Just rewards? A global view

When asked to defend their pay packages, British executives like to play the international card. They argue that since business is increasingly global, their remuneration should reflect international standards.

How does the pay of British executives compare with their international counterparts? The honest answer is that nobody really knows. While data on US boardroom pay is fairly well documented, the same cannot be said for the rest of Europe.

Even less is known about salary levels in Japan. Comparisons are further complicated by the need to allow for different tax rates, pension arrangements and length of service from country to country. The trade in executives between countries, while increasing, is in practice so limited as to make international comparisons of limited practical value.

The most authoritative recent survey, by Anthony Williams, suggests that boardroom pay has been rising more rapidly in the last decade in the UK than in nearly every major competitor country. Salaries have risen sharply, the number of share option schemes has mushroomed and tax rates have been cut.

Whereas in the Seventies the UK clearly lagged a long way behind the rest of the world, the best available evidence suggests that only the US, Germany and Italy now consistently pay their top executives more. The comparable position in Japan is harder to establish with any precision, but nobody disputes that Japanese companies generally pay their executives much less than their US counterparts. The ratio of top management to shopfloor pay is also much lower than in either the UK or the US.

What is not in doubt is that the UK system of rewarding executives is much closer to that of the US than to either continental Europe or the Far East. Share option schemes, for example, which have provided UK executives with substantial rewards, are virtually unknown on the Continent and in Japan.

The rewards for US executives remain significantly higher than in the UK, though the gap is narrowing. But comparisons need to be treated with care. In the US, top executives rarely enjoy the security of 12-month contracts. This contrasts with the two- to three-year contract that is still common in Britain and much longer notice periods in Germany. In Japan, though it is under threat, the job-for-life culture is reckoned to reduce the need for big pay packages.

Roger Trapp