Total pay for the median chief executive officer of a UK FTSE 350 company increased by 82% in real terms in the period from 2003 to 2014/15, according to research by Weijia Li and Steven Young of Lancaster University Management School, supported by CFA UK. The level of value created over the same period by this group of companies has been low in absolute terms and erratic from year-to-year.
The median FTSE 350 company generated little meaningful profit in the period 2003-09 and, although performance improved from 2010 onwards, the median firm generated less than 1% economic return on invested capital. However, the pay of CEOs does correlate with value generated ‘at a primitive level’, the research finds, for example, those generating positive economic profits receive 30% higher median total pay than those generating a loss.
Will Goodhart, chief executive of CFA UK, said:
‘Compensation practices in the UK have come a long way in recent years but this report’s findings demonstrate that there is far still to go and that too few of today’s popular approaches – such as EPS and TSR – genuinely align senior executives’ pay with the economic value that they create.’