Three quarters of non-executive directors (NEDs) believe that remuneration for top jobs is too high, according to a new study from The Hay Group. The study, entitled ‘The Trouble With Executive Pay’, interviewed 60 NEDs from remuneration committees in the FTSE 350. Of those questioned, 87% of them said that top pay in the current form ‘needs to change’. Why do firm’s continue to wave through the same old remuneration deals, then?
There’s no conclusive answer to this question. The NEDs interviewed pointed specifically to an ‘insufficient’ connection between pay and performance, but, according to the study, no one seems to know how to make the changes that would bring the two things in line. It seems NEDs are happy to admit to a survey that they’re getting it wrong, but less willing to share their concerns at board level.
The age-old argument for massive pay packets is that they are the only way to recruit and retain the best people in the industry. But, as John Dymond, director at The Hay Group, points out: ‘There is always a trade-off between pay for performance and the retention of executive talent, but committees need to consider this much more explicitly.’
The results follow a study by a family history website, Genes Reunited, showing that bankers’ salaries are among the fastest growing over the last century. In 1911, John Dunn of Parr’s Bank (now part of NatWest), earned £6,000 per year, which when adjusted for inflation is around £530,000 a year. By contrast, the former CEO of Barclays, Bob Diamond, was earning £1.35m per year plus bonuses and share options at the time of his resignation.
According to research by the Financial Times, an average figure for the earnings of top bankers is around £8m a year when bonuses and share options are included on top of the basic salary. That equates to around 2,100% more compared with 1911. A teacher in 1911 earned the equivalent of £15,000, which means only a 100% increase to £31,000 today.
We’ve known about City salary inflation for a long time now, but it appears things are starting to come down with a bit of a bump. A combination of market forces and vehement public opinion seem to be knocking some sense into management figures. Throw in the growing popularity of shareholder revolts, and it looks to be only a matter of time before firms realise the game is up...