| | Top British chief
executives are paid less
than half as much as
their US counterparts,
according to new
research from global
management consultancy
Hay Group reveals. Total
pay packages* for top UK
chief executives
typically amount to
close to €6m** according
to the study – but are
almost €13m in the US,
some two and half times
higher. Although the
market capital of these
US companies is, on
average, around 40%
bigger than the
Europeans, the size
difference alone cannot
explain the pay gap.
British chief
executives are the
second best rewarded in
Europe, according to Hay
Group's findings – just
behind their French
counterparts.
The Hay Group report,
How chief executives
are paid, compares the
level and structure of
chief executives'
packages shown in the
published accounts of
100 of the largest
companies in Europe and | |
|
| | the US.
The report also
reveals a striking
contrast in apparent
approaches to rewarding
performance. While
British and mainland
European packages
provide a broadly even
balance between base
salary, annual bonuses
and long-term
incentives, US companies
deliver much more of the
CEO's package through
annual bonuses and
share-based, long-term
incentive arrangements.
Europe versus US
In a typical package,
the value of bonuses and
long-term incentives
substantially exceeds
that of base salary,
significantly bolstering
chief executives’ pay.
However, the amount and
balance of these
incentives vary greatly
between countries.
Hay Group's research
finds that base pay for
top chief executives is
typically more than 20%
higher in Europe than in
the US – €1.3m compared
to €1.07m. However,
bonuses and other | |
|
| | incentives are much
lower. Top American
bosses gain
significantly better
overall pay as a
result.
UK highlights
UK companies pay the
highest base salaries –
typically €1.4m –
followed by the French
at €1.25m. British
companies in the study
pay the second highest
bonuses at 1.6 times
salary or close to
€2.2m, behind German
firms, which pay bonuses
approaching two times
salary.
Long-term incentives
in the UK are among the
lowest of the countries
studied, at 1.35 times
basic salary, or €1.9m
additional pay. French
companies provide the
highest long-term
incentives – typically
2.7 times salary – and
also pay the highest
overall chief executive
packages in Europe at
almost €5.9m.
Simon Garrett,
director of executive
reward at Hay Group and
author of the report, | |
|
| | commented: "Chief
executive compensation
is a great deal lower in
Europe than in the US as
a direct result of the
substantially larger
bonuses and share-based,
LTI awards made by
American companies. But
it would be simplistic
to suggest that US CEO
packages are therefore
more focused on
rewarding long-term
performance.
"Historically, US tax
and accounting rules
held down base salaries
and discouraged LTIs
driven by hard-edged
performance conditions.
As a result, US CEOs'
bonuses and LTIs grew
and were often really
about delivering more
pay than motivating them
to perform.
"By contrast,
shareholder activism in
Europe (and particularly
the UK) has meant that
the values of many
European LTI awards have
been reduced by tougher
performance conditions.
This sentiment seems to
be spreading and I think
US shareholders and
regulators are now | |
|
| | starting to demand more
bangs for the LTI bucks.
"Of course, in a
highly volatile market
the values of incentive
programmes are harder to
judge. Share options,
commonly used in the US
and France, can be
valueless if share
prices fall far enough.
However, performance
shares, more common in
the UK, can shine for
chief executives that
preserve more
shareholder value than
their peers."
* i.e. base salary,
annual bonus and
long-term incentives
such as stock options
but excluding pensions
which cannot be valued
reliably using published
data.
** For consistency
all data was converted
into Euros at exchange
rates applying at
September 2007.
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