Executive Pay ‘Party’ Continues in U.K. as Stock Market Rallies

By Kevin Crowley

Oct. 8 (Bloomberg) -- Chief executive officers at Britain’s leading 100 companies received pay increases last year even as the FTSE 100 Index fell the most on record and may be handed more this year after the stock market rally, a study said.

The median compensation paid to a FTSE 100 chief executive officer last year was 2.57 million pounds ($4.1 million), up 1 percent from 2007, as increased salaries and share awards offset lower bonuses, according to research by remuneration consultant MM&K Ltd. and Manifest Information Services Ltd., a corporate governance research firm.

Reckitt Benckiser Group Plc CEO Bart Becht was the index’s top earner in 2008, receiving 38.1 million pounds in salary, bonus, pension contribution and share options, after the world’s largest maker of household cleaning products fell 12 percent in the 12-month period. Schroders Plc’sMichael Dobson was the only CEO of a financial firm in the top 10 earners, which included three energy bosses.

Public outcry over directors’ pay has prompted Prime Minister Gordon Brown and lawmakers from the opposition Conservative Party to pledge tighter rules linking remuneration to a company’s long-term performance. Any reduction in bonuses this year is likely to be offset by higher pay in the form of share options as the FTSE 100 stands to have its best year since 2005, according to Cliff Weight, director of London-based MM&K.

“The party isn’t so much over but postponed,” Weight said in a telephone interview. “There may be a temporary slowdown but the long-term drivers of executive pay, such as matching remuneration in the U.S. and in private equity, over the last ten years are still there.”

Beating FTSE 100

Total remuneration for FTSE 100 CEOs grew 15 percent in the decade to 2008, the study said, even though the index fell 3 percent in that period. That’s mainly due to a rise in long- term incentive plans, which typically give directors the option of buying shares at a set price several years after the performance period.

Becht, Tullow Oil Plc’sAidan Heavey and Paul Pindar of Capita Group Plc, the top three earning CEOs last year, received more than 88 percent of their total compensation through long- term incentives, which last year made up 47 percent of the average FTSE 100 CEO’s remuneration. That’s an increase from 15 percent in 1998.

“Even after the financial crisis, we don’t have a good link between performance and reward,” Tom Powdrill, a spokesman for Pension Investment Research Consultants Ltd., which advises investors with more than $2.4 trillion in assets. “There’s never really a downwards trend in remuneration. Investors have to be much more assertive than they have been so far.”

‘Pay Out Regardless’

The median point at which the share options are awarded is when total shareholder return, or stock-price changes plus dividends, reaches 8 percent per annum, according to the research. That “seems a rather low target for the maximum payout,” the survey said. The FTSE 100 has rallied 15 percent since the beginning of the year.

Incentive plan payouts “raise serious questions about the extent to which plans are based on performance targets and how much they are designed to pay out regardless,” said Janet Williamson, senior policy advisor at the Trades Union Congress, whose member unions represent 6.5 million employees. “We need people whose commitment is to their job and the company they serve, not to their paycheck.”

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net