Croner Reward Group and IoD annual pay survey

November 2006 Directors' Pay Wages

What’s going on with directors’ pay? According to this year’s Croner Reward Group and IoD annual pay survey, the average basic pay for a small company managing director is £66,560. In large companies, with turnover up to £50m, it’s £131,359

Yet broadsheets have spent the past few months trumpeting boardroom excess: “Boardroom pay rises twice as fast as share prices”, claimed the Guardian in its recently published annual pay survey of FTSE-100 bosses. Likewise, consultancy Deloitte’s annual directors’ pay review found boardroom bonuses “well above average” and “out of all proportion”, with median increases among FTSE-350 directors calculated at 6.8 per cent, where the average increase in UK earnings was closer to 3.9 per cent. Clearly, these are not your typical directors.

So what is the true take-home pay of the average British boss? The Croner Reward/IoD findings reveal the UK director works increasingly long hours for the same pay. Of the 3,815 respondents this year, the large majority are directors and senior managers of small and medium-sized enterprises (up to £50m turnover). And their expectations are considerably more modest than those of their FTSE brethren.

Paul Bennett is typical of the small business managing director in many ways: the founder of 5-employee environmental and low-carbon consultancy b:ssec, his pay is directly linked to performance: “If the business doesn’t perform well, you cannot pay yourself; staff don’t suffer that.” He sees the big bonus culture as “a world apart”, but he’s better off than when he was employed within a larger consultancy.

He feels a kinship with fellow small-business bosses, “who are taking personal risks to run their business” and has seen “a lot of complacency in bigger business, where someone’s a director in name only”. Even so, he won’t see the biggest company bosses disparaged and reckons the big pay packets come at a sacrifice: “I’ve found them inspirational and impressive. They are also creating thousands of jobs and revenue: as long as the CEO’s not asset stripping, I don’t see a problem. What they have to do for those big pay cheques, I wouldn’t do. It’s effectively putting a value on your life, so I don’t begrudge them the money.”

This points to the wider trend towards overwork. “Generally, people seem to be working longer hours in smaller organisations with overall forecasts for increases also pulled back,” notes Vivienne Copeland, client services director with Croner Reward. Few directors in any size of organisation are taking their holiday allocation and, while larger company execs may be earning more, 39 per cent now work over 55 hours a week. Likewise, non-executive pay generally has gone up-it’s now £18k in small companies-but some 42 per cent expect pay to stay static, compared to 28 per cent last year (but this should be considered in light of the bi-annual NED pay reviews.) Peter Brown, chairman of Independent Remuneration Services, believes even a higher base for non-executives is disproportionate to the extra work many must now undertake. “We worry about a minor number of fat cats,” he says. “But most are, if anything, underpaid. The overall work’s increased enormously-the amount of paperwork expected of an NED is massive, particularly in highly regulated industries.”

Brown estimates it takes “about a year before an NED can be truly effective” and he sees rising fees as a backlash against the increasing complexity of the job. “The danger is there is so much work-are they still independent? After all: how many non-executives have resigned on ethical grounds?”

The other big governance bugbear, diversity, has seen a little movement, but a pay gap between men’s and women’s earnings persists. This year’s survey sees the gap closing from 24 per cent to 19 per cent, with the average percentage rise of women’s salaries higher than men’s compared to last year. The weakest sector in 2005 was financial services, where women could expect to earn 35 per cent less than men. But this year’s dunce cap is shared by private services (women may earn £55k to an average £74,440 among men) and, more surprisingly, the voluntary sector. (But, as Copeland observes, this figure may be skewed by response from a few large charities, where the bosses are men and the salaries much higher than the average.) At Aurora Gender Capital, founder Glenda Stone is philosophical: “It’s that classic triangle of not enough women at the top. The pay gap will persist as long as that situation remains.”

Stone believes women are more astute about pay differences than in the past: Aurora’s website, “where women want to work”, uses pay and rewards as one of several criteria it applies to big businesses when assessing their desirability as equal opportunity employers. There are also “glass walls” to contend with, as Stone points out: many women are employed in HR or marketing; their salary is likely to be lower than someone who has responsibility for finances.

“A bit of PR and brand-building is needed,” she adds . “You often see the same 20 per cent of women occupying 80 per cent of the board positions. Is the pipeline there? I’m not convinced.”

There is still a lot of work to be done: boards, she says, need to work harder to find the right people to prove themselves “progressive’ without being just box-tickers. Brown also raises potential concerns that could impact pay-as BRIC [Brazil, Russia, India and China] market companies grow stronger, private, family-owned enterprise could, says Brown, start to dominate: “Are we moving into a core of big private companies?” Private equity businesses, he adds, are better at pay for performance, but everything tends to be geared to the realisation of a large reward at exit. Those big exit deals are also creating a raft of 50-something millionaires who are leaving business and reducing the talent pool at the top, reckons Brown.

And where are they going? Social enterprises and the voluntary sector are certainly reaping the benefits of big equity awards. Fat cats? More like pussycats.

Meet the MDs

Small (up to £5m turnover)
Basic: £66,560
Bonus & dividend: £20,000
Performance-based review: 54 per cent (down from 58 per cent in 2005)
Last increase: 3.5 per cent; 2005 forecast: 4 per cent
2007 forecast increase: 4 per cent
Time off: 25 days a year (32 per cent)
Balanced? 30 per cent work 45-50 hours, up from 27 per cent in 2005
Wheels: Mercedes
Retirement age: 61-up by one year

Medium (£5m to £50m turnover)
Basic: £93,844
Bonus & dividend: £20,608
Performance-based review: 62 per cent (down from 70 per cent in 2005)
Last increase: 3.5 per cent; 2005 forecast: 3.25 per cent
2007 Forecast increase: 3.5 per cent
Time off: 25 days a year (34 per cent)
Balanced? 37 per cent work 46-50 hours, slightly up from 05’s 36 per cent
Wheels: BMW
Retirement age: 63-down by two years

Large (£50m to £500m)
Basic: £131,359
Bonus & dividend: 41,000
Performance-based review: 74 per cent (up from 71 per cent in 2005)
Last increase: 4 per cent; 2005 forecast: 3.5 per cent
2007 forecast increase: 4 per cent
Time off: 25 or 30 days a year (31 per cent each)
Balanced? 27 per cent work 51-55 hours, down from 34 per cent last year
Wheels: Jaguar
Retirement age: 61-down by one year

Ladies second

Equal pay is a way off yet, but the gap’s closing again to 19 per cent after a rise to 24 per cent last year. Women on the board now earn an average of £60k, some £14,000 less than their male peers. But there are still some wider differences: in private services women earned 25 per cent less than men-£55,000 to £74,440.

The voluntary sector-from which the most women responded (34 per cent)-was equally unequal: women earn £47,840 to men’s £64,500. But over half of the women respondents in the survey overall hailed from smaller organisations, which might have had an impact on these figures. Most improved award goes to the financial sector, where last year’s 35 per cent pay gap’s been closed to 14.6 per cent. And the public sector’s still the beacon of best practice, with an already low seven per cent gap now down to just 0.5 per cent.

Independently wealthy?

Non-executives in large companies are taking home more this year overall, but 42 per cent had no pay increase last year, compared to 13 per cent in 2005. The average rise was three per cent, down from last year’s four per cent.

Despite protests about long hours and harder toil, medium company NEDs worked an average 18 days this year, compared to 34 last year. And the percentage unpaid this year has risen in small companies but dropped from 2005’s 30 per cent to just 11 per cent in large companies.

Company size Small Medium Large
Annual pay £12,240 £15,600 £31,200
Days worked per year 12 18 15
Average pay per day £1,020 £867 £2,080
% unpaid 37 24 11
% increase at last review 3.1 4.0 4.0
% with no increase 30 63 24
% increase forecast 3.5 4.5 3.5

The longest days

Big company bosses may earn the most, but their hours often reflect this. More worrying, small business bosses also put in the hours, but are making quite a lot less for their trouble. Like last year, few directors take a full holiday entitlement-the percentage of directors taking their holidays is improving in large companies, but smaller business bosses are failing to take their allocation of 25-30 days, with 36 per cent taking less than 20 days a year.

Hours a week 46-54 hrs over 55 hrs
Small company directors 46% 29%
Medium company directors 53% 24%
Large company directors 50% 39%

Big cats triumph

Small company MDs: 21 per cent favour Mercedes
Medium company MDs: 27 per cent go for BMWs
Large company: 30 per cent MDs like Jaguars
But with a cash alternative topping £10k, it’s not surprising that 42 per cent of the biggest cheeses are opting out of company car schemes.

The report is available to members priced £595 and full price £690, available from Croner Reward Customer Services Team on 01785 813566.

Published November 2006

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Director is the magazine for business leaders. Free to IoD members and available to purchase through subscription, each edition is full of insightful interviews with entrepreneurs and company directors.

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