Who are the best-value CEOs in the UK?

The gals and (mostly) guys who run the UK’s biggest companies – plus their pals on the companies’ remuneration committees – are at it again. On average, pay for bosses of FTSE 100 companies rose by 16 per cent in 2022, while their employees – or, at least, an average UK worker on full-time pay – struggled to get by on a 5.5 per cent rise as the UK’s inflation rate whistled along at a pace topping 10 per cent at its peak.

Those real-term gains also mean that in 2022 average pay for a FTSE 100 boss was £3.91mn. To put it another way, that amount is 118 times higher than the pay – £33,000 – of this average UK worker. And, to put it yet another way, it must be great – uplifting, motivating and all the rest of it – to know it takes the notional Footsie boss about two working days to gross the same amount as the notional employee makes in a year.

So what’s the verdict, does data like this prompt the cry ‘aux armes, citoyens’ for the plebs to storm the corporate Bastille? Or, to take another metaphor from 18 century France, is company bosses pay a genuine case of ‘pour encourager les autres’, although perhaps not in quite the way Voltaire meant?

Most likely, neither. But it’s always knockabout stuff to see what Footsie bosses are getting away with, and last year’s £3.91mn stash was the best since 2017 when their average pay was £3.97mn. That is the highest figure on record – it ties with 2013 – since the High Pay Centre, a left-leaning think tank, began its annual review of bosses’ pay at the UK’s listed companies, from which these figures are taken.

That £3.91mn is a median figure, meaning it’s the mid-point within the think tank’s sample, which actually comprised just 95 Footsie companies. Had the focus been on the mean – the figure that is intuitively thought of as the average – then it would have been £4.44mn, a 5 per cent rise on 2021’s £4.23mn. Arguably, however, the median is the more appropriate number since the mean of a data sample tends to be distorted by its outliers. These could be at either end of the distribution but, since the subject of this exercise is Footsie bosses’ pay, here the distorters tend to congregate at the upper end.

Still, let’s acknowledge it, the fascination with bosses’ pay – it’s a sort of fiscal prurience – is drawn to those who populate the top end. Of those, the fattest cat this year is the 64-year-old French-Australian boss of Anglo-Swedish pharmaceuticals group AstraZeneca (AZN), Pascal Soriot. In the past, Soriot, AstraZeneca’s chief executive since 2012, has moaned about being lowly paid compared with other Big Pharma bosses. Well, maybe, although his £15.3mn ‘single-figure’ remuneration, which includes basic plus bonuses of all kinds, was a bit less than he received in the previous two years. This year it puts him in line with the boss of US pharma giant Merck (US:MRK), which owns the world’s top-selling drug, and streets ahead of the chief of Swiss pharma group Novartis (CH:NOVN), whose stock market value is slightly ahead of AstraZeneca’s.

Runner-up to Soriot, though trailing well behind, is Charles Woodburn, the boss of defence supplier BAE Systems (BA.), whose single-figure pay was £10.7mn. In third place is Albert Manifold, the long-standing chief of Dublin-based building materials supplier CRH (CRH).

Which chief executives provide the best value for shareholders?

The trouble is that the numbers alone tell us nothing about the vital question: which chief executives provide the best value for shareholders? Which ones earn their keep despite – or maybe because of – their fat wad? Which ones are there for the rent extraction alone? That these questions are vital isn’t in doubt and the whole panoply of corporate remuneration policy aims to explain and to justify what a company’s executive directors – and especially its chief executive – get paid. In AstraZeneca’s case, for example, the report of the remuneration committee runs to 26 pages of detailed text and tables in this year’s annual report. It deals with pay policy throughout the group, but is chiefly an exercise in describing – more than explaining – how Soriot and the finance director, Aradhana Sarin, the only two executive directors, came away with their respective amounts.

Hence the table below, which seeks, in a rough-and-ready way, to link Footsie bosses' pay with share price performance. True, nowadays big companies and their bosses serve more than the narrow pecuniary demands of their shareholders. Thus, for example – and in AstraZeneca’s case – Soriot’s and Sarin’s long-term bonuses depend on meeting targets for ‘science and innovation’, ‘ambition net zero’ (predictably), ‘growth and therapy area leadership’ (developing new drugs) as well as conventional measures such as cash flow generation and total shareholder returns.

However, there is much to be said for, as it were, getting personal and comparing the pay and performance of Footsie bosses against each other in a way that remuneration committees would find far too vulgar. Thus, in a purely indicative rather than definitive way, the table says the best value-for-money chief executive among Footsie bosses is Brendan Horgan, the American who took over running equipment-hire operation Ashtead (AHT) just over four years ago after he had run its North American operation (85 per cent of group turnover) for the previous seven. At the other end of the scale and bottom of the pile is Philip Jansen, who has had the dubious privilege of running BT Group (BT.A) since 2019 during which time its share price has more than halved.

So how did we get there? By keeping it simple, perhaps simplistic, even. The performance of each boss is measured by the share price of their company relative to the FTSE All-Share index from the date of their appointment to the present. Then the movement of those relative values is measured by their annual growth rate, quantified in the column labelled ‘Rate of return’. This makes roughly comparable the performance of those who have been in the job a comparatively short time with the long-term players, such as AstraZeneca’s Soriot. Thus – to spell out the workings – when Ashtead’s Horgan got the top job in May 2019 Ashtead’s price relative to the All-Share was 26.0 (a price of £18.65 against an index value of 7,162). Now the price relative to the index is 74.2 and the annual growth rate needed to take 26.0 to 74.3 in four-and-a-bit years is almost 28 per cent.

The arbitrary cut-off factor was to exclude from the reckoning bosses who have been in the top job for less than four years. Maybe that’s too long a period since the average tenure of a Footsie chief is diminishing. Besides, it is noticeable that among the poor performers there is a cluster of those who have been in the job for under four years – the likes of Stephen Bird at asset manager Abrdn (ABDN), or Liam Condon at metals processor Johnson Matthey (JMAT). This indicates they took over groups already on a downward slope and the trajectory is resisting their efforts. At the other end of the scale, it means that the top performer, a 249 per cent annualised return from Tufan Erginbilgic to make aero-engines supplier Rolls-Royce (RR.) fly again, counts for nothing since he has been in the job barely eight months.

Equally important is the requirement to compare bosses’ rate of return with their pay, where the table shows the amounts for the latest full year and compares the ‘single-figure’ amount as a percentage of the Footsie bosses’ £3.91mn median. It is true that at an average of almost £6.5mn the nine so-called ‘Cheap chiefs’ were paid much more than both the Footsie median and those so-called ‘Expensive execs’ who, to date, show negative rates of return. On the other hand, it is feasible to argue that the cheap chiefs’ company share prices have been moving in the right direction for such a long time – the average tenure is just over 11 years – that these bosses must be doing something right, even if it’s not obvious what it is. What is clear is that they are not exposed to similar corporate dynamics. After all, there is a potpourri of corporate activities in there, where low tech rubs shoulders with high tech, services with manufacturing, consumer goods with capital items and so on.

Sure, this week’s exercise is more in the way of diversion than a serious attempt to explain or justify the rewards that top bosses get. Then again, there may not be an explanation, as implied by the High Pay Centre’s observation that “it is ludicrous that chief executives’ pay is so contingent on circumstances over which they have little control”. And the chief one of these is luck, but in all walks of life it was ever thus.

bearbull@ft.com