Time to get relaxed about high executive pay
This week Anglo American walked back on a plan that would have seen its chief executive handed a tasty bonus for the completion of its merger with Teck after investor backlash.
Shareholders may have had well-reasoned objections to a scheme that would have dealt boss Duncan Wanblad an award amounting to almost two-thirds of his long-term incentive package.
But the objections – valid or not – belie a deeper problem: London spends too much time fretting over executive pay.
A report by the High Pay Centre in August found that FTSE 100 executive remuneration had reached “the highest level on record”, as though it is unusual for someone’s pay to be higher than it was the previous year.
The think tank bemoaned that the average FTSE 100 CEO is now paid 122 times the median UK full time worker – which was in fact a slight fall on the previous year.
An eye-watering sum. That is, until you look at the average chief executive pay in the US S&P 500, which is more than double that, at a multiple of 285.
And that is before you consider the truly gargantuan $1 trillion award that could fall into the lap of the world’s richest man, Tesla boss Elon Musk, if the carmaker’s performance hits certain ambitious targets. Wanblad was barely getting pocket change, by comparison.
Bigger fish to fry
Shareholders and advisory firms have every right to voice their dismay at poor quality C-suite remuneration packages. If only they spent as much time scrutinizing poor quality bosses.
According to the Russell Reynolds CEO Turnover Index, while S&P execs have an average turnover of 8.9 years, broadly consistent with their medium-term average, over on the FTSE 250, chief executive tenures are among “some of the shortest globally” at less than 5 years, “the lowest we have recorded since we began tracking.” Something is awry here and cutting exec pay will not solve it.
For fear of stating the obvious, a £10m pay packet awarded to the boss to a company turning over more than £10bn would represent less than 0.1 per cent of its revenue – a rounding error, in other words. But the effect a chief executive has on the success of a company – and the fortunes of its staff and shareholders – can be orders of magnitude bigger.
Yet across the London Stock Exchange, remuneration reports are consistently one of if not the most-opposed AGM votes, even if the share of those opposed seldom gets beyond a quarter of the total. Meanwhile, London banks are quietly upping management bonus multiples after the scrapping of EU-imposed caps, moves which no one need vote on.
Intense scrutiny over executive pay will bring down inequality – but only by cutting the highest incomes rather than raising the lowest. It is time instead to focus on making our companies – and our economy – grow faster.