Magazine article Management Today

Many Directors Get More Than Their Fare Share of the Money

Magazine article Management Today

Many Directors Get More Than Their Fare Share of the Money

Article excerpt

Many directors get more than their fair share of the money

It would be logical to assume that the UK's highest paid directors were those in the best performing companies, as measured by EPS. But this is not necessarily so, as a recent P-E International survey reveals. Productivity seems to end at the door of the British boardroom, according to a new analysis of boardroom pay carried out by the P-E International management consultancy.

The analysis (not to be confused with P-E's own annual salary survey) of the published accounts of the top 250 quoted companies shows that boardroom pay bears little relation to the growth in a company's earnings per share (EPS), normally regarded as the best yardstick for rewarding company executives. `Many people talk about using EPS as the best measure of boardroom performance, but it does not seem to be getting applied in practice. Perhaps it is not the best measure,' says Dennis Henry, P-E's resident number-cruncher.

Certainly the median figures for all the companies in Henry's database confirm this observation. While earnings per share grew by a little over 52% over the last three-year period, the pay of the highest paid director grew by 70% and total board-room remuneration by nearly 63%.

In retailing, one of the go-go sectors of the 1980s, the difference was even more marked. While earnings per share grew by 31%, the median figure for the salary growth of the highest paid director was 90%, though total boardroom pay grew by a more `modest' 63%. In the unfashionable engineering sector, the differences were far less marked. EPS grew by 52%, and the earnings of the highest paid director grew by 65%.

Looking at the best and worst performers, Henry's analysis shows that some of the great stars of the '80s have come a cropper of late. At Next, the creation of George Davies until he was unceremoniously booted out, the highest paid director now enjoys a 404,000 [pounds] salary, up 42% in the last three years, even though earnings per share have tumbled 183%. If he was paid strictly in line with EPS performance, he would actuallt be paying Next some 235,000 [pounds] for the privilege of working for the high street fashion chain.

Similarly, Storehouse, Sir Terence Conran's creation, has seen its earnings per share fall by 77% in three years, though the highest paid director's salary has risen 159%. …

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