Pay and Performance Not Linked for British Bosses

Last Updated Feb 25, 2010 3:23 PM EST

  • Pay and Performance Not Linked for British BossesThe Find: A complete review of five years of compensation data for CEOs of FTSE 100 companies revealed no correlation between total shareholder return and the size of the chief executive's total pay package.
  • The Source: "What It Really Costs to Retain a Chief Executive" from Patterson Associates.
The Takeaway: British CEOs, like their counterparts elsewhere, make a bundle: £8.9 million on average (nearly $18 million depending on exchange rates). It sounds like a hefty amount, but certainly if the efforts of the chief executive result in better performance than they're worth the expense. Plus, one could argue that long term incentive plans ensure that under-performing CEOs don't fail all the way to the bank.

Sounds sensible, except there's one small problem. The data, at least in Britain, don't support this story. When executive compensation consultants Patterson Associates crunched the numbers for FTSE bosses, they found something worrying. Under-performing CEOs did earn less in incentives, as expected. The surprise was that they also earned MORE in salary, making up the difference, so that, in the end, the excellent CEO and the egregious ended up making the same in total compensation. So much for the correlation between pay and performance.

Let's sum that up in one stark statistic: median salary among winners (again, as defined by total shareholder return) is £3.8 million; it's £4.5 million for under-performers. Getting paid more to accomplish less: that's a neat trick.

The Question: Would these numbers look similar in your country?

(Image of check by Scott Waldron, www.dslrninja.com, dslrninja, CC 2.0)

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    Jessica lives in London where she works as a freelance writer with interests in green business and tech, management, and marketing.