Research
Executive Director Total Remuneration Survey
While the UK’s biggest companies are increasingly gearing their executive remuneration packages towards performance-related pay, a similar shift has not been made by their SmallCap and AIM-listed peers, the Executive Director Total Remuneration Survey – a joint project by Manifest and MM&K, the independent remuneration consultancy - has revealed.
From the 431 SmallCap and AIM companies covered by the survey, only 40 chief executives received more than £100,000 last year by exercising share options or from the vesting of other share scheme awards. Three-quarters of these directors received nothing from long-term incentives.
Cliff Weight, a director of MM&K, warned that the low level of awards in smaller companies may be pushing managers towards private equity and the promise of the rewards available in that industry.
In comparison, the shift towards performance-related compensation has led to a wide range of outcomes in terms of payouts received by FTSE 100 bosses. The year’s highest paid was Bart Becht, chief executive of cleaning product manufacturer Reckitt Benckiser. Becht collected £22m in 2006, of which £18m – that is 21 times his salary – came from gains on options exercised during the year and the vesting of other share schemes.
One in ten FTSE 100 chief executives received more than five times their salary from options and long-term incentive plan payouts.
Pay increases for chief executives of large companies (those with a market capitalisation of over £1bn) continue to outstrip average UK earnings: median total remuneration at large companies is now £2.2m p.a. – 240% higher than in 1998. Over the same period, average UK earnings have risen by 42%, retail prices by 21% and the FTSE 100 has grown by only 12%.
However, large companies’ total remuneration growth rate of 6% for 2006 does represent a drop from the corresponding figure of 9% for the previous year. Furthermore, it is well below the long-term trend of 19% yearly growth since 1998.
Weight commented: “In smaller companies [less than £300m turnover] remuneration is much simpler and easier to understand. Most remuneration is in the form of salary. Bonuses are modest and targets are stretching … In large companies the bonus maximum opportunity is much higher and bonus payments average 67% salary (compared to 26% for smaller companies).
“The difference in long-term incentive payouts is even more striking - median payout in larger companies is £117,000 p.a. and nothing in smaller companies.”
Weight added: “The growing complexity in directors’ pay is delivering value to directors of large companies. Whether it is good value for shareholders is questionable”.
Unlike many other analyses, the Executive Director Total Remuneration Survey eschews a piecemeal approach in favour of taking into account salary, cash bonuses, benefits-in-kind and the expected value of share options and other share plans. This is particularly important in view of the increasing complexity and wide variety of compensation packages now used: salaries currently make up less than a quarter of remuneration for the average FTSE 100 chief executive, but at smaller companies can still amount to 80% of the total. What is more, the expected value of long-term incentives and pensions are rarely disclosed in the annual report.
To purchase your copy of the Executive Director Total Remuneration Survey with payment by invoice, or for further information, email sales@manifest.co.uk or call + 44 (0)1376 503500. For payment via credit card go to: http://www.manifest.co.uk/reports/remuneration/exec_rem_survey.htm.
June 2007