Good news for FTSE-250 executives, although not so thrilling for their shareholders: executive pay is continuing to rise well ahead of inflation with even larger increases in annual bonuses, according to the yearly survey of remuneration trends by Rrev, the voting arm of the National Association of Pension Funds, reports the FT.
Salary increases for chief executives of FTSE 100 companies rose 8 per cent at the median in 2005-06, from £650,000 a year to £700,000. Their annual bonuses were up 39 per cent at the median, from £450,000 to £627,000, according to the survey.
Many companies raised the maximum bonus in 2006 and the annual award limits under new executive incentive schemes were also up.
Lest we think there are legions of Lord Brownes in the making, David Paterson, Rrev’s research director said: “To be fair, company profits are also rising quite quickly and that’s why we’re seeing rewards going up.” That linkage, he said, is “terribly important”
Remuneration rose more sharply among chief executives of FTSE-250 companies, with a 14 per cent rise in basic pay and annual bonuses up 34 per cent. FTSE SmallCap chief executives earned 8 per cent more in basic pay and 31 per cent in bonuses.
The biggest rises in basic salary were among the bottom 25 per cent of chief executives - up 18 per cent for FTSE 100 companies. The RPI measure of inflation rose from 2.2 per cent a year in January 2006 to 4.4 per cent in December.
But Lombard is underwhelmed, saying the survey results merely provide further evidence that UK quoted companies “still have a lot to learn from private equity’s management techniques”.
Just as private equity firms are closely aligning managers’ pay to investor returns, the top dogs at UK public companies are receiving bumper salary increases. It could be a worrying trend, warns Lombard, because such increases “are well ahead of inflation and are quite unjustifiable”.
Large fixed salaries are a poor way of rewarding senior management. That is why private equity firms pay company managers relatively low base salaries while giving them generous participation in the rewards they create for shareholders.
Given all this, investors should expect to see private equity firms continue to believe they can drive public companies harder by incentivising management differently.
