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Executive Pay Rises While Shareholder Earnings Fall, Says Mm&k Survey

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The pay packages enjoyed by Britain's top directors are increasingly out of step with the actual performance of their companies, a report claims today.

Chief executives of FTSE 100 companies have seen their remuneration rise by 5% to an average of £3.1m since 2008, while earnings per share fell by 1% over the same period, according to the Total Remuneration 2010 survey by pay consultants MM&K and corporate governance group Manifest.

Over the past 10 years chief executive remuneration has quadrupled while share prices have declined, suggesting little or no link between rewards, performance and shareholder value, according to MM&K and Manifest.

The report said there had been a shift towards increasingly expensive, short term reward strategies, such as annual bonuses. "This mirrors the approach that caused so many problems in the banking sector," it said. "Furthermore, as most remuneration strategies now involve the use of long term incentive plans, reward horizons have shortened to only three years. A decade ago, when share options were the favoured incentive, the horizon average was seven to ten years."

Directors in larger companies could now receive up to 300% of their salaries as annual bonuses compared to their counterparts in smaller companies (those with a market capitalisation of between £100m and £1bn) where bonuses tended to be capped at 100%. For larger companies, the report found, maximum bonus levels as a proportion of salaries were about 25% higher than in 2006.

The report lays the blame for the discrepancy between pay and performance squarely on company remuneration committees, which it says struggle to maintain their independence from chief executives.

Cliff Weight, a director at MM&K, said: "Many performance related pay schemes appear designed to satisfy the chief executive and in fact offer little incentive for anything above just adequate performance. If this wasn't bad enough we found most strategies were not based on adequate benchmarking, meaning many committees replicated the errors of their peers. If committees want to avoid criticism at annual general meetings and look shareholders in the eye they've got to change and be more diligent and challenging. The key determinants of a successful incentive remuneration strategy revolve around choosing the right blend of short and long-term performance criteria together with rigour and toughness in the target setting."

Still it's all linked to performance. As performance goes up pay goes up, as performance goes down pay goes up.

I like that link, pity it's not for all workers.

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The simple thing would be for shareholders to have the Remuneration Committee created as a separate entity from the business and ensure it is composed of representative accountable solely to shareholders. Key shareholders can be on it if they like. If they still after all that choose or are cajoled into paying loads for these guys then that's their choice and nobody can complain - it's shareholders money that's being ripped off after all.

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  • 433 Brexit, House prices and Summer 2020

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      • down 5% +
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