Pay freezes, longer hours and fewer bonuses... tough times have hit directors hard in 2009, says the latest Directors' Rewards survey

One-half of British bosses worked longer hours for the same or less pay this year compared with 2008. This is one of the key findings of the 2009/10 Directors' Rewards Survey conducted by Croner Reward Group on behalf of the IoD. It found that the pay of 44 per cent of executive directors was frozen, while a further six per cent took a pay cut. Among the 50 per cent who did receive a pay rise, the average increase was 3.2 per cent.

Fewer managing directors benefited from a bonus, although these payouts were slightly higher than last year. For other executive directors, bonuses were above last year's figures in medium-sized companies (revenues between £5m and £50m); remained unchanged in large businesses (£50m to £500m); and dropped in value in small companies (less than £5m).

But despite the effect of financial constraints on rewards and benefits, there's no doubt that directors are putting in the hours to steer their organisations through the recession. The survey shows that 40 per cent of directors in small firms are working more than 55 hours a week, up from 26 per cent last year. In medium-sized companies, the figure is 46 per cent compared with 30 per cent. And in large businesses, it's 50 per cent, up from 32 per cent. We spoke to four directors about the survey results and how the findings reflected their own experiences in 2009.

"I want to invest in the business rather than myself"

Who Aydin Kurt-Elli, chief executive
Company Lumison, internet service provider
Size of company medium, revenues of £5m to £50m

When your fellow board member is also your father, conversations about executive remuneration can be tricky. How do you stop the child/parent relationship from intruding?

This year, Aydin Kurt-Elli, chief executive of internet service provider Lumison, decided to turn the question of how much the company should pay him and his director of voice services—his father, Mussy Kurt-Elli—to a remuneration committee. In the survey, only one in three (34 per cent) of medium-sized companies have such a committee, down from 46 per cent last year. In Lumison's case, one non-executive director and a corporate finance adviser formed the committee. They agreed that despite the company's good performance during the downturn—revenues grew 18 per cent over the year to £7.2m—wider economic conditions meant that both father and son should forgo any pay rise.

The committee failed to reach agreement on bonuses. One member believed that they should be awarded, the other disagreed. "I took a personal decision to turn down the bonus on the basis of wanting to continue to invest in the business rather than myself, at this stage," says Aydin Kurt-Elli. "I guess that puts me in the 44 per cent of directors who took a pay freeze in 2009 and the 20 per cent whose bonus has been cancelled or postponed."

A former doctor, Kurt-Elli describes himself as "cynical" about private healthcare and "very cynical" about private medical insurance, which is not provided for Lumison directors. Around 86 per cent of directors in similar-sized companies are offered this benefit.

"We do OK... we're not on the breadline yet"

Who Stuart Cochrane, managing director
Company Park Brown International, executive search consultancy
Size of company small, revenues up to £5m

As managing director of executive recruitment company Park Brown International, Stuart Cochrane gets plenty of day-to-day insight into director-level rewards and benefits. Looking at the survey results, he's surprised to see the average salary for a managing director of a small company is £80,000. In the oil and gas sector in which Park Brown operates he'd expect it to be significantly higher, probably around £100,000. "But this is, in general, a well-paid industry. When oil prices are high, Aberdeen [where Park Brown is based] is a pretty upbeat place to be," he says.

Cochrane is also surprised to see that the proportion of managing directors choosing a car over a cash alternative has risen. "In my experience, it's usually the opposite, because with a cash alternative you get the benefit of pensionable income," he says.

The findings on regional pay tally with his recent experience of recruiting for a sales director/managing director designate role, based in Wolverhampton. The survey shows that companies in the south-east, north-west and Scotland pay the average director between three per cent and 10 per cent above the national average, while those in the south-west, the Midlands, Wales and Northern Ireland pay as much as 15 per cent below it.

"The earnings of candidates from the Midlands that I interviewed were surprisingly low to me, often as much as £20,000 less than they'd get elsewhere, even among those working for large companies. I think it's the legacy of industrial decline in the region," he says.

Cochrane's own salary is frozen this year, and he expects he and his fellow directors to take a "significantly smaller" bonus when the company closes its books next April. And he is unlikely to take the 10 days of annual leave to which he's still entitled before the new year. But, like Aberdeen when oil prices rise, Cochrane is upbeat: "We do OK, you know? We're not on the breadline yet."

"It's sad there's a pay gap but progress is being made"

Who Denise Effenberg, managing director
Company Teleleads, telemarketing consultancy
Size of company small, revenues up to £5m

Denise Effenberg, managing director of telemarketing consultancy Teleleads, is delighted that the survey shows the pay gap between male and female directors is shrinking. This year the margin was 15 per cent, down from 17 per cent last year. "It's sad there's a gap at all, because there's no reason why there should be one," she says. "But I'm encouraged to see progress being made. It's never made sense to me that someone could be paid less to perform the same job, based on gender."

As sole owner of Teleleads, Effenberg's pay is linked to the performance of the business, but she agrees that the survey's average salary of £80,000 and bonus/dividend of £30,000 for a managing director of a small company is "roughly aligned" with what she'd expect to pay herself. She and her staff opted for a salary freeze this year, but there have been no wage cuts or redundancies.

Effenberg is not surprised to see that 40 per cent of small-firm directors work more than 55 hours a week, up from 26 per cent. "Working longer hours is a fact of life in a small business when the economic climate is tough. You're more visible to the staff and they need to see you there if things are uncertain in the wider world," she says. This year, she took one week's holiday, but that's progress. In 2008, she was on leave for just three days.

"I'm working stupid hours, but flexibility means I work from home when I can"

Who Richard Glasson, chief executive
Company Gyro:HSR, advertising agency
Size of company large, revenues of £50m to £500m

When London-based advertising agency Gyro International merged with Cincinnati-based HSR in April, chief executive Richard Glasson was determined that the newly formed Gyro:HSR would retain the entrepreneurial roots of both companies. That's particularly true when it comes to director-level rewards and benefits. "There's a sense that, as directors, the incentives we award ourselves should directly reflect our responsibilities as owners of the company," he says.

All board members are shareholders in Gyro:HSR, he explains, so rewards and benefits are tied to long-term gains and equity growth. The company has never paid dividends and yearly bonuses are well below the levels reflected in the survey (a median of £45,000 for managing directors and almost £22,000 for other directors in companies of this size).

Glasson points out that the advertising industry is well paid and that director salaries are "at the upper end of the scale" seen in the survey. In large organisations, the survey found that a managing director could expect to earn £133,905 and an executive director £88,677. Under the group pension plan, the company matches director contributions up to five per cent of salary.

He's been working "stupid hours" this year. "But as a company, we're big believers in flexible working and I work from home when I can," he says. The survey reveals that 52 per cent of executive directors in large companies are offered some form of flexible working, compared with 81 per cent of directors in small businesses.

Findings at a glance

• Average salary for a managing director of a small company is £80,000, while directors should earn £60,000.
• Where turnover is more than £50m, a managing director can expect to earn £134,000.
• The typical pay for a non-executive director is £15,000.
• 48% of managing directors in small firms were paid a bonus and/or a dividend last year.
• The typical bonus payment this year was £30,000, up from £24,000 last year.
• The average bonus for other executive directors
in small firms was £12,000.
• Directors in financial services are the highest paid, with managing directors earning £120,000 and others £86,000.
• The lowest-paid managing directors are in the voluntary sector (£75,000).
• Managing directors in the public sector earned £110,000.
• Only 1% of small companies offer any sort of final-salary pension.
• For larger firms this rises to 24%, although this is way down from 47% two years ago.
• Company contributions to directors' pensions are typically 5% to 10% of total salary.
• The most popular company car make for managing directors in small firms is Mercedes.
• In larger firms managing directors prefer BMWs.
• The proportion of directors in all sizes of company choosing to take a company car has increased.

Findings are based on research carried out with Director readers last summer. More than 1,350 questionnaires were returned and matched with comparable data. In total, 3,468 jobs were analysed. The survey is available to IoD members for £595 or £345 if they took part. To order a copy, call 01785 813566.