'Executive pay packages failing to reflect company performances'

CHIEF executives are enjoying pay packages bearing little relation to company performance, with salaries quadrupling over the past decade as share prices have tumbled.

The average FTSE 100 chief executive remuneration package has risen 5 per cent to 3.1 million since 2008, over which time earnings per share have declined, according to the Total Remuneration Survey 2010 by pay consultants MMK & Manifest. It claimed there was little or no correlation between pay, performance and shareholder value, with remuneration committees reluctant to challenge directors on behalf of shareholders.

The typical chief executive is rewarded for the most basic performance levels, the survey found. And bosses of large companies now enjoy up to 300 per cent of their salaries as annual bonuses, compared with 100 per cent for heads of organisations worth less than 1 billion.

Cliff Weight, director of MMK&M, said performance-related pay schemes rarely offered incentive for anything other than "adequate" performance.

He added: "If this wasn't bad enough we found most strategies were not based on adequate benchmarking, meaning many committees replicated the errors of their peers.

"If committees want to avoid criticism at the AGM and look shareholders in the eye they've got to change and be more diligent and challenging."

Weight said that incentive remuneration strategies should be based on the "short and long-term performance criteria, together with rigour and toughness in the target-setting".

Among Scotland's best-paid chief executives is Katherine Garrett-Cox at FTSE 100 firm Alliance Trust, who enjoyed a 10 per cent remuneration boost in the year to January 2010 despite modest performance.

Garrett-Cox received salary and benefits of 629,382, up from the previous year's 570,129, according to accounts published in April.

Yet Alliance Trust's asset value grew by 22 per cent in the year to January, against a global investment trust sector average of 29 per cent, underperformance attributed to it missing the early 2009 market rally.

Meanwhile, Archie Kane, head of Lloyds Banking Group in Scotland, earned a salary of 590,000 and an 885,000 bonus last year, taking his total 2009 package to 1.5m, up from 635,000 the previous year.

However, awards made under Lloyds Banking Group's annual incentive plan are deferred into shares until 2012 and are subject to possible clawback.

And there was controversy last week when it was revealed that Richard Ackroyd, the chief executive of quango Scottish Water and Scotland's highest-paid public sector official, received a 63,000 performance top-up as part of a total pay package of 336,000.

Over the same period, however, Scottish households saw a 30m increase in spending on water bills in the 2009-10 year, which reached a total of 740m.