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UK CEOs paid ‘excessive’ short and long-term bonuses compared to European peers: report

UK corporate chiefs 7 out of 10 best-paid in Europe in 2011

UK-based companies are paying their Chief Executive Officers (CEOs) significantly higher annual pay packages than their European peers because of “excessive” short and long-term bonus plans, according to a comparison report on CEO remuneration across Europe by the Expert Corporate Governance Service (ECGS). UK CEO total average remuneration in 2011 outstripped that of continental European counterparts due to significantly higher long-term bonus schemes.
The report comes at a time of increasing uproar in the UK over executive bonus payments. The report shows that UK-based CEOs are close to the median in terms of their average basic pay of €970,000; less for example than the average basic pay of German (€1.09m) and Italian CEOs (€1.69m).
However, UK CEOs receive the second largest European annual average short-term bonus (€1.69m) after Germany (€1.86m) and Luxembourg (€187m).
And their remuneration is massively boosted by long-term shares and options, which the survey says represent an additional €3.35m per annum on average, by far the highest in Europe.
The report said: “British companies show a problem of excessiveness on the total variable part of remuneration (short and long term incentives).
ECGS, which is made up of independent shareholder research and voting agencies including DSW, Ethos, Frontis Governance, GIR, Proxinvest, Shareholder Support and SIRIS, says it recommends to shareholder clients that total variable remuneration at investee companies should not exceed 300% of base salary.
Seven of the top ten paid European CEOs in 2011 were from UK-based companies.Two Italian CEOs led the pay scale, though, with Alessandro Profumo, former CEO of Italian banking group, Unicredit, picking up €40.6m, although €38m of this was a severance payment. Second was Fiat’s Sergio Marchionne with €23m. Third was Martin Sorrell, CEO of the UK’s WPP with €22.2m, which led in part to a pay revolt by more than 40% of shareholders who voted against WPP’s remuneration package. The ECGS total remuneration calculations for each CEO include estimated values at market price of options and shares that are subject to performance conditions and vesting. Pensions information is excluded from the calculations.
The ECGS pay study universe comprises the 450 biggest European companies by capitalization, although the report is based on 367 listed companies across 16 countries where individual CEO remuneration is recorded. It said the average CEO remuneration in Europe in 2011 was €3.9m.
Of the 367 companies studied, there were 88 UK companies, 69 in France, 40 in Germany, 22 in the Netherlands, 23 in Italy and 28 Swedish companies.
In terms of sectors, the report shows significant differences in CEO pay from the lowest paid sector, Transportation, where average CEO total remuneration was less than €2m in 2011 to Household and Personal Products where average CEO remuneration was more than €9m.
The report suggests an inverse correlation between the percentage of basic pay in total remuneration in (37% in Transportation and 12% in Household and Personal Products) and Long-Term bonuses (12% in the former and 60% in the latter).
See downloads – left hand column – to read ECGS report