Surprise packages

MT's latest global salary survey is revelatory: HR and IT heads are better paid in the UK than anywhere - and just look at the spectacular rewards for failure, says Andrew Saunders.

by
Last Updated: 09 Oct 2013

How times change. Back in 2005, when we last undertook our global round-up of all things pay- and lifestyle-related, the UK economy was booming and life was good. Cheap credit was fuelling everything, from rising property prices and record consumer spending to the private-equity bonanza. Interest rates were low and Northern Rock was still a City darling, feted for its aggressive marketing, innovative lending strategy and ultra-high growth.

Now, of course, it's doom-and-gloom time, and everyone, from the Bank of England's Mervyn King to Jean-Claude Trichet, president of the European Central Bank - not to mention those little rays of sunshine at the Royal Institute of Chartered Surveyors with their endless stygian reports on the housing market - is telling us that the good times are over and that we're in for a long stint of short rations and hard marching.

Well, that may depend on whether you are at the head of the column or bringing up the rear. The surprise finding of this year's MT survey is that the executives who look after your pay and rations, the UK's HR directors, are the best paid 'people people' in the world. Here in Blighty, the median figure for the head of what other directors sometimes refer to as 'the human remains department' is £327,300, a clear £30k beyond their nearest rivals in Brazil and £50k more than HR bosses in the US, the traditional home of telephone-number pay.

This revelation gets Luke Johnson, chairman of Risk Capital Partners and Channel 4, all fired up. 'I suspect that part of the reason why big companies in Britain are not as productive or entrepreneurial as they could be is because they misallocate rewards like this,' he says. 'Administrators are a necessary evil, but business-getters and leaders are the ones who create enterprises, not bureaucrats.'

By contrast, finance directors and marketing directors - traditionally regarded as two of the key boardroom posts, as well as being on well-trodden routes to the chief exec's job - are best paid in the US. Their UK oppos come in second and third respectively.

The good news for support staff here continues - the other UK champions of the global pay league are IT managers, who at £73,958 just beat their German rivals into second place (£72,839) but are once again a clear £10k ahead of those in the US.

So, is the UK in danger of becoming a nation of bureaucrats where facilitators are better rewarded than those who create the value in the first place? Maybe not, says Virginia Merritt, managing partner of HR consultants Stanton Marris. 'The human resources market in the UK is one of the most advanced in the world. The old transactional stuff like payroll is increasingly outsourced, leaving HR to focus on the core strategic role that really does add value - things like talent management and organisational development. It's not just about pay and rations any more.'

Of course, the HR bods are going to be pretty busy 'rightsizing' - that's handling redundancies, to you and me - if the economic turmoil continues.

Enough about the backroom boys and girls. What about the job we're all supposed to covet - the CEO hot seat? Well, here the old rules still apply - just. Chief execs continue to do better in the US than anywhere else, trousering a cool one and a half million quid a year (a median figure of £1.487m, to be precise). But bosses in Britain are catching up fast, and the gap between them - around £125k - would now buy you less than half of an entry-level Rolls-Royce.

But these are median figures, cautions Mark Hoble, principal at Mercer Human Resource Consulting, the pay experts who provided our top-job salary comparisons. They don't tell the whole story. 'If you look only at the very highest paid bosses, the real big salaries are still in the US,' he says.

So why is it that the best-paid half percent of bosses, the ones who really score the biggest of big bucks, are still to be found across the pond? Are British chief execs just not up to the job?

On the contrary, claims Hoble, they may well be better performers, because their feet are held closer to the fire in the UK than they are in any other country. 'The performance measures attached to pay are tougher here than anywhere else. The US bonus culture may be strong, but people expect to get their bonus there, so it is less firmly tied to performance than it appears.'

There is evidence to back up this assertion - US firms hit by the current slowdown are looking in increasing numbers to follow the UK lead and give shareholders an advisory vote on directors' compensation.

But before all you Brits out there start mutual back-slapping for being so unflinchingly results-driven, there are a few caveats. Businesses owned by private equity can pay more or less what they like, without having to tell anyone. And, of course, there are one or two sectors where, even here in the UK, the link between pay and performance seems to have been more or less non-existent in recent years. Yes, we're talking banking and finance.

Adam Applegarth, former CEO of Northern Rock, picked up more than £1m on his way out, having presided over the first run on a British bank since 1866 - an event that tipped the country over the edge into the credit-crisis chasm we have yet to emerge from.

Bankers in the City of London shared a bonus pot of £8.5bn in January this year, as reward for their performance in 2007. That year will go down as the high-water mark of an out-of-control industry bent on short-term gain for the few, regardless of the long-term pain inflicted on the many.

But even these numbers pale into insignificance when compared with the packages received by some US banking bosses on their way out the door. How about Warren J Spector, former president of Bear Stearns? He took home $23.2m for his part in the firm's collapse. King of the pay-off hill, however, is Merrill Lynch's ex-CEO, the famous Stan O'Neal. The bank he ran wrote down losses of $22.5bn last year, but he walked away with a barely believable $161.5m when he suddenly announced his retirement in October. Merrill's overall wages bill for last year was nearly one-and-a-half times its total revenues - an extraordinary fact redolent more of Premiership football than the world of high finance.

Such flagrant examples of rewards for failure have led commentators to observe that the way in which bankers are paid is of much wider economic importance than was previously assumed. Some even suggest that the pay structure of financial services firms should be assessed as part of their credit rating.

'The system of rewards in the financial services industry is perverse: it encourages employees to take large and commercially unjustified risks, because there is no downside,' says Vince Cable, deputy leader of the Liberal Democrats and their shadow chancellor. 'Ultimately, they know the central banks will bail them out, so there is no punishment if the wrong decision is made. The pay discipline of many of our plcs is now better than it was - proper reporting and a shareholder vote. The same disciplines should be applied to banks.'

Cable - who was chief economist for Shell before he became an MP in 1997 - also takes a strong line over that other fiscal hot potato of recent times, non-doms. 'The Government should not be blackmailed by wealthy people saying "you must do this or we will leave". A decision must be made on whether non-doms are in fact UK residents, in which case they should pay UK taxes, or not, in which case they should be allowed to leave if they wish.'

Of course, if the economic climate doesn't pick up soon, it may not be just the non-doms who want to head for somewhere with a sunnier outlook. The most entrepreneurial countries on earth are China and Brazil, although the easiest places in which to start your own business are Hong Kong, Iceland and Singapore. But Russia is probably best avoided by any budding bootstrappers - not only is it the least entrepreneurial nation in our survey, it's also the least happy. The beer there is fairly cheap, at any rate. Na zdorovia!

THE PACKAGE - TOTAL ANNUAL REMUNERATION 2007

CEO (pounds)
US 1,486,990
UK 1,359,250
France 945,440
Germany 816,130
Russia 667,300
Brazil 623,230
China 172,090
Japan 141,740
India 103,820


FINANCE DIRECTOR (pounds)
US 342,284
UK 181,749
Brazil 169,032
Germany 147,262
France 114,716
Japan 97,102
Russia 77,634
India 52,467
China 49,419


HR DIRECTOR (pounds)
UK 327,300
Brazil 297,040
US 280,640
Germany 229,990
France 198,470
Russia 158,210
China 114,410
Japan 110,450
India 44,030


MARKETING DIRECTOR (pounds)
US 202,234
Brazil 164,428
UK 145,146
Germany 130,230
France 101,940
Japan 101,302
China 83,511
Russia 77,594
India 48,718


IT MANAGER/PROFESSIONAL (pounds)
UK 73,958
Germany 72,839
US 63,249
Brazil 50,143
France 49,739
Japan 45,856
Russia 27,457
China 12,170
India 9,000


SALES EXECUTIVE (pounds)
Germany 40,077
UK 39,924
Japan 31,354
France 29,791
US 27,919
Brazil 13,476
China 12,170
Russia 8,874
India 3,633


HAVES AND HAVE-NOTS 2007

Pay rise Unemployment
%* %
India 14.3 7.2
Russia 12.0 7.0
China 8.0 9.5
Brazil 5.0 9.6
US 3.7 4.8
France 3.0 8.3
Germany 2.5 7.8
UK 3.3 5.3
Japan 2.3 4.0

*Aggregate pay increase for all professional staff
Source: Mercer Human Resource Consulting - Global Compensation Planning
Report


THE TAXMAN COMETH - INCOME TAX AND SOCIAL SECURITY LEVY*

Germany 45.7
Italy 40.3
France 34.1
UK 29.4
US (Illinois) 29.4
India 29.1
Brazil 22.5
China (Beijing) 20.4
Russia (Moscow) 13

*Percent of gross salary, single person earning $91,000 p.a.
Source: Mercer Human Resource Consulting - Global Personal Tax
Comparator


THE GLOBAL ECONOMY
HEDGING YOUR BETS - 10 RICHEST FINANCIAL TRADERS (2007 INCOME)
DOLLARS
1 John Paulson, Paulson & Co, New York 3bn+
2 Phil Falcone, Harbinger Capital PartnersNew York 1.5bn-2bn
3 Jim Simons, Renaissance Technologies, New York 1.5bn-2bn
4 Steve Cohen, SAC Capital Advisors, Connecticut 1bn-1.5bn
5 Ken Griffin, Citadel Investment, Chicago 1bn-1.5bn
6 Chris Hohn, The Children's Investment Fund, London 800m-900m
7 Noam Gottesman, GLG Partners, London 700m-800m
8 Alan Howard, Brevan Howard Asset Management, London 700m-800m
9 Pierre Lagrange, GLG Partners, London 700m-800m
10 Paul Tudor Jones, Tudor Investment Corp, Connecticut 600m-700m

Source: Trader Monthly magazine


REWARDS FOR FAILURE - FORMER BIG BOSSES AND THEIR PAYOFFS

1 Stan O'Neal Ex-CEO, Merrill Lynch $161.5m
2 Charles Prince Ex-chairman & CEO, Citigroup $68.0m
3 Warren Spector Ex-president, Bear Stearns $23.2m
4 Adam Applegarth Ex-chief exec, Northern Rock £1.1m

NOT TO MENTION ...
Steve McClaren Ex-England football team manager £2.5m
Paul Gray Ex-chairman, HM Revenue & Customs £1.8m
(pension only)

Source: Various press reports


MARKET MAYHEM - 10 BIGGEST CRASHES OF ALL TIME

1 Wall Street, 1929-32 -89%
2 US Nasdaq, 2000-02 -82%
3 Japan, 1990-2003 -79%
4 London, 1973-74 -73%
5 Hong Kong 1997-98 -64%
6 London 2000-03 -52%
7 Wall Street 1937-38 -49%
8 Wall Street 1906-07 -48%
9 Wall Street 1919-21 -46%
10 Wall Street 1901-03 -46%

Source: timesonline.co.uk, April 14 2008


COST OF EATING - UN FOOD PRICE INDICES (WORLDWIDE)

Meat Dairy Cereals
2006 115 138 124
2007 - March 121 186 151
2008 - March 133 276 284

Source: UN Food and Agriculture Organisation


STOCK PERFORMANCE - % CHANGE IN INDICES*

Brazil +9.2
Sweden -0.9
Spain -2.8
Australia -3.7
US -3.8
Japan -4.4
France -4.4
Russia -5.7
Italy -5.8
UK -6.3
Germany -8.5
India -19.0
China -34.8

*31/12/2007 to 23/04/2008, dollars terms
Source: The Economist, 24/04/2008


THE UK ECONOMY
BONUS CULTURE - TOTAL BONUSES PAID IN THE CITY OF LONDON (pounds)

2005 7.44bn 2007 8.51bn
2006 8.81bn 2008 5.10bn*

*Forecast
Source: Centre for Economics and Business Research


UK WEALTH GAP WIDENS

% poor % wealthy
households households
1980 17.1 16.8
1990 21.3 23.0
2000 27.0 22.6

Source: Joseph Rowntree Foundation, 2007 - Poverty, Wealth and Place in
Britain, 1968-2005


RATIO OF CEO PAY TO AVERAGE EMPLOYEE
FIVE HIGHEST IN THE FTSE 100

Sir Terry Leahy, Tesco 340.2
Gerry Murphy, Kingfisher* 220.4
Brad Mills, Lonmin 204.6
Graham McKay, SABMiller 164.9
Paul Adams, BAT 161.3

All data for 2006 financial year
*Replaced by Ian Cheshire, January 2008


FIVE LOWEST IN THE FTSE 100

David Fischel,
Liberty International 10.2
John Richards, Hammerson 10.2
Ian Coull, Segro 10.3
Phil Yea, 3i Group 10.7
Bill Coley, British Energy 11.9

All data for 2006 financial year
Source: Reward Technology Forum


ON THE PROPERTY LADDER ... UK FIRST-TIME BUYER'S MORTGAGE PAYMENTS
(% of total income)

2005 16.1 2007 18.3
2006 16.0 2008 20.0*

Figures for March of each year
Source: Council of Mortgage Lenders
*Forecast


... AND OFF IT - UK MORTGAGE REPOSSESSIONS

2005 25,709 2006 33,248
2007 34,798 2008 40,442*

Possession actions entered into, England & Wales. Figs for Q1
Source: Council of Mortgage Lenders
*Forecast


DOING THE BUSINESS

EASIEST COUNTRIES IN WHICH TO START A BUSINESS ...
1 Hong Kong
2 Iceland
3 Singapore
4 UAE
5 US

... AND THE MOST DIFFICULT
1 Brazil
2 Argentina
3 Venezuela
4 Uruguay
5 Hungary

Source: Global Entrepreneurship Monitor 2007


MOST ENTREPRENEURIAL

China 24.6%
Brazil 22.4%
US 14.1%
India 13.9%
Japan 12.6%
UK 10.5%
Italy 10.4%
Sweden 8.8%
France 4.8%
Russia 4.3%

Source: Global Entrepreneurship Monitor 2007


MOST INNOVATIVE (PATENTS FILED)

US 52,280
Japan 27,731
Germany 18,134
South Korea 7,061
France 6,370
UK 5,553
China 5,456
Netherlands 4,186
Switzerland 3,674
Sweden 3,533

Source: World Intellectual Property Organisation


MOST CORRUPT LEAST CORRUPT
Burma New Zealand
Somalia Denmark
Iraq Finland

Source: Transparency International Corruption Perceptions Index 2007


HEALTH, WEALTH AND HAPPINESS

THE FIVE MOST EXPENSIVE CITIES TO LIVE IN ...
1 Moscow
2 London
3 Seoul
4 Tokyo
5 Hong Kong

... AND THE FIVE LEAST EXPENSIVE
1 Asuncion
2 Karachi
3 Quito
4 Montevideo
5 Buenos Aires

Source: Mercer Human Resource Consulting - Worldwide Cost of Living
Survey


PRICE OF A PINT OF LAGER (pounds)

France 4.50
Japan (Tokyo) 3.11
UK 2.51
Germany 2.20
US 2.11
Russia (Moscow) 2.00
India 0.93
Brazil 0.82
China (Beijing) 0.81

Source: www.pintprice.com


WHAT MONEY CAN'T BUY

Happiness GDP per capita
dollars
Sweden 7.7 49,655
US 7.4 45,845
Germany 7.2 40,415
UK 7.1 45,575
Brazil 6.8 6,938
France 6.5 41,511
China 6.3 5,453*
Japan 6.2 34,312
India 6.2 978
Russia 4.4 9,075

Source: World Database of Happiness/
International Monetary Fund, except:
*World Bank


PAID HOLIDAY ENTITLEMENT (days p.a.)

Brazil 30
Russia 28
Italy 26
France 25
Germany 25
Sweden 25
Australia 20
Spain 20
UK 20
Japan 18
US 14
China 10

Source: Euromonitor International 2007


THE HOME FRONT: PAY IN THE UK

PAY RISE PROSPECTS

Expected next rise
Chairman 5%
MD 4%
Management 3.1%

Source IoD/Croner Reward 2008


Daily rates, non-executive directors (pounds)
Large company 1,371
Mid-sized company 750
Small company 1,343

Source IoD/Croner Reward 2008


REWARDS BY REGION - AVERAGE TOTAL PAY (pounds)

Directors Managers Junior
execs
North West 365,707 44,232 23,001
Scotland 332,918 50,823 23,322
London 311,296 63,331 29,929
Midlands 261,699 47,738 22,790
Wales 190,272 45,730 23,322
North East 188,441 45,413 22,610
South East 146,504 50,059 24,652
East Anglia 102,925 52,878 26,458

Source: Chartered Management Institute, 2008


ABSENTEEISM IN THE UK

Days lost per employee per year
Public services 10.3
Non-profit organisations 9.6
Manufacturing/production 7.6
Private-sector services 7.2

Cost of absence per employee per year (pounds)
Public services 732
Manufacturing/
production 726
Non-profit organisations 648
Private-sector services 600

Source: CIPD Absence Management Survey, 2007

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