Boardroom pay increases at twice the inflation rate

The Chancellor of the Exchequer's call for pay restraint, made in his pre-Budget statement this week, has been given added weight by the publication of new figures today. A pay survey shows that Britain's company directors saw their salaries increase by more than twice the rate of inflation last year. Roger Trapp reports.

The annual study, UK Board Earnings, by Monks Partnership, the remuneration specialists, shows that directors' base salaries rose by 6.3 per cent over the year. Total earnings, including the last annual bonus, but excluding proceeds from long-term incentive plans, share options, pension costs and other benefits in kind, were up by 8.6 per cent.

For chief executives, base salaries were broadly the same as last year, but total earnings rose by between 6.5 per cent for those in property companies and 7.9 per cent in financial organisations.

On Tuesday, Mr Brown appealed for pay restraint from business leaders and the rest of Britain on the grounds that it was "in no one's interest if today's pay rise threatens to become tomorrow's mortgage rise". He added: "It is moderation for a purpose. This means responsibility, not just on the shop floor but also from Britain's boardrooms outwards, where there must be moderation, not excess, and where an example should be set."

However, the Monks survey, based on annual reports in circulation last month, identifies 12 main board directors who earned a more than pounds 1m each in the year. They include Hugh Stevenson, Stephen Zimmerman and Carol Galley, the trio at the helm of Mercury Asset Management, who stand to share pounds 40m through the takeover of the fund management company by the US banking group Merrill Lynch. Also on the list are Lord MacLaurin, the former chairman of Tesco, as well as the chairmen of Tomkins and TI Group and the chief executives of SmithKline Beecham, Hanson and Standard Chartered.

Though the number is above the seven identified last year, it is well below the 19 identified in 1995.

"This may be a consequence of lower bonus payments in 1996 and the move to awarding shares rather than cash to directors participating in long- term incentive plans," said Alison Smith, editor of the study.

The Monks research also indicates that about 10 per cent of companies operate annual deferred bonus plans, under which part or all of the bonus is paid in shares rather than cash, with the shares only passing to the director after a period of, say, three years. However, take-up of such plans increases with the size of the company, so that 30 per cent of FTSE 100 companies have deferred bonus plans.

Long-term incentive plans have also become more common as an alternative to traditional share options. Though the increase on last year was only slight, there were particularly big increases in take-up among industrial companies with turnover of between pounds 1bn and pounds 5bn and among the utilities, building and retail sectors.

Ms Smith said that the continued above-average base pay rises for company directors was possibly "a reflection of the shortage of individuals with the necessary skills to run the increasing number of companies with international involvement".