How much is a CEO worth?

Apparently Britain's big bucks bosses aren't delivering value for money.

by Jack Torrance
Last Updated: 04 Oct 2016

Are Britain’s top bosses worth the millions they get paid? Most people – from the City to Wesminster and of course the man on the street – now seem to agree the answer is no. Fed up of seeing a bigger gap between the salaries of workers and their chiefs, there’s increasing clamour for a clampdown on high executive pay, and the prime minister herself seems keen to make it happen.

But how much is a CEO worth? It’s not something that’s easy to quantify but Kepler Associates (part of consulting firm Mercer), which advises on executive remuneration, has had a stab at it – ranking the 30 FTSE CEOs who it thinks are the best value for money, and the 30 whose pay correlates most closely with their company’s performance, as measured by shareholder return. 

The first list was topped by the relative unknown Tommy Breen, CEO of Irish conglomerate DCC. He bagged 4.5m Euros (£3.9m) last year - not exactly a shabby pay package but relatively modest compared to some of his peers. Perhaps his board can expect him to come calling for a pay rise sometime soon. On $2.24m (£1.74m), BHP Billiton’s Andrew Mackenzie was deemed to be the most accurately paid – so BHP’s remuneration committee can give itself a pat on the back. Just two of the 10 highest paid FTSE 100 bosses – Shire’s Flemming Ornskov and RELX’s Erik Engstrom made the top 30 best value for money list.

Clearly putting together these rankings is not an exact science. The value of a boss depends on myriad factors and company performance differs significantly across sectors – now’s not a great time to be in oil or grocery retail. To be fair, the rankings' creator did weight them based on size and sector to try to iron out such kinks.

Shareholders of companies that don’t appear in the top 30 now have great ammunition to confront the boards with. But there’s always going to be a degree of subjectivity involved in setting CEO pay. WPP’s Martin Sorrell, the FTSE 100’s best-paid boss, doesn’t appear on either list. But it’s hard to imagine the marketing company’s backers would be chuffed to see its founder, named the 5th highest-performing CEO in the world last year by Harvard Business Review, walk out the door tomorrow - not least given the likely resulting plunge in its share price.

And there’s more to life than short-term shareholder returns. That might be the main preoccupation of some institutional investors (and understandably so). But those who want to see a business grow and prosper in the long-term may wish to use a different yardstick to measure value for money. Alton Towers owner Merlin, which had to deal with the fall-out of the devastating Smiler crash, is now planning to links its bosses’ bonuses to their safety record – an example of how remuneration ought to incentivise more than financial performance.

Regardless of whether their remuneration is justified, with the prime minister and the City circling, it seems likely Britain’s well-heeled bosses will find their pay packets a little emptier in the coming years.

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