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Wednesday, 20 November 2013

Are Our Bosses Worth It?

The economic recovery has "taken hold" according to the Bank of England. Well that is certainly true for the leaders of FTSE100 companies who have seen their average remuneration rise by 14% compared to the squeeze in pay felt by many other households. What makes them worth it?


According to TUC General Secretary Frances O'Grady "Britain's top bosses are back to their old tricks as their pay is growing 20 times faster than the average worker." What she is referring to is the increasing use of long term incentive plans (LTIP) as part of the overall remuneration package for directors of FTSE100 firms. Pay analysts Income Data Services report that basic pay at this level has increased by a "relatively restrained 4%" while bonuses have fallen by 8.8% but at the same time LTIP's have increased by 58%.

Steve Tatton of IDS said "These divergent pay trends highlight the complex make-up of boardroom remuneration,illustrating that while one part of a director's pay package may go down, another part may go up. With nearly two thirds of FTSE directors benefiting from an LTIP award in the latest year, the higher share-based payouts clearly made up for any ground lost in lower annual bonuses."

Sounds suspiciously like agreement with O'Grady. But isn't it right that company directors should benefit from good performance? After all the FTSE100 index has increased by over 16.5% in the last 12 months. Or should people at the top demonstrate more restraint when the Office for National Statistics report that average wages have increased by just 0.7% over the same period. Far below the level of inflation.

O'Grady certainly believes that they should "The time has come for legislation to put ordinary workers on the pay committees of companies. That is the only way to bring some sanity to the way in which directors are paid."

This view would certainly have a sympathetic hearing in Switzerland where there is about to be a referendum that would stop bosses earning more in a month than their worst paid employees receive in a year. In this country that would limit some executive pay to around £160,000. Hard to imagine.

The referendum in Switzerland seems likely to fail but isn't the truth that more shareholders should join those of Shell, Aviva, WPP and others by rebelling and voting against the remuneration report?

Whatever the rights and wrongs of this it is a fact that 15% of total UK income is now in the hands of the top 1% compared to less than 6% in the late '70's. With the Markit Household Finance Index (HFI), which measures perceptions of financial well being, at its lowest level since April it is clear that the improvement in the economy has not filtered down and this level of unease may yet damage the confidence of the Bank of England concerning the resilience of the recovery.

So what are your views? Do you work for an inspirational leader who is worth every penny, or are they all corporate fat cats, disproportionately rewarded for the efforts of others?

Written by Mike Gamble: Director JEM Retail Consultants.