Are Britain’s bosses worth what they are paid? Many would say no, but according to a PwC report, the link between company performance and top-dog earnings is getting stronger – it says as a result of more transparency over how bonuses are calculated.
The report, dubbed ‘Sunlight is the best disinfectant’ (a name which may not be scientifically accurate...), compared levels of executive pay at FTSE 100 companies, in the form of proportion of potential bonuses that were paid out, with company performance, expressed as reported profits versus forecasts.
It found a much stronger correlation between the two since 2012, when the government introduced new rules to make the calculation of executive pay more transparent. The correlation was especially pronounced in those companies that had decided to offer full disclosure of how bonuses were calculated.
‘Distrust in executive pay is driven by the belief in some quarters that bonuses don't reflect performance,’ said Fiona Camenzuli, a pay, performance and risk partner at PwC. ‘Our research suggests that the discipline of better disclosure of how bonus targets are set and met is significantly improving the link between pay and performance.’
The methodology does have its limitations – it doesn’t take into account the rest of an executive’s pay package including their basic salary and their pension. Plus, who says a boss's performance is always best measured by profits? A successful turnaround can take time, for example.
Businesses being more open about how their pay is calculated will never silence those who simply can’t stomach the multi-million pound pay packages enjoyed by the bosses of Britain’s biggest companies. But there are signs it can at least help ensure that those who don’t deliver won’t be taking home quite such a bumper payout.