Fat cats keep getting fatter

THE average pay of a top company director has nearly doubled in the past five years while the value of leading shares has plunged by almost a third, the Financial Mail on Sunday has revealed.

The findings raise serious questions about the progress that has been made in tying boardroom pay to performance, despite a range of reforms aimed at curbing executive excess and rewards for failure.

Figures from Pensions and Investment Research Consultants (Pirc), a corporate governance advisory group, show that the typical salary, including bonus and benefits, paid to a FTSE 100 director was more than £900,000 last year compared with just over £500,000 five years ago.

By contrast, the index of leading shares, which peaked at 6930 on Millennium Eve 1999, now languishes at just under 4800.

James Clarke, an analyst at Pirc, said: 'It is worrying that executive pay continues to rise at rates well above inflation and seems to bear no resemblance to the salary conditions that exist elsewhere in the companies they are running. Has the quality of executives really gone up, or has there been a lack of shareholder pressure on this issue?'

Proper comparisons with five years ago are made harder because the average tenure of a Footsie chief executive is now just four-and-a-half years, so many directors are no longer around.

For example, Vodafone and BT, where there has been a spectacular collapse in share prices since the dotcom bubble burst, both have new chief executives. Nevertheless, the trend is clear in both 'new' and 'old' economy companies as the case studies above illustrate.

Defenders of high boardroom pay argue that directors should not be judged on share price alone and that the five-year period under review started with the extraordinary blip powered by the boom in internet-related stocks.

But if anything, the Pirc findings are an underestimate. They take no account of gains made from cashing in share options, from awards made under long-term incentive schemes, or for that matter, executives' increasingly generous pension arrangements.