Director salaries still escalating

Boardroom
pay continues to rocket, according to FTSE
100 Companies – Board Pay & Incentive Practice,
a report published by
management remuneration information specialists The Monks Partnership.

The
report, based on an analysis of remuneration practice for executive directors
in the UK’s largest companies, finds that year-on-year base salary increases
for full-time chairmen or chief executives have increased by 14.9 per cent at
the median. This compares with 8.4 per cent in 2000.

Increases
in total earnings – defined as base salary plus any annual bonus payment, are
higher than in 2000 at 16.7 per cent.

The
analysis is based on 73 post holders who held the same position during the year
reported in the 2000 and 2001 annual report.

Pay
Increases
                                                                                   Source:
Annual Reports
Full-Time Chairman or Chief Executive

 

Base Salary
%

Total Earnings
%

 

2000

2001

2000

2001

Lower Quartile

4.0

7.7

1.7

5.6

Median

8.4

14.9

10.2

16.7

Upper Quartile

13.6

22.7

24.7

37.0

The figures disguise wide
variations in base salary and total earnings movements between sectors, as
shown by the table illustrating the median base salary and total earnings
changes for all FTSE 100 executive directors, analysed by sector.

Pay Increases by Sector – all FTSE 100
Companies
All Executive Directors

Sector

Median Base Salary
%

Median Total Earnings
%

No. of Companies

No. of
Positions

Publishing & Media

6.5

15.5

8

19

Consumer Goods

8.4

20.4

7

22

Insurance

8.4

9.2

5

15

Transport, Leisure & Services

9.8

17.7

6

20

Other Financial & Property

10.0

-0.5

5

     14

Pharmaceuticals & Chemicals

10.6

17.5

5

10

Minerals, Oil & Gas

10.8

11.0

5

21

Retailing

11.0

23.8

10

36

Utilities

12.5

29.7

6

16

Computing/High Technology

15.0

0.9

7

21

Banking

15.5

30.7

9

30

Engineering & Construction

16.0

7.1

7

24

Telecommunications

21.3

20.8

5

11

In 2000 the highest base salary increases were
in retailing (11.4 per cent at the median) and the lowest in transport and
services (4.0 per cent at the median). The highest total earnings increases at
17.7 per cent were in telecommunications and the lowest in pharmaceuticals
& chemicals at -1 per cent.

Base salary levels are influenced by a wide range of factors
such as the size of the company, the sector in which a company operates, the
degree of international involvement and its performance. The report shows that
the median base salary of a FTSE 100 chief executive rose from £490,000 in 2000
to £539,000 in 2001 and median total earnings from £643,000 to £781,000.

This year the highest base salaries were paid
to the chief executives of companies in the retailing sector (median salary
£659,000) and the lowest to the chief executives of other financial and property
companies. This grouping of companies includes 3i, Amvescap, Canary Wharf, Land
Securities and Schroders.

The highest total earnings of chief executives
were in the consumer goods sector with a median of £1,066,000 (other financial
and property in 2000) and the lowest in utilities with a median of £597,000
(software services and telecommunications in 2000).

Annual
Bonus

With the exception of Wm Morrison Supermarkets
all FTSE 100 companies now have an annual bonus plan in which executive
directors participate. Monks’ analysis, however, indicates that 13 per cent of
chief executives did not receive a bonus payment.

The next table indicates the level of bonus payment, where
paid, for chief executives, finance directors and divisional directors. The bonus
is shown as a percentage of base salary. Comparable figures for 2000 are shown
in brackets.

Level
of Bonus Payment

% Base Salary

 

% Base Salary

 

Chief Executive

Finance Director

Divisional Director

Lower Quartile

24.8

(19.4)

26.3

(18.3)

26.8

(21.1)

Median

46.9

(39.7)

46.9

(40.6)

44.7

(32.6)

Upper Quartile

70.6

(51.1)

66.9

(51.7)

65.3

(49.9)

% Posts receiving no     bonus

13%

14%

10%

Once
again there are wide sectoral variations with the lowest bonuses paid to the
chief executives of engineering and construction companies (24.5
per cent of base salary at the median) and the highest to banking sector chief
executives (80.7 per cent).

Long-Term
Incentives

Long-term
incentive practice within the FTSE 100 continues to evolve and change.  As the table below indicates, the share
option plan remains the most common form of long-term incentive with 91
companies operating a discretionary share option plan.

MARKET
PAY GUIDELINES                                               Source: Monks’ Databank

 

Number of Companies

Incentive plans
in place

2000

2001*

Annual bonus only

1

0

Deferred annual bonus only

1

0

Share option only

0

2

Long term only

1

0

Annual bonus + share option

19

11

Annual bonus + long term

3

5

Deferred annual bonus + share option

12

10

Deferred annual bonus + long term

3

3

Annual + long term + share option

38

35

Deferred annual bonus + long term + share option

22

33

*Excludes Granada

The
number of companies which have two long term plans – typically a share option
plan and a performance share plan – has increased from 60 in 2000 to 68 in
2001.

The
full 160 page report costs £400 and is available from Monks Partnership Tel:
01799 542222 www.monkspartnership.com

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