Executive pay – What justifies D-level and C-level pay rises?
Redline Executive Search
Big pay is a ‘boys club’ say campaigners as UK executives secure double-digit pay rises in 2015. But what justifies an executive D-level or C-levels pay rise? Redline Executive Search has conducted some research into these pay rises.
According to new research conducted by The High Pay Centre Research, the UK’s top bosses received a 10% pay rise in 2015 as average executive level salaries of FTSE companies hit £5.5m. Bosses of the UK’s biggest companies enjoyed another bumper pay rise while wages in the rest of the economy fell far behind.
Rapid inflation for the UK’s best paid executives is being driven by a small, all-male group at the top of the corporate tree, according to the High Pay Centre, which published its annual survey on earnings at FTSE 100 companies. Leading company bosses now typically earn 129 times more including pensions and bonuses – than their employees.
For the average worker, wages rose by 2% in 2015, according the Office for National Statistics. The modest increase followed sharp falls in the wake of the financial crisis. In the meantime, top CEO, CTO and COO jobs pay soared from £4.1m in 2010 to just under £5.0m in 2014, to £5.48m in 2015. According to PayScale, the average pay for a Chief Executive Officer (CEO) in the UK is £98,853 per year, with a Director of Engineering earning an average salary of £71,027 per annum.
However, according to Bloomberg this week, executives are also being financially rewarded without pay association. As well as executives’ average earnings securing a double digit pay rise, Technology giants Amazon, Facebook and Alphabet are also paying bosses exclusively in stock grants that are free from any links to pay structure or performance goals. This is popular amongst technology companies as they tie their top executives’ pay to targets disclosed in regulatory filings. Paying in stock rather than cash helps boards align management rewards with performance and tying those grants to specific financial or operational milestones can reinforce that approach. For businesses in technology industries, boards prefer plans that do not reveal company targets and that help retain highly sought-after executives by guaranteeing their potential pay-outs.
Andy Raymond (pictured), head of Redline Executive Search, said, “A pay structure or program that is not strictly bound to a monetary formula gives technology company boards more latitude to adjust to situations in real time.
“It is a case of how much detail technology boards want to disclose in proxy filings and reveal to competitors. These structures allow executives to take a long-term view. The pay-outs are not contingent on performance objectives and typically happen over a span of several years.
“In industries such as engineering, technology and IT/software, ideas and innovation are plentiful, but talent still remains scarce. Companies are racing to recruit engineers and executives who are able to disrupt existing business models, with promises of equity-laden pay packages. In such a rapid and innovative technology era, talent can make or break a company, the view must be that if an executive has the potential to put a business over the top and create multiples of what we intend to pay them, companies should tailor packages to secure that person at the top of their business.”