What is the going rate for a FTSE 100 chief executive today?
Angela Ahrendts, chief executive of Burberry, the luxury goods company, has again been in the firing line about her compensation. The furore follows an announcement that the company has offered her 500,000 shares – worth about £7.3m ($11.7m) at the current share price – if she remains in her post until 2016.
Pensions & Investment Research Consultants, a UK corporate governance consultancy, has advised Burberry shareholders to vote against the remuneration report at the company’s annual meeting on July 14. It argues “the chief executive has received a one-off stock reward during the year under review, worth 584 per cent of her base salary, which is subject to unquantified performance conditions”.
But is Ahrendts really so out of line with comparable chief executives?
According to a report by MM&K, the reward consultancy, FTSE 100 chief executives enjoyed a median salary increase of 32 per cent last year, compared with a 9 per cent rise in the FTSE 100 index over the same period and an increase of less than 2 per cent in employee pay. Median pay (the halfway point between the highest and lowest earners) was £3.5m.
Shareholder discomfort has been increasingly vocal. At HSBC’s most recent annual meeting, in May, nearly 20 per cent of shareholders voted against a remuneration package that gave Stuart Gulliver, chief executive of the investment bank, a £5.2m bonus.
Tesco, the UK retailer, has modified its remuneration structure for top executives after nearly 50 per cent of shareholders last year failed to support its remuneration report.
In June this year, Marks & Spencer paid almost £22m in remuneration to its outgoing and incoming chief executives, according to the retailer’s annual report. Sir Stuart Rose, its departing boss, received £8m, while Marc Bolland’s remuneration for his first year with M&S after joining from Morrisons was £14m.
Of Bolland’s £14m, shares in a long-term incentive plan make up the bulk of the sum – £9.5m at current values.
Vince Cable, the UK business secretary, has long been an outspoken critic of “excessive and unjustified” pay for the country’s top bosses. Speaking at the Association of British Insurers’ biennial conference last month, he said:
“Let’s not forget that, using the FTSE 100 as a benchmark, investors have barely seen a return since the turn of the century. For most of that time, they would have been better off investing in government bonds.
“And yet, in 2010, average total pay for FTSE 100 chief executives was 120 times that of the average UK employee. Back in 1998, the multiple was 45.”
Last year, Richard Lambert, director-general of the CBI, the UK employers’ organisation, warned that bosses risked looking like “aliens” living “in a different galaxy from the rest of the community”.
In the end, this is a debate about the relationship between capital (shareholders) and talent (executives), and how the two should divide the profits of their joint effort. To single out Ahrendts for particular censure smacks of misogyny.