Guess which FTSE 100 chief executive came top of The High Pay Centre’s executive pay report for 2022. It’s hardly a surprise. AstraZeneca’s (AZN) Pascal Soriot received more than £15mn for the fourth year running.
The median payout was £3.9mn (£3.4mn in 2021). The report sparked misleading headlines such as “FTSE 100 bosses given pay rise of £500,000 in 2022” – an apparently overgenerous inflation-busting 16 per cent rise. The median for ordinary employees was 5.5 per cent. And this, at a time that government ministers and Bank of England officials are urging pay restraint. The media stories almost wrote themselves.
Pay gaps have widened over the years. Soriot received 464 times the UK nationwide median full-time wage. Sectors vary though. Big pharma relies on specialist skills. The median AstraZeneca UK employee earned £96,000 last year. Soriot received 159 times as much as this, but the sheer scale of the group is easily overlooked. Only 12 per cent of its employees are in the UK. Only a fifth of its revenues came from Europe. At $44.4bn (£35.3bn), the group revenues were greater than the gross domestic product (GDP) of more than a hundred countries – if AstraZeneca was a country, it would be about the same size as Bahrain or Estonia. Similar arguments could be applied to other highly paid chief executives. Those at BAE Systems (BA), CRH (CRH) and BP (BP) received more than £10mn in 2022. Their companies are all multinationals. They too have complex global responsibilities.
Only companies with external shareholders come under scrutiny like this. As the report acknowledges, many “major UK employers are not included because they are either privately owned or listed by parent companies in other countries.” The High Pay Centre suggests that all companies should be required to provide more information about the pay of their senior managers. More meaningful comparisons could then be made. This is a major issue. According to the Sunday Times 2023 Tax List, more than 100 individuals had a UK tax bill last year of over £10mn, which must have been about half of their income. Heading the list was Alex Gerko (founder of XTX Markets, the algorithmic trading company) and Denise Coates (founder of Bet365, the online gambling company) and her family. Their tax liabilities suggest that each had an income about 70 times larger than Soriot’s. There was comparatively little publicity. Income inequality runs far deeper than the high pay report can quantify.
Another distortion comes from the word ‘pay’. It’s often wrongly interchanged with ‘salary’. Does “bosses’ pay rise” mean a salary increase? Salary increases are jam tomorrow. This year, Soriot’s salary went up by 4.5 per cent to £1.429mn. AstraZeneca’s wider UK workforce had a higher rise: 5 per cent. Including his benefits and pension equivalent, Soriot can be certain of earning £1.7mn in 2023. The rest depends on performance. This could earn him anything from zero to £12.9mn. So how much will his pay be in 2023? It’s too early to say.
How about looking backwards? Last year, he turned in a near-maximum performance over the 12 months. The total cash he received was £3.2mn. Half his annual bonus, worth £1.56mn, was paid in shares that can’t be sold until 2025. The rest of his package was a share award, initially worth £8.9mn. The number of these shares that will eventually be released depends on his and AstraZeneca’s performance over the three years to 2025. What, then, was his pay in 2022? It’s impossible to predict. Too much of it is still at risk.
Over 10 years ago, it was realised that if pay could be pinned down, every company could calculate a “single figure of total remuneration” in the same way. Like-for-like comparisons could then be made. The solution? To focus on how many shares had actually been received, not how many might be. In 2022, Soriot was paid the cash and bonus as above, and received shares dating from an award in 2020. Then, they had been worth £6.87mn. He can’t sell them for another two years, by which time what will they be worth? The published single figure got around this by estimating their value using the average share price for the last quarter of 2022. That pushed up Soriot’s apparent total remuneration to £15.32mn. A fifth of this, £3.0mn, came from that estimated value less the original value in 2020 – based on the same share price rise enjoyed by AstraZeneca’s shareholders and employees participating in all-employee share schemes. The previous year, his share gain had been £2.4mn.
The problem, as most media coverage demonstrates, is that the single figure can be misinterpreted. Who gave the FTSE 100 bosses a “16 per cent pay rise” last year? Not their companies, as was widely assumed. The gains actually came from their companies’ share prices. Think of those rising prices as measures of success.
