UK chief executives are the best paid in Europe, receiving £2.7m a year thanks to generous incentive plans that have become a growing source of shareholder anger.
This is about a sixth more than the median pay for their European counterparts, according to a study by Vlerick Business School in Belgium, which found that CEOs running Europe’s top 600 listed companies earned £2.3m last year.
In Britain, almost half of annual median CEO pay in 2018 came from long term incentive plans, often linked to company performance or shareholder returns. The rest was split almost evenly between shorter term incentives such as bonuses and fixed wages, according to the report, which surveyed 159 UK businesses and 576 in the rest of Europe.
Median pay for CEOs at the Britain’s top 100 listed companies was £3.3m last year, marginally higher than 2017 but down from a peak of £3.6m in 2016. Vlerick reported that 42 per cent of UK CEOs in the broader sample were paid less overall in that period.
The study also found that non-financial performance indicators — such as environmental sustainability — for long term incentives were less popular in Britain than elsewhere in Europe, but more so than in Germany.
Vlerick said fewer than 10 per cent of companies included environmental targets in their incentive plans, while overall non-financial targets such as quality, innovation and sustainability featured in about a fifth in total.
Shareholder returns are the main indicator in most long term incentive plans. Short term incentives were dominated by income, revenue and profit measures. Almost all UK companies have a required shareholding for their CEOs.
Vlerick found a strong relationship between the size of a company and the level of CEO remuneration, but no clear relationship with profitability.
“This means that better performing firms do not pay their CEOs more,” said Xavier Baeten, a professor at the business school. “I assume that these firms have things more under control, also their budgets.”
Prof Baeten added there was no clear link between employee representation on company boards and the level of CEO pay.
“I know that, some time ago, voices in the UK were considering installing an obligation to have employee representatives in the board in order to control CEO remuneration, but this has no impact.”
On average, British companies in the Stoxx Europe 600 made an annual contribution of 24 per cent of fixed pay to their CEO’s pension pot. For more than a third of UK companies, the contribution is more than 25 per cent.
“I know that the intention in the UK is to align pension plans for the top management with the average workers, but there seems to be a way to go,” Prof Baeten said.
In the past, UK company executives have complained that overseas peers, particularly in the US, are able to earn more for similar roles in global multinationals.
