News - Midlands
COVER STORY: Worth Every Penny?
Shareholders at IMI might have felt a twinge of sympathy for finance director Trevor Slack when the Midlands-headquartered engineering group unveiled its results to the City last autumn.
For once the round of presentations was complete you might have expected its senior managers, especially in the wake of continued strong figures, to enjoy the moment with a spot of lunch at a top London restaurant.
Well, for poor old Slack, sadly not. Instead, reinforcing his cost-cutting credentials par excellence, chief executive Martin Lamb, who has cut 1,200 jobs and switched more manufacturing to low-cost countries during his three years at the helm, instead treated them both to a burger and chips on the way back up to the Midlands.
Any sympathy shareholders might have had for Slack probably didn't last too long once a copy of IMI's latest annual report landed on their desks. For on the pages within they would have read that last year Slack took home a total remuneration package of £3473,000, a rise of 31 per cent on the year before. And on the same page they would also have spotted that Lamb himself saw his overall remuneration package rise 32 per cent on the year to £3751,000.
Were they worth it? Well, they have a strong case. Since Lamb took over what is now the UK's seventh biggest engineering group its share price has doubled and profits continue to surge. Only last month Lamb said IMI was in line for another year of progress despite the impact of currency swings and rising raw material costs as the company posted a rise in pre-tax profits from £3131.5m to £3142.6m.
IMI's recovery has been based on a pruning operation that has seen Lamb, in his own words, "move the company away from an old-fashioned manufacturing enterprise to a company focused on product development and applications of knowledge". Key drivers for the future include areas such as selling high- technology valves for chemical plants and pneumatic components for automation hardware such as robots. In so doing Lamb has also shifted 30 per cent of production to low cost economies.
So in the eyes of shareholders Lamb and Slack are probably worth every penny of their pay rises last year. But the same surely cannot be said for many of those who grace our table (see right) listing the top 100 highest paid directors, an integral part of our annual look at the performance of the region's top 500 companies.
For the truth is that many have seen their pay packages soar over the past 12 months, sometimes bearing no resemblance to company performance. As with Lamb - who doesn't even get into our top 30 of the highest paid - many of them will have overseen vigorous cost-cutting and restructuring over the past 12 months. But unlike Lamb, many of them will have seen no correlating improvement in company profits yet still been rewarded handsomely for their endeavours.
Sadly we at Insider haven't the space here to analyse the pay of each and every one of our 100, which we have gleaned from extensive trawling of company annual reports. Instead we leave you to digest our pay table and draw your own conclusions about whether the individuals within are worth their pay packages when judged against company performance. But we can certainly make observations and uniquely record general trends when it comes to levels of executive pay in the Midlands.
Generalisations are of course dangerous. Every company is different and there are sometimes good reasons why a particular individual has seen their remuneration package shoot up when compared with current company performance and previous pay packages.
But the overall statistics are revealing. Over the past year the total remuneration of our 100 highest paid directors has increased by more than 14 per cent, a figure which includes basic pay packages, pension contributions and bonuses.
But our calculation only relates to those elements of remuneration which by law a company has to reveal. Other incentives such as share options and long-term incentive schemes are invariably unknown.
When it comes to private companies, we have only listed the highest-paid director as that is all they are obliged to do themselves. As a result there are plenty of directors who should be in our 100 who aren't because we don't know precisely what they are paid. A good example is Phoenix Venture Holdings, the parent group of Rover, where five directors shared a total remuneration of £315.1m in the year to the end of 2002. By law Phoenix only has to report the pay of its highest-paid director, which was £33.24m, but by simple maths we can reasonably assume that the other four directors shared remuneration packages in the region of £33m each. More on this shortly.
The overall pay package of our highest paid directors will ultimately have increased by considerably more than 14 per cent. That said, profits are on the rise in the region too. A crude calculation shows that profits at the companies where the 100 are based have increased by approximately 25 per cent over the past 12 months. But one must stress that this is an average. In some companies profits have risen by considerably more than 25 per cent. Yet many continue to be loss-making. The overall rise in profits this year compared to 12 months ago must also be seen in the context of a vastly improving UK economic picture.
What other observations can we make? Our top three in 2004 remained unchanged from a year ago. Robert Edmiston at car sales-to-property group IM comes out top again, though his remuneration has fallen from £318.7m last year to £312.7m this year. But like 12 months ago he made a sizeable donation to charity, this time £36m.
At number two we can reasonably assume like last year that the unnamed director of Birmingham property group AC Gallagher who received just over £36m was Tony Gallagher, while telecoms tycoon John Caudwell - the richest man in Insider's annual Rich List - retains his place at number three with a £34.3m package. Just behind them Jass Raykanda at Waves International also jumps into our top 10 with a £33.5m package.
Further down in the top 20 are two directors at Marconi, chief executive Mike Parton and chief operating officer Mike Donovan, who are handsomely rewarded for their role in turning round the beleaguered telecoms firm.
Our unique research on executive pay is timely on several fronts. Firstly, this time of year always sees the release of a clutch of annual reports and a media frenzy over levels of executive pay, and our regional analysis provides an interesting dimension to the debate.
Secondly, returning to the theme of undisclosed benefits, our research comes amid genuine mounting concern over the issue. Recent research on nine of Britain's 10 largest companies by pay consultancy Independent Remuneration Solutions found that chief executives were making five times as much from awards of shares, long-term incentives and pension contributions as from their basic salaries.
Only two years ago the government legislated to improve the information on pay that companies put in their annual reports. We here at Insider back those who now say that the legislation didn't go nearly far enough and that shareholders have a right to know the fuller picture.
Thirdly our report is timely because of the unnamed individual who appears at number five on our list from Phoenix Venture Holdings, the parent group of MG Rover. The individual finds himself at number five with a total remuneration of £33.24m because of the now infamous trust fund contribution that has been made to Rover directors. Of the unnamed director's package, £32.94m comes from the trust fund.
The wrath of unions and staff was prompted by the revelation of the existence of the fund into which Phoenix "makes contributions intended for the provision of long-term and post-retirement benefits for directors, senior managers and their families in which the directors and their families are the principal beneficiaries". In the year ending December 2002 the company paid £312.95m into the fund.
The fund has proved so controversial that it even led to Rover chairman John Towers and vice-chairman Peter Beale facing questioning before the Trade and Industry Select Committee over the company's executive remuneration scheme and corporate structure.
MPs on the select committee went as far as to suggest that the company's prospects of survival were being hampered by what appeared to be "financial sleight of hand". However Towers and Beale mounted a vigorous defence, saying that directors who led the takeover from BMW were receiving justified rewards for collectively risking more than £31m to relaunch the company.
In the wake of the debacle Towers has all but confirmed that moves which were already underway to appoint non-executive directors to the Phoenix board will now be speeded up.
But of course no one is going to get the directors to pay back their fund payments. Meantime, the company has lost a huge PR battle as it fights to get back in the black (Phoenix made a £395m loss last time around) and serious questions continue to be asked as badly-needed new models undergo delays.
Insider, together with no doubt the whole of the business press, will await with interest what trust fund payments appear on Phoenix's balance sheet next year.
One thing is for sure though - the whole issue of executive pay will not go away and, judging by the daily diet of headlines across all forms of media, appears likely to only rise in prominence. We are only too happy to lend our contribution to the wider debate.
For the Top 500 tables download here
For the fuller picture,
subscribe to Insider
every month.
For once the round of presentations was complete you might have expected its senior managers, especially in the wake of continued strong figures, to enjoy the moment with a spot of lunch at a top London restaurant.
Well, for poor old Slack, sadly not. Instead, reinforcing his cost-cutting credentials par excellence, chief executive Martin Lamb, who has cut 1,200 jobs and switched more manufacturing to low-cost countries during his three years at the helm, instead treated them both to a burger and chips on the way back up to the Midlands.
Any sympathy shareholders might have had for Slack probably didn't last too long once a copy of IMI's latest annual report landed on their desks. For on the pages within they would have read that last year Slack took home a total remuneration package of £3473,000, a rise of 31 per cent on the year before. And on the same page they would also have spotted that Lamb himself saw his overall remuneration package rise 32 per cent on the year to £3751,000.
Were they worth it? Well, they have a strong case. Since Lamb took over what is now the UK's seventh biggest engineering group its share price has doubled and profits continue to surge. Only last month Lamb said IMI was in line for another year of progress despite the impact of currency swings and rising raw material costs as the company posted a rise in pre-tax profits from £3131.5m to £3142.6m.
IMI's recovery has been based on a pruning operation that has seen Lamb, in his own words, "move the company away from an old-fashioned manufacturing enterprise to a company focused on product development and applications of knowledge". Key drivers for the future include areas such as selling high- technology valves for chemical plants and pneumatic components for automation hardware such as robots. In so doing Lamb has also shifted 30 per cent of production to low cost economies.
So in the eyes of shareholders Lamb and Slack are probably worth every penny of their pay rises last year. But the same surely cannot be said for many of those who grace our table (see right) listing the top 100 highest paid directors, an integral part of our annual look at the performance of the region's top 500 companies.
For the truth is that many have seen their pay packages soar over the past 12 months, sometimes bearing no resemblance to company performance. As with Lamb - who doesn't even get into our top 30 of the highest paid - many of them will have overseen vigorous cost-cutting and restructuring over the past 12 months. But unlike Lamb, many of them will have seen no correlating improvement in company profits yet still been rewarded handsomely for their endeavours.
Sadly we at Insider haven't the space here to analyse the pay of each and every one of our 100, which we have gleaned from extensive trawling of company annual reports. Instead we leave you to digest our pay table and draw your own conclusions about whether the individuals within are worth their pay packages when judged against company performance. But we can certainly make observations and uniquely record general trends when it comes to levels of executive pay in the Midlands.
Generalisations are of course dangerous. Every company is different and there are sometimes good reasons why a particular individual has seen their remuneration package shoot up when compared with current company performance and previous pay packages.
But the overall statistics are revealing. Over the past year the total remuneration of our 100 highest paid directors has increased by more than 14 per cent, a figure which includes basic pay packages, pension contributions and bonuses.
But our calculation only relates to those elements of remuneration which by law a company has to reveal. Other incentives such as share options and long-term incentive schemes are invariably unknown.
When it comes to private companies, we have only listed the highest-paid director as that is all they are obliged to do themselves. As a result there are plenty of directors who should be in our 100 who aren't because we don't know precisely what they are paid. A good example is Phoenix Venture Holdings, the parent group of Rover, where five directors shared a total remuneration of £315.1m in the year to the end of 2002. By law Phoenix only has to report the pay of its highest-paid director, which was £33.24m, but by simple maths we can reasonably assume that the other four directors shared remuneration packages in the region of £33m each. More on this shortly.
The overall pay package of our highest paid directors will ultimately have increased by considerably more than 14 per cent. That said, profits are on the rise in the region too. A crude calculation shows that profits at the companies where the 100 are based have increased by approximately 25 per cent over the past 12 months. But one must stress that this is an average. In some companies profits have risen by considerably more than 25 per cent. Yet many continue to be loss-making. The overall rise in profits this year compared to 12 months ago must also be seen in the context of a vastly improving UK economic picture.
What other observations can we make? Our top three in 2004 remained unchanged from a year ago. Robert Edmiston at car sales-to-property group IM comes out top again, though his remuneration has fallen from £318.7m last year to £312.7m this year. But like 12 months ago he made a sizeable donation to charity, this time £36m.
At number two we can reasonably assume like last year that the unnamed director of Birmingham property group AC Gallagher who received just over £36m was Tony Gallagher, while telecoms tycoon John Caudwell - the richest man in Insider's annual Rich List - retains his place at number three with a £34.3m package. Just behind them Jass Raykanda at Waves International also jumps into our top 10 with a £33.5m package.
Further down in the top 20 are two directors at Marconi, chief executive Mike Parton and chief operating officer Mike Donovan, who are handsomely rewarded for their role in turning round the beleaguered telecoms firm.
Our unique research on executive pay is timely on several fronts. Firstly, this time of year always sees the release of a clutch of annual reports and a media frenzy over levels of executive pay, and our regional analysis provides an interesting dimension to the debate.
Secondly, returning to the theme of undisclosed benefits, our research comes amid genuine mounting concern over the issue. Recent research on nine of Britain's 10 largest companies by pay consultancy Independent Remuneration Solutions found that chief executives were making five times as much from awards of shares, long-term incentives and pension contributions as from their basic salaries.
Only two years ago the government legislated to improve the information on pay that companies put in their annual reports. We here at Insider back those who now say that the legislation didn't go nearly far enough and that shareholders have a right to know the fuller picture.
Thirdly our report is timely because of the unnamed individual who appears at number five on our list from Phoenix Venture Holdings, the parent group of MG Rover. The individual finds himself at number five with a total remuneration of £33.24m because of the now infamous trust fund contribution that has been made to Rover directors. Of the unnamed director's package, £32.94m comes from the trust fund.
The wrath of unions and staff was prompted by the revelation of the existence of the fund into which Phoenix "makes contributions intended for the provision of long-term and post-retirement benefits for directors, senior managers and their families in which the directors and their families are the principal beneficiaries". In the year ending December 2002 the company paid £312.95m into the fund.
The fund has proved so controversial that it even led to Rover chairman John Towers and vice-chairman Peter Beale facing questioning before the Trade and Industry Select Committee over the company's executive remuneration scheme and corporate structure.
MPs on the select committee went as far as to suggest that the company's prospects of survival were being hampered by what appeared to be "financial sleight of hand". However Towers and Beale mounted a vigorous defence, saying that directors who led the takeover from BMW were receiving justified rewards for collectively risking more than £31m to relaunch the company.
In the wake of the debacle Towers has all but confirmed that moves which were already underway to appoint non-executive directors to the Phoenix board will now be speeded up.
But of course no one is going to get the directors to pay back their fund payments. Meantime, the company has lost a huge PR battle as it fights to get back in the black (Phoenix made a £395m loss last time around) and serious questions continue to be asked as badly-needed new models undergo delays.
Insider, together with no doubt the whole of the business press, will await with interest what trust fund payments appear on Phoenix's balance sheet next year.
One thing is for sure though - the whole issue of executive pay will not go away and, judging by the daily diet of headlines across all forms of media, appears likely to only rise in prominence. We are only too happy to lend our contribution to the wider debate.
For the Top 500 tables download here
For the fuller picture,
subscribe to Insider
every month.