Lord Hanson, doyen of the British takeover business, and his board enjoy a certain lifestyle that few of their peers in business can match. But then an average salary of some £500,000 a year does help to smooth the rough edges off life.
The 14-strong Hanson board emerges as the best paid per head of any major boardroom in Britain, according to an exclusive survey produced by Extel, the financial information group, for Management Today. Not far behind comes the pharmaceuticals giant SmithKline Beecham, where the recent pay hike of chief executive Bob Bauman, to £1.22 million, has helped to lift the average remuneration of the 17-strong board to nearly £465,000 a year.
Last month we looked at the performance of Britain's top companies based on the amount of profit achieved per employee (PPE). Matching this information with the average salary paid to company directors gives an insight into how valuable they are to their employer. At Hanson, for example, where each employee earns the company on average some £16,060 in profit, it takes the collective efforts of 31 Hanson employees to pay the salary of a single director.
But the company which values its directors most highly - and rightly so after the transformation that they have achieved in the past two to three years - is hotel, catering and brewing giant Grand Metropolitan. Though its PPE is only £6,650, the directors, led by Sir Allen Sheppard, are among the best paid in the country. It takes 62 staff to foot the bill for one board member (average remuneration is some £411,111).
The one group which collectively has yet to enjoy the fruits of market forces is that of the newly privatised water companies. Though our survey last month recorded spectacular gains in the profits achieved per employee for the water companies, their boards of directors appear to endure - by Hanson or GrandMet standards - a restrained lifestyle. The bottom four in our accompanying table are all recently privatised water companies. At Anglian Water the £30,000 average salary for a director is barely double the average PPE.
Fifth from bottom comes Northern Foods, where the directors' average remuneration works out at the not-so-princely £57,143. But then Chris Haskins, the chairman, is well known as one of the few Labour supporters in business. A case perhaps of putting one's money where one's principles lie.
Twelve years ago BOC's chief executive, Richard Giordano, was in the news as Britain's highest paid director, earning the then princely sum of £271,000, and through the eighties he was regularly the highest-paid executive in Britain. Though he has since lost the title to the likes of Bauman, Lord Hanson and Tesco's Sir Ian MacLaurin, BOC still pays its directors a handsome salary. It takes the profits generated by 47 BOC employees to cover the £422,222 average salary of a board member.
Some strange anomalies appear in the table which will be a cause of some tension in the boardroom. Racal Telecom is a classic case of a child that has outgrown its parent. On the back of its hugely successful Vodafone network, PPE hit £101,210, way ahead of that of its nearest rival, Guinness. Yet Racal Telecom's directors do not do too well in the pay stakes, with an average salary of £128,714 - not much more than the profits generated by one employee. More galling for them must be the fact that they earn only two thirds as much as their colleagues at the much less profitable parent, Racal Electronics.
Kingfisher, the retailing giant, pays its directors an average of £280,000 a head, much more than the norm for the retailing sector. Only Dixons and Marks and Spencer pay more than £200,000 in what is still a deeply depressed industry. A profit-related pay policy has helped to boost the Kingfisher pay. Under chairman Geoff Mulcahy the former Woolworth group has been transformed. Its business should also receive a fillip from any decision allowing its B and Q DIY chain to trade legally on Sundays.
ICI directors, now facing the prospect of a possible Hanson takeover, can rest assured that the issue of bloated executive salaries will not be a weapon that Lord Hanson can deploy against them. Their average pay was £168,750.
Extel compiled the data from the top 100 companies' annual reports (excluding oil and financial services companies) and divides the total of directors' remunerations by the number of directors. As a result, changes in board membership during the year will also produce some distortion. Even so, the figures do point to some high levels of pay in companies where profitability - as measured by the rest of the staff - is less than spectacular.
Average Ratio of
director's Company director's
remuneration PPE pay to PPE
Highest £ £
1 Hanson 500,000 16,060 31.0
2 SmithKline Beecham 464,706 11,520 40.0
3 BOC Group 422,222 8,960 47.0
4 Grand Metropolitan 411,111 6,650 62.0
5 BAT 382,500 10,830 35.0
96 Northern Foods 57,143 4,140 14.0
97 Thames Water 55,556 23,000 2.4
98 Yorkshire Water 44,444 12,570 3.5
99 North West Water 33,333 10,610 3.1
100 Anglian Water 30,000 19,890 1.5