Research for High Pay Centre by Incomes Data Services shows that growth in executive pay, bonuses and incentive payments has vastly outpaced performance as measured by every indicator in common use
A new report published today by the High Pay Centre think-tank shows the shocking failure of attempts to link the pay of Britain’s leading company executives to their company’s performance.
Analysis of pay data and key company performance metrics found that between 2000 and 2013, the median earnings of a FTSE 350 Company Director increased more than twice as fast as median pre-tax profits at FTSE 350 companies and four times as fast as their median market value. FTSE 350 Directors’ pay grew nearly twice as fast as pay for all full-time UK workers.
The report also found that:
- Directors’ annual bonuses increased by over 300% between 2000 and 2013 compared to a much smaller increase in median pre-tax profits of 95%. More than half of bonus awards were linked to some form of profitability target
- Median gains from so-called ‘Long-Term Incentive Plans’, awarded annually to executives for performance over the previous three years, increased by 268%. Over the same period, median Earnings per Share increased by 81% and the Market Value of FTSE 350 Companies went up by 64%
The findings are likely to increase criticism of excessive executive pay awards and lead to calls for further action to curtail pay at the top.
High Pay Centre Director Deborah Hargreaves said: These figures show that shareholders are not getting what they think they are paying for. Executive pay is supposed to be linked to corporate performance so that directors’ incentives are in line with shareholder interests. However, the sharp rise in pay for those at the top of our companies has far outstripped investors’ returns as well as pay for everyone else in the business.
This is further evidence that pay at the top has become a self-enriching racket for those lucky enough to be in the right place at the right time. Government needs to act to ensure that pay increases for those at the top reflect company performance and are proportionate to pay levels for low and middle-income workers.
Notes to editors:
- This research was carried out for the High Pay Centre by Incomes Data Services, part of the ThomsonReuters group. The research is the first stage of a wider High Pay Centre project examining how to ensure executive pay genuinely rewards top performance and incentivises behaviour that is aligned with the UK’s wider economic interest
- In 2013, the total pay realised by the lead executive of FTSE 100 Companies was £4.7 million according to the Manifest/MM&K Directors’ Remuneration Survey
- Performance-related pay has become by far the largest element of executive pay, with annual bonuses and so-called ‘Long-Term Incentive Plans’ now worth several times annual salaries
- In 2013 the Coalition Government introduced the Business Enterprise and Regulatory Reform Act, giving shareholders a binding veto over executive pay. However, the new powers have had little effect with average CEO pay at FTSE 100 Companies remaining at over £4 million. Only one company, oil and gas engineering firm Kentz Corporation (subsequently taken over by Canadian firm SNC Lavalin), has seen a majority of shareholders successfully vote down executive pay proposals
- In May 2014, the High Pay Centre called for a debate on further proposals to tackle top pay, including worker representation on the remuneration committees that decide top pay; compulsory profit-sharing with company employees; and a maximum pay ratio between the highest and lowest earners within a company. To see the full paper, visit https://highpaycentre.org/pubs/reform-agenda-how-to-make-top-pay-fairer