The way companies are run is a hot topic at the moment. Scandals in the US at corporations as diverse as WorldCom, AOL Time Warner and Bristol Myers Squibb have led to public hand-wringing and intervention by President George Bush himself.
In the UK, more than a decade of debate - and three different reports from committees chaired by leading industrialists - led to the publication of "The Combined Code" in May 2000. This set out the principles for good corporate governance among UK listed companies. More than two years after the publication of the code, many companies are still flaunting its principles. This has led to anger among shareholders and pressure groups, as has been witnessed recently at AGMs for two FTSE 100 companies, Vodafone and British Land.
In the most authoritative survey yet, The Independent on Sunday - in association with corporate governance and proxy-voting experts Manifest - has examined boardroom best practice in the UK. We have looked at the top 350 quoted companies in Britain, studying their board structure and pay policies as disclosed in their annual reports. Our findings show that many companies are still turning a deaf ear to the calls for reform. Indeed, they could be called the code breakers.
How we have done it?
The survey looks at a number of issues concerning pay and boardroom practice. All the information is based on the latest published accounts. In some cases these accounts may be a few months old and some matters may have changed since then. Where we have been notified of any changes since the financial year end, we have highlighted them.
The data on which this survey has been based can be found on Manifest's website: www.manifest.co.uk
Which is the best-paid board?
Much of the attention devoted to executive pay has fallen on individual "fat cats". But companies are not just run by one executive - they are run by boards. So which is the best-paid, and which boardrooms have had the biggest rise in remuneration over the past five years?
Our survey included all pay and bonuses to executive directors, all fees to non-executives and pay-offs to former directors, but excluded gains from share options. It found that Vodafone - the centre of so much controversy last week - paid its directors the most. This was followed by EMI, the subject of a shareholder revolt over pay last month, and Unilever. Other notably well-paid boards included Reuters, the worst-performing share on the FTSE 100 this year; Big Food Group, which recently issued a profits warning and is facing legal action over its pension fund; and Intermediate Capital, the finance house. (The top 20 best-paid boards are shown in table 1.)
However, we felt that the rate of increase was also important. According to the Office for National Statistics, the average pay increase for someone working in the private sector in the UK was 26.8 per cent between 1996 and 2001. Yet in the same period the directors of Colt, the telecoms group, had an aggregate pay increase of 1,149 per cent, while at Shire Pharmaceuticals the total rose by 763 per cent. Other notable increases were at Reuters, where remuneration jumped 258 per cent; EMI, where it was up 312 per cent; and Aberdeen Asset Management, in the news over split capital trusts, where pay rose 269 per cent. All in all, the boards of public companies enjoyed a 104 per cent rise in their total pay over these five years.
Some of these figures may be skewed by appointments to the board or mergers, but it is impossible to quantify those issues.
(The 20 leading risers over the past five financial years are shown in table 2.)
Executives also benefit from share option awards. According to the most recent annual reports, 34 directors were sitting on options worth in excess of pounds 1m. These included Bart Brecht at Reckitt Benckiser; Sir George Matthewson at Royal Bank of Scotland; Jean Pierre Garnier at GlaxoSmithKline; and Christopher Fishwick at Aberdeen Asset Management. …