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High pay in the pandemic year

There was only a muted media reaction this year to the High Pay Centre’s annual review of FTSE100 chief executives’ “pay”. The normal cues for righteous indignation were missing: the median for 2020 of £2.69m was 17 per cent less than the £3.25m reported for 2019. That’s the lowest it’s been since 2009 and hardly the stuff of headlines.

A fall in pay was to be expected in the year of lockdown and suppressed business activity. Several chief executives volunteered to take temporary salary cuts, and 36 per cent of FTSE100 companies paid no annual bonus. As ever, the largest contributor was the long-term share award. These are counted not when they are made, but at the end of their performance period, which is typically after three years. Only then can the outcome of the performance conditions be known, and in 2020, more failed to pass their threshold. Of the 77 per cent of companies whose plans did trigger, a lower proportion of shares was transferred to executives, and lower share prices also had an impact. At Shell (RDSB), fears that oil company shares would become stranded assets knocked 30 per cent off the value that Ben van Beurden’s vested shares had been worth when they were awarded. And Bernard Looney at BP (BP) fared even worse – the value of his fell by 40 per cent.

The High Pay Centre’s “Pay” Review is a bit of a misnomer: it’s not based on chief executives’ current pay packages, but on what they receive. The time-shift involved in long-term share plans means that last year’s outcomes will be governed by historic decisions – the amounts received depend on the number of shares awarded three years earlier; how stringent their performance conditions have proved to be; and whether or not the stock-market in general has risen since they were awarded. So, whilst the review could be said to indicate pay trends, they are not necessarily current ones.

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