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Facts can be inconvenient, particularly for those running our top companies whose behaviour is currently subject to intense scrutiny. So it is no surprise that an organisation reflecting their interests should seek to minimise the scale of the pay rises received by executive directors. The business organisation, the CBI, is reported in the Daily Telegraph (27/4/2012) to be warning the Government not to ‘misread the widely-quoted survey from last year, which claimed chief executive pay had risen by 49 per cent in just 12 months’. More
‘We cannot accept directors’ pay rising five times greater than average workers’ pay as happened last year…and there is evidence of a clear market failure’. These were the views of the Secretary of State for Business, Innovation and Skills when announcing the Government’s response to the recent consultation on executive pay in the House of Commons last month. More
One interesting side effect of all the coverage of top pay is the way press officers at some of the companies highlighted in the High Pay Commission’s final report have tried to question the figures. Two prominent examples are Lloyds and Barclays. On the BBC website, for example, a spokesperson for Lloyds Banking Group is reported to have said: ‘We have requested the data from the High Pay Commission as we believe this report to be misleading. We are unable to reconcile the numbers.’ I am not sure why Lloyds believe the figures published are misleading as its very own annual accounts show on page 134 that the then chief executive received £2,572,000 during the year to December 2010. This is the figure included in the High Pay Commission report. More
Following a year of extensive investigation, the High Pay Commission (HPC) published its final report today, Cheques with balances: why tackling high pay is in the national interest. The report follows on the heels of the Government’s own consultation on boardroom pay and, given the coincidence of timing, the likelihood is that some of its findings and recommendations will be taken seriously in official circles. More
Despite what statistics textbooks tell us, for some commentators on our recent Directors’ pay findings, ‘averages’ are apparently somehow not real or are unrepresentative. But as any statistics textbook will say, a mean average is as realistic and as representative of any particular dataset as any other statistical average, whether median or mode. Each has their own advantages and disadvantages and each captures some dimension of data distribution. More
They say all publicity is good publicity, but the problem is that in today’s media the devil is in the headline. While it is true that the average increase in the total earnings of all FTSE 100 directors was running at 49 per cent, this is far from the whole truth. In top companies the make-up of directors’ earnings is quite complex – it consists of salary, annual bonus and share-based awards – each tied to different performance conditions and each linked to different pay-out cycles. When share-based awards vest – that is when the shares are handed over to directors to sell or keep as they please – then the cash equivalent value can be substantial. The highest share-based long-term incentive plan payout in the latest year, for example, was worth more than £14 million. If the director did not receive a similar amount the year before, then the consequence is a considerable boost to total earnings. It is this minority of huge rises that that has fuelled such a large average increase in total earnings. More
The current idea that big bonuses and high salaries result in better company performance is just a ‘myth’, says a new report from the High Pay Commission (HPC). The report – What are we paying for? – is an in-depth examination of the relationship between boardroom pay and corporate performance over the last 10 years. Based on research supplied by the IDS Executive Compensation Review (ECR), the report shows that between 2000 and 2010 the total earnings of all FTSE 350 executive directors went up by 108 per cent, while over the same period the value of these same companies went up by just 8 per cent. This represents a 100 percentage point mismatch between how much directors earned and the worth of their companies. More
An average salary increase of 4.5 per cent for NHS trust non-medical directors in England may be a headline grabber, as in several of today’s newspapers, but it does not tell the whole story about our latest research into NHS boardroom pay. Ever since the early 1990s, when NHS trusts arrived on the scene, we have been collecting over 90 per cent of the available trust annual accounts to provide a comprehensive picture of NHS boardroom pay across the whole of the UK, including the Celtic fringe as well as England. When we delve into the subtleties of pay movements in each of these areas a more complex picture emerges. Moreover, it is important to remember that the latest accounts cover the financial year to 31 March 2010, so pre-date the coalition Government’s severe spending restrictions. More
How much are public sector executives worth? The whole question has become toxic, says Will Hutton in the final report of the fair pay review. In part, explains the report, this is because public sector managers have been caught up in a backlash against the ‘remarkable growth of the earnings of the top 1 per cent’ over the last three decades and in particular in the last 10 years. In turn, this has fuelled growing scepticism about whether the rise of pay at the top is the due desert of those who receive it. More
