The pay of directors in FTSE100 companies continues to power ahead. Up 14% in the past year according to Income Data Services, based on median total remuneration. This is six times more than the average earnings of all employees.
The large increase has been driven by rises in the value of LTIPs (typically share-based pay-outs based on performance measures). These payments are often not at all obvious in Remuneration Reports at present.
A good example is Galliford Try, the building company, whose AGM I attended yesterday. Total board remuneration was £3.05m according to their Remuneration Report, with the CEO receiving £1.39m and the non-exec Chairman £105k. You might think that is quite high enough for a middle-sized FTSE-250 company with post-tax profits of £58m last year. But a small note in the Remuneration Report tells you that the CEO and another executive director also received shares with a market value of £1.46m and £953k respectively last year, mostly from LTIPs presumably although that is not spelt out.
In total, therefore, the board remuneration is more like £5.5million, i.e. almost 10% of the profits of the company.
Now, what did the shareholders have to say about this at the AGM? Nothing in essence. Nobody spoke on the subject (they weren’t given the opportunity), and the votes on the Remuneration Resolution were 98.5% in favour. I voted against of course but as there was no “show of hands vote”, I had to personally tell the Chairman of that fact. There was a token 2.0% of votes “withheld” so obviously some institutions were not perfectly happy, but it is all rather symptomatic of the apathy that reigns in both institutional and private shareholders.
One shareholder even said the board inspired him and got the audience to applaud them.
Another oddity of this company is that it has two divisions – house building and construction. The former is the smaller part of the business and makes 80% of the profits according to the Chairman. Margins on construction are appallingly bad at 1.8%. So I suggested they shrink the construction business and divert resources into house building. It did not get a positive response from the Chairman. In reality this business could probably be downsized to release large amounts of capital for shareholders. Will it happen? Probably not because you can see that the directors have a vested interest in maintaining the current size of the business. Shrinking its size would make their pay look even more outrageous.
What this company needs is some corporate raider to come in and split it up to realise the value. Or a Chairman who is more interested in realising value for shareholders.
In the meantime, you can read a full report on the AGM here.
Roger Lawson
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