Executive pay and bonuses take flight

It’s cash handouts for everyone at British Airways, where shareholders are getting their first dividend since 2001 and the airline’s 43,000 staff are to share a £35 million bonus.


Well, cash handouts for everyone except chief executive Willie Walsh, who thought it would be “inappropriate” to take his £700,000 bonus in the wake of the bungled opening of Heathrow’s Terminal 5.

It has been quite a week for bonuses. On Wednesday, Tesco announced that its chief executive, Sir Terry Leahy, was getting a £1.2 million bonus to add to his £1.3 million basic salary. Executive pay at the retailer was up by 18% overall.

Meanwhile, ITV chairman Michael Grade came under fire from shareholders for his £2 million package of pay and bonus – achieved at a time when the broadcaster’s share price was at an all-time low.

Executive bonuses are also proving unpopular with European finance ministers. Some countries, including France and the Netherlands, have already imposed legal limits on such payouts.

Figures from the CELRE National Management Salary Survey, published this week in association with the Chartered Management Institute, show that executive bonuses have been on the increase over the past few years.

Some 85% of company directors covered by the survey got a bonus this year – up from 70% five years back. And among those who did get a bonus this year, payments averaged 45%. Back in 2004, payments were on average just 27% of salary.

In cash terms, this means the typical director-level bonus has risen from £28,785 to £78,649 in five years.

Fair? Justified? Well, possibly given the booming state of the economy over the past few years and the impact this has had on company performance.

But it will be interesting to see what happens now that, as the governor of the Bank of England puts it, “the nice decade is over”.

Interesting, too, to look back and see how management salaries have changed since, say, the mid 1970s, when CELRE was putting out its first ever National Management Salary Survey.

In 1974, the median chief executive salary was £10,600 while other directors earned £8,250 and middle managers £4,716.

Fast forward to 2008, and chief executives earn a median £513,022, other directors £162,500 and department managers £63,117.

If there is unfairness in executive pay, it is surely in the widening gap between the very well paid, the well paid and the not-at-all-well paid.

As these figures show, in 1974 chief executives typically earned some 2.25 times as much as their middle managers, while in 2008 the gap has grown so that they now earn more than eight times as much.

The gap with those on average and low incomes has surely become wider still.

Further details of the National Management Salary Survey are available from CELRE. Call 020 8652 8627 to find out more.

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