Are AIM tech company directors underpaid?

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Grant Thornton have published a report which says that AIM technology company directors do not pay themselves as much as in other AIM companies. Author Amanda Flint suggests the former might feel themselves undervalued and move elsewhere.

According to the report, the average total pay package for AIM technology company chief executives was £383,000 last year. That is less than half the average pay across all sectors. And only 36% of technology CEOs received share-based awards compared with 60% of main market tech CEOs, although it’s worth pointing out that many smaller company CEOs already have substantial share stakes as they are often company founders.

Ms Flint suggests that tech companies should expand performance related pay elements and “adopt more creative performance measures” (as reported in the FT), so as to keep up with their peers.

Comment: As an investor in such companies I think pay is not so bad as Ms Flint suggests. Many such companies have no profits and hence both management and investors are betting strongly on the future.

What happens in many other AIM companies (such as in property companies and in the natural resource sector) is that companies raise massive amounts of money by listing on AIM (and often also by subsequent placings) which they then use to pay inflated salaries and wildly generous bonus schemes to management. The profits of these companies often bear no relation to the level of pay of the directors.

What I certainly would not like to see is tech companies following this model. Indeed one of the ways to best judge the merits of a technology company is whether the management have faith in the “jam tomorrow” and hence accept lower pay today, or wish to have their rewards now rather than in the future.

I am sure that Grant Thornton’s clients will appreciate reading the report, and may find it useful evidence to try and justify their own pay rises. But investors should take it with a pinch of salt.

Roger Lawson

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