been in the subsequent three years, raising questions about whether performance measures are being set at a consistently stretching level.
The High Pay Centre’s blog concentrates on the gap between the average pay of executives and that of the ordinary worker. It has calculated that by the end of last Tuesday – which it dubs ‘Fat Cat Tuesday’, just three working days into the new year – FTSE 100 chief executives had already earned more in 2015 that the average UK worker can expect to earn in the whole of the year, even allowing for the longer working hours and shorter holidays that chief executives can expect.
The High Pay Centre’s concern centers on the economic and social damage caused by extremes of income inequality, and identifies excessive executive reward as a major contributor to this. The e-Reward research limits itself to concern that the new regulations on pay reporting still leave room for improvement if the government is to achieve its goal of making executive rewards for failure a thing of the past.
However there are common themes to both sets of conclusions. For example, both argue – among other things – for the publication of clearer information on the difference in pay between executives and other employees within the company. Continuing reluctance to require companies to publish the pay ratio between their highest-paid executives and the average or lowest-paid employees appears at odds with the government’s requirement that public sector organisation do just that, and with best practice thinking in the voluntary sector.
For help with drafting your company’s remuneration report, or to find out how the governent’s reporting regulations affect you, contact Andrew Menhennet at Yellow Hat Reward (firstname.lastname@example.org).