FTSE 100 chiefs enjoy record windfalls from complex and opaque bonus deals thanks to stock market bounce
Bosses at the helm of Britain's top 100 companies saw their pay packages jump by an average of £1.3m to almost £4.5m last year, the biggest leap in nine years, according to a study commissioned by the High Pay Commission.
The average pay deal for a FTSE 100 chief executive soared from £3.09m to £4.45m last year as business leaders were able to enjoy record windfalls from share-based incentive schemes, thanks to a sharp bounce in the stock market.
The commission, which was set up last November to run for a year, has singled out these highly complex and often opaque share-based reward programmes as the most controversial element of boardroom pay. They are of "staggering complexity" and there is "no clear evidence" they work, it claims.
Many economists have suggested the recovery in the value of shares in late 2009 and 2010 which boosted executive rewards had little to do with the underlying performance of businesses. Rather, it was in large part an indirect consequence of drastic policy measures taken by central banks around the world to drive down long-term interest rates in order to avert a global depression. Recent months have seen these share gains go into reverse.
The benefits reaped from the stock market bubble by top FTSE 100 executives have not been mirrored on the shop floor. Instead wage inflation stood at 2.2% for the final three months of 2010. Factoring in the rising cost of living – the retail price index stood at 4.8% last December – that means most workers in Britain saw a significant decline in their real incomes.
"The evidence exposes the myth that big bonuses and high salaries result in better company performances," said Deborah Hargreaves, chair of the commission. "There has been massive growth in what has been termed performance-related pay, yet no such corresponding leap forward in company performance."
She suggested the real acceleration in top executive pay had been hidden behind an array of bewilderingly complex schemes purportedly designed to peg share-based rewards to company performance.
"All we've seen is things getting much more complicated – in many ways masking the real value of what executives get paid," she said. "Corporate governance reforms attempting to link pay with performance appear to have done little more than add to the huge complexity of executive packages, reward schemes and bonuses that make up the pay of FTSE 100 directors."
The study of executive pay deals, carried out for the commission by Incomes Data Services, showed the average annual director's bonus rose by 187% in 10 years.
The commission said the disparity between pay and performance was sharpest at Britain's leading banks, several of which have relied on taxpayer support in recent years either through Bank of England liquidity assistance or in bailout recapitalisations in the case of Lloyds Banking Group and Royal Bank of Scotland.
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