The issue of Executive Pay is big news. The size of the packet generates many column inches and the media loves to highlight the growing gap between rich and poor. The “b” word is still guaranteed to inflame a myriad of opinions.
This weekend the results of the Pay Report were published, commissioned by the Sunday Telegraph, the Daily Telegraph and Telegraph.co.uk. Executive Pay is at an all time high, driven by the rebound in share prices over the last 12 months. The best paid CEO in the FTSE 100 in 2009 was Bart Recht of Reckitt Benckiser who took home £92.6m, the bulk of which came after he crystallised share options accumulated over the previous 10 years. The remainder of the top five was made up as follows;
Tony Pidgeley Berkely Group £36.4m
Mike Davis Xstrata £25.5m
Frank Chapman BG Group £23m
Bob Diamond BarCap £18m
Big numbers. What this report doesn’t tell us is the amount these 5 or indeed their peers returned to shareholders. This would I suspect help to put things in to perspective. If, as a direct result of actions taken someone was to generate say £50m of profit for their company, they deserve in my view a healthy slice of that £50m by way of a reward. What analysis of the pay report tells us is the impact of the Banking Crisis has seen remuneration committees focus attention on pay for performance. Basic salaries for FTSE 100 CEO’s fell an average of 1% in 2009, with cash bonuses and benefits 28% lower. Share based incentives rose 31pc, leaving total compensation 6% higher at an average of £3.76m.
The good news is that it wasn’t just the CEO’s who earned a bigger slice of the cake. Despite staffing numbers in the FTSE 100 remaining static, wage bills amongst the UK’s largest companies rose 11% in 2009 to £232.67bn. Accepting that not all the 7.35 million people employed by Britain’s top 100 companies are employed in the UK, that is a huge amount of wealth creation, not only in terms of wages for those employed but also in those countries in which they work in terms of tax contributions to the public purse. This is the bit that gets forgotten. With all the headlines generated around large pay packets, nobody stops to ask just how many schools or hospitals tax contribution influenced by Bart Recht paid for. Accepting the against argument will be tax avoidance, non dom status, off shoring or any other smart schemes, he still makes an enormous contribution to the UK public purse and not only in terms of his personal tax bill. More arguably than most of us will make in a lifetime.
So called “self-made” millionaires rarely attract the same vitriol as our corporate “fat cats”. Of course they create wealth and employment through their own efforts, often from nothing. What is the difference between the entrepreneur and the corporate leader? Aren’t both self made? Was Bart Recht given the CEO job at Reckitt Benckiser? Was he born with that opportunity given to him as some kind of silver spoon? Absolutely not. He has, as have virtually all his peers, achieved that position through sheer hard work, determination, bloody mindedness, taking risks, sticking his neck out and putting himself on the corporate line throughout his career. He is now reaping substantial rewards for his actions.
An Entrepreneur sells a company and makes £100 million and good for you is the cry. A Corporate Leader makes the same having delivered returned huge value to his shareholders, (of which pension funds will make up a considerable amount, as a consequence benefiting a huge number of people), created a huge amount of wealth, employment and opportunity whilst at the same time generating huge sums of money for the public purse that contribute enormously to the huge range of public services we enjoy in the UK, not forgetting the huge contributions many such corporations make to charities.
We are quick to criticise our big businesses and their leaders, but there is a tendency to forget that Employers currently pay 12.2% of the its employees gross salaries in National Insurance contributions to the Government just simply for employing people. We need to have the very best individuals leading our very best businesses and being rewarded the very best remuneration in order that we continue to create an environment for jobs and wealth creation across the globe.
How does their worth compare to say a Nurse or a Soldier who earn barely a fraction? Well that is an entirely different debate and one that should be the subject of another blog. However without the likes of Recht Benckiser we would have far fewer nurses and far less soldiers to count on. The bigger the numbers, the better for us all.