New statistics on boardroom rewards shows the only concession to recession is to turn bonuses into basic pay.
When business is good, company directors increase their pay to share in the returns. When business is tough they think they deserve a rise in remuneration to compensate for the extra work involved.
Now that performance targets are being missed because of poor trading, remuneration committees are rewriting the rules to ensure directors do not lose. Bonus payments are down by 29 per cent, according the Incomes Data Services (IDS), but directors’ salaries have risen by an almost matching amount.
The average bonus for FTSE 100 directors is still just over £500,000, despite the widespread fall in profits and slashed dividends, yet the £205,000 fall is offset by a 7.4 per cent increase in basic salary to leave total cash remuneration down by just 1.5 per cent, despite the recession.
Boards are behaving not only as if they are personally immune from the slump but as if they are impervious to public opinion. They should be careful: such behaviour is likely to provoke a backlash that hurts businesses as well as business executives.
Institutional shareholders have proved themselves much more aggressive in rejecting unacceptable pay structures, but perhaps even more worrying for directors is the cruel punishment small shareholders can inflict on fat-cats.
Remember Cedric the pig, paraded at the British Gas annual meeting to make the private investors’ point.
Already the Association of British Insurers has warned that excessive pay will destroy faith in the system and make it impossible to reward success in the future, while the Confederation of British Industry has warned of growing disquiet about business. Commerce ought to listen when its own friends are saying that.
Even if company directors think they have become unfairly included in an argument about bankers’ bonuses and MPs’ expenses, business leaders cannot afford to be tainted. And they will find their high pay is little compensation for the lack of respect their job attracts.
But boards are not blameless, and FTSE 100 firms are not the only culprits. The picture painted by the IDS survey for FTSE 350 companies is little different: their 31 per cent fall in bonuses was only slightly higher and their 6.6 per cent rise in basic pay only slightly less. That is a far higher increase in basic pay that is being offered to FTSE workers and well above the rate of inflation.
The shift of bonuses into salary might appear to make little difference but it is a trick worthy of any trade unionist who demands overtime payments are consolidated into basic pay: it sets a new salary base for future increases while slashing bonuses back to a level that will allow huge rises when performance improves. Indeed, the current difficult trading will encourage remuneration committees to lower targets to make bonuses easier to earn.
But the rule must be that directors are paid for what they deliver – not for what a growing market delivers and not for the effort they put in. And for the moment, at many companies that should mean a boardroom pay cut.
(Pic: Elsie esq. cc2.0)
