Pay and Performance Uncorrelated in the UK

Dr. Herman Stern, chief executive of the Swiss financial research firm, Obermatt, recently analysed the correlation between executive pay and performance in the UK for BBC Radio 4’s More or Less programme.[1]  The study found that the worst value FTSE 100 companies were Reckitt Benckiser, ICAP and BG Group based on a comparison of profit growth and total shareholder return with total realised pay earned by bosses between 2008 and 2010.  Reckitt Benckiser boss Bart Bercht earned 1,199% more than was justified by the performance of his company.

UK companies which ranked highest in ‘pay for performance value’ include Admiral, Autonomy and Hargreaves Lansdown.

	Highest excess remuneration		Best pay-for-performance value
		Excess Remuneration in %		Excess Remuneration in %
1	Reckitt Benckiser	1199%	Admiral	-93%
2	Xstrata	391%	Autonomy	-85%
3	ICAP	388%	Hargreaves Lansdown	-89%
4	BG Group	322%	Vedanta Resources	-85%
5	Tullow Oil	310%	Severn Trent	-73%
6	Tesco	226%	Wolseley	-73%
7	BHP Billiton	210%	Petrofac	-68%
8	GlaxoSmithKline	208%	GKN	-62%
9	Schroders	181%	Wood Group	-62%
10	Vodafone	102%	IMI	-62%

Dr. Stern’s findings for the UK were similar to that which he found previously in the USA: We found that there was absolutely no pay-for-performance link in the UK for those three years.  Remuneration committees never want to pay below average.  They are more worried about retention than performance.  So this has led to spiralling pay inflation.

In his interview with Tim Harford of Radio 4, Dr. Stern cited the fact that in European stakeholder system companies - where the owners are often families - shareholders do not allow pay and performance to become so vastly disconnected.

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[1] http://www.obermatt.com/rankings/uk/