Hiring an outside pay consultant can almost double the pay of a FTSE 100 company boss compared with businesses that set their own pay policy, research carried out for The Times shows.
The average base salary of a chief executive at a FTSE 100 company advised by pay consultants ranged between £675,029 and £995,000 last year, according to Inbucon, an independent expert on boardroom pay. It said that this figure compared with companies that used an in-house remuneration team, which paid their chief executives an average of £546,270.
Blue-chip companies that use consultants will not necessarily lead to better returns for shareholders, as groups with no pay advisers delivered a total shareholder return of 9.82 per cent for the three years to the end of 2008, which beat the returns at FTSE 100 companies advised by all pay consultants, except Kepler and PricewaterhouseCoopers.
Inbucon is a Richmond-based company run by Stella Brooks and David Brooks, who are unrelated. Ms Brooks, formerly at Mercer, the investment consultant, has 20 years’ experience advising companies on pay. Mr Brooks designed the first long-term incentive plan based on total shareholder return for Reuters, the media group.
Ms Brooks said: “The base salary of a chief executive is the most important part of total remuneration. It triggers everything — the annual bonus, the long-term incentive and the pension.”
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Inbucon’s findings provide fuel to critics of pay advisers, who have lambasted consultants for contributing to a “remuneration arms race”.
Marc Jobling, assistant director of investment affairs at the Association of British Insurers, which wants greater disclosure about the way pay consultants work, said: “This is very interesting research and needs further analysis.”
Pay consultants dismissed the research as giving no clear link between taking their advice and automatically increased executive salaries. They said that their roles varied at companies and may involve giving industry pay comparatives only.
Xstrata and WPP courted controversy with investors over their pay plans this year. Unilever, the consumer products group, Man, the hedge fund group, and Vedanta Resources, the miner, are among companies that do not use external advisers.