Share prices tumble, but top boss bonuses soar by 200%

Average bonuses for top company directors have risen by almost 200 per cent in the past decade despite a big fall in share prices, according to a new study.

Research for the High Pay Commission, which is studying wage rates, found that the average annual bonus for a director in a FTSE 100 firm increased by 187 per cent.

Lead executives received a bonus worth 48 per cent of salary in 2002, but last year, for the same level of performance, it had jumped to 90 per cent, the report said.

At the same time, their salaries increased by 63 per cent, said the commission, which is to report its full findings in November.

The average value of long-term incentive plan awards paid out to top executives across the FTSE 350 had shot up by 700 per cent since 2000, the report said.

The average total earnings of directors in state-supported banks were just under £4 million last year, compared with £1.7m in 2000, an increase of 130 per cent, it was found.

Deborah Hargreaves, chairman of the High Pay Commission, said: “The evidence exposes the myth that big bonuses and high salaries result in better company performances.

“There has been massive growth in what has been termed as performance-related pay, yet no such corresponding leap forward in company performance.

“All we’ve seen is things getting much more complicated – in many ways, masking the real value of what executives get paid. Corporate governance reforms attempting to link pay with performance appear to have done little more than add to the huge complexity of reward schemes and bonuses that make up the pay of FTSE 100 directors.”

The High Pay Commission is an independent inquiry into boardroom pay in the UK, established by pressure group Compass with the support of the Joseph Rowntree Charitable Trust. The commission, which started work last November, is exploring trends over the past 30 years which have seen pay at the top increase significantly.

In recent years public anger has grown over “fat cat” bonuses, particularly those paid to the heads of banks bailed out by the taxpayer.

In March it emerged that Stephen Hester, chief executive of Royal Bank of Scotland, had been awarded a pay-and-bonuses package worth £7.7 million for 2010. The package included £4.5m worth of shares in the firm, which he can cash in after 2014, on top of a £1.2m basic salary and a £2m annual bonus.

TUC general secretary Brendan Barber said: “Runaway pay at the top is not just unfair but helped cause the crash. Ordinary people were sold credit as their wages failed to keep up.

“What makes it worse is that those who did the best from the boom years still refuse to make a proper contribution to putting right the damage they caused while those who did the least to cause the crash are paying the heaviest price.

“Reducing the gap between the super-rich and the rest of us through fairer pay must be a crucial part of building the new economy we need to replace the broken model that gave us the worst crash in generations.”

David Watt, executive director of the Institute of Directors Scotland, said that salary and bonus levels should be determined by company shareholders and if performance was not adequate then directors should not receive their whole bonuses.

“The shareholders, including pension fund holders, should stand up and be counted and shouldn’t allow these high salaries or bonuses for individuals who are not performing,” he said. “Equally, people need to understand it is a fairly hazardous occupation being a senior director in many of these companies.

“At the same time, they should be paid by performance and by results, and if results are poor it suggests that shareholders should be having a serious look at the remuneration offered.”

Mr Watt said high wages and bonuses were often linked to companies trying to turn their firms around.

“Very often they come in and are given very high salaries with the hope that they will turn it around and very often don’t manage it because of some of the inherent difficulties,” he said.

“Some of the performance isn’t always determined by the directors but by the global market place or world recession.”

A spokesman for the Department for Business, Innovation and Skills said: “This is an interesting report, which we will study further as part of our wider look into corporate governance.”