Last month’s spate of shareholder uprisings over executive pay, dubbed the ‘shareholder spring’, was a sure sign that Britain’s bosses are being watched more closely than ever. With the global economy in tatters and many major companies posting mediocre financial performances, came a growing feeling that bigger pay packets for those at the top of the pile were in the height of bad taste. But the members of the FTSE 100 have not taken heed, according to a new survey showing that the median remuneration of the index’s chief executives grew 10% last year. More staggering is that one in four chief executives saw their pay jump 41%.
This is not necessarily something to get in a flap about: all of these companies could have been doing really well under their bosses’ dazzling stewardship, right? Wrong. The FTSE 100 index fell 5% last year. The survey, which was conducted by proxy voting agency, Manifest, and a remuneration consultancy, MM&K, revealed that ‘ordinary workers’ saw a salary increase of just 1% in the same period.
But it is worth noting that the issue came under public scrutiny because of a few banking bosses who saw their bank bailed out by the taxpayer, only to take a massive bonus package for continuing to run loss-making banks. Many argue that privately owned businesses should be allowed to pay their bosses whatever they like. Only two FTSE 100 companies have so far seen shareholders reject CEO salaries (Aviva and Cairns Group). The rest have nodded through the deals with only minority dissent, including Barclays’ Bob Diamond, whose £20.97m ‘realisable remuneration’ made him the highest paid executive in the FTSE 100 last year.
Next in the firing line is marketing services agency WPP’s CEO, Martin Sorrell, whose pay package will be equivalent to around £12.93m last year compared with £8.26m in 2010, when share options and other bonus instruments are included. This is a 60% increase and has fuelled anticipation of a shareholder showdown at the company’s annual shareholder meeting tomorrow.
A large part of the criticism surrounding increased pay is focussed on the swelling of bonuses and share awards as well as long-term incentive deals, rather than any increase in the baseline salary. Long-term incentives often award shares over a number of years for sustained performance. Sorrell, for example, saw his base salary increase from £1 to £1.3m in 2011 compared with the previous year, whereas his total share and bonus package increased more than £4m.
Sorrell’s own defence of his pay increase is one that other FTSE 100 companies would no doubt concur with, however. He argues (and WPP is right behind him) that the firm performed well in the period concerned, and that his pay should reflect that of the international competition. The results are indeed good: like-for-like turnover grew 5.3%, with total revenue climbing from $9.3bn to $10.02bn.
Tomorrow’s WPP shareholder meeting will be pivotal in the debate over executive pay. Is there a cap on what level of remuneration shareholders will nod through even if the company is booming? We watch with interest…