Table of Contents
(Click on each link)
- FTSE-100 FD pay league table, part 1
- FTSE-100 FD pay league table, part 2
- Total pay package
- Up and down
- High flyers, old timers
- Big bonuses – and bust
- Good exercise
- Boardrom competition
Ken Hydon’s extraordinary bonus of £2.4m last year clearly wasn’t going to be repeated this year, so he slips down the top pay league – but by just one place. Last year’s third-ranked FD, Man Group’s Peter Clarke, has a table-topping package despite his below-average basic salary.
Overall, the job of being a FTSE-100 FD pays significantly better than it did in last year’s survey – a basic salary of just under £350,000 with some £225,000 in short-term, performance-related bonuses and other perks worth £30,000. Salaries are 12% higher than last year and the total £605,000 package is worth 14% more – slightly surprising results, perhaps, given that the year inquestion for most of the companies surveyed, 2001, wasn’t a great one for their investors.
There are seven FDs in the million-pound-a-year bracket this year, one more than in our last survey, and two FDs just a few thousand pounds below the seven-digit hurdle. Six FDs – those from Amvescap, BP, Diageo, GlaxoSmithKline,Man Group and Vodafone – featured in last and this year’s top ten. Likewise, the bottom of the table is still propped up by the FDs from Capita, Friends Provident, Wm Morrison Supermarkets and Scottish Power. Almost a quarter of FDs are in the £400,000 to £499,999 bracket. But don’t feel too sorry for Capita’s Gordon Hurst: he made over a million on share options as our table on FDs’options – the first since January 2000 – reveals.
This year’s main table includes year-on-year increases in basic salary and total pay, as well as details regarding FDs’ pension arrangements.
Here’s an interesting study in convergence: FDs from Amvescap, BSkyB, Cadbury Schweppes and Vodafone were all among our 2001 survey’s top ten biggest earners, but have all suffered the biggest falls in total pay as big bonuses just couldn’t be repeated. At the same time, former bottom rankers from Friends Provident, Hays and Shire Pharmaceuticals all benefited from some of the biggest increases in total pay, mostly because of bigger bonuses, but Shire’s Angus Russell saw his basic pay rise by 47%. More than a fifth of FDs saw their total package increase by 35% or more. Zero-to-10% was more normal, as a quarter of FDs will testify, but the same proportion experienced a decline in total earnings.
This table has typically ranked more senior FDs near the top, as pay has tended to come with experience. But it throws the spotlights on young high-flyers whose pay-per-year-of-age marks them out as top achievers. This year sees 57-year-old Ken Hydon at Vodafone supplanted by the youthful Peter Clarke at Man Group, who has earned more than £41,000 for every one of his 42 years of age. Nick Rose at Diageo demonstrates staying power by being in this list again,as does AstraZeneca’s Jonathan Symonds.
This year we also looked at how long FDs have been in situ. The average is about four-and-three-quarters years to the balance sheet date (most of which were 31 December 2001).
Intriguingly, most of the the longest-serving FDs appear in the bottom half of the pay table, but the well-paid and long-serving Ken Hydon at Vodafone and John Coombe at GlaxoSmithKline prove that you don’t have to be a frequent job-changer to earn the big money.
FDs are getting younger, with the average age down from 48 to just under 47. And for the first time in this survey’s six-year history, there are noFTSE-100 FDs in their 60s. The last year has seen the retirement of both John Weston Smith at British Land (age 69) and Derek Stevens at British Airways (62).
We’ve also never had so many FDs in their 30s: this year there are ten who have yet to turn 40, youngest of whom is Nick Luff (34) at P&O Princess Cruises, which demerged from the parent group where Luff had the finance helm since1999. Tim Scott, 39, became FD at ICI, succeeding Alan Spall who sadly died in March this year, shortly after retiring. Since Rio Tinto’s year-end, our oldest FD, Chris Bull, has retired, to be succeeded by Guy Elliott, 46. Ian Livingston, ex-Dixons and now BT, is onto his second FTSE-100 company – and still only in his 30s. We don’t want to worry him but it’s an achievement thateven surpasses that of John Mayo, who moved from Zeneca to Marconi while just 40.
Ten FDs earned at least half their total pay from performance-related bonuses, with Peter Clarke at Man Group having the most heavily geared wallet: his £262,000 salary was far below the FTSE-100 average, but his £1.4m bonus madeup for any shortfall in the monthly envelope. Likewise, Robert McCullough at Amvescap has always featured at or near the top of the pay tables, thanks to big bonuses. Eight FDs who had been in place throughout the full financialyear earned no bonus at all – particularly painful for Kathleen O’Donovan at Invensys and John Makinson at Pearson, both of whom actually waived their rights to £100,000-plus bonuses. Overall, bonuses made up 31% of the total pay,down from the previous year’s 40%.
For the first time since our comprehensive options survey in January 2000, we’ve looked at how FDs have supplemented their pay by exercising options. Only about a quarter of FDs managed to boost the family wealth in this way, whilemany have not been at their current employer long enough for the normal three-year performance criteria to have been met. Three FDs made more than £1m from options – we ignore LTips and other directly held shares in our calculations- swelling the list of million-pound-a-year FDs. Capita’s Gordon Hurst was the second-worst paid FD but made up for it by creating enough shareholder value for his options to kick in smartly. Taking pay and gains on exercise of options together gives a slightly different ranking, though Man Group’s Peter Clarke still tops the bill. He’s followed by Canary Wharf’s Peter Anderson who trebled his income thanks to the performance of his share price.
Here we compare FDs’ total pay with that of the highest paid director in the boardroom. It’s an interesting measure of the relative standing of the FD amongst his peers. Curiously, the average has been remarkably static, with FDs earning 57% of the wage packet of the board’s top earner. It’s difficult to extract any broad lessons from this ranking, other than that utility boardrooms appear to be most evenly balanced in terms of pay, with the FDs of Centrica, BG Group and United Utilities earning at least three-quarters what thehighest-paid director earns. Former building societies feature too, with HBOS and Northern Rock FDs high up on this list. But Royal Bank’s Fred Watt is languishing far behind the pay of his colleague Lawrence Fish, who is chairman, president and chief executive officer of RBS subsidiary Citizens Financial Group, Inc.
Our first look at FDs’ pension arrangements will raise a few eyebrows. We found that 64 FTSE-100 FDs have defined benefit schemes (some of which are non-contributory), while another 10% have a mix of defined benefit and defined contribution/money purchase arrangements. Roughly one-FD-in-six had a defined contribution/money purchase scheme. Note that our data is based on the companies’ annual reports: some of these companies may already have reviewed -or currently be reviewing – their pension arrangements for directors, especially as so many staff DB schemes are being closed to new employeesor even converted to DC.
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