Inflation-busting pay rises for non-executive directors

FTSE-100 chairmen and internal pay watchdogs get salary and fee increases

At a time when the vast majority of private-sector workers are seeing their pay frozen, non-executive directors in FTSE-100 companies have awarded themselves inflation-busting rises of 5 per cent or more.

Non-executive chairmen were given pay rises of 5.1 per cent during the past year, a survey by the respected analysts Incomes Data Services (IDS) reveals. Chairmen of remuneration committees – the very people supposed to guard against boardroom excess – enjoyed an increase of 14.6 per cent in their fees with their average typical fees running at £12,000, on top of their basic fees.

Despite acute political and public concern about bankers' pay, Barclays and the majority state-owned Royal Bank of Scotland take joint first place in the chairmen's pay league – at £750,000 each. Last week, RBS announced plans to pay £1.3bn in bonuses, creating more than 100 new millionaires in the process. Barclays will pay out a total of £2.7bn, although the bank's chief executive, John Varley, and president, Bob Diamond, did turn down their bonus payouts. Stephen Hester, the chief executive of RBS, also cancelled his planned £1.5m bonus after his bank lost £3.6bn last year.

Royal Dutch Shell, which has also encountered shareholder resistance to its executive pay regime, has the highest paid non-executive directors – on £111,550 a year – and also the third-highest paid chairman, Jorma Ollila. Vodafone pays its non-executive directors about £110,000 a year, again higher than even the mainstream payments in this sector. By comparison, BP, GlaxoSmithKline, British Gas, British American Tobacco, Man Group and Standard Chartered, which are of similar size to the mega-payers, allow their non-executive directors only £75,000 per annum.

The average basic fee for non-executive directors (NEDs) has risen by 5.1 per cent during the past year to £58,595. The non-executive chairmen of FTSE 100-listed companies received average pay rises last year of 6.7 per cent, boosting their average fees to £334,463.

Nasreen Rahman, a researcher for IDS's Executive Compensation Review, said: "Chairing an audit committee can bring an average 25.6 per cent pay boost, while just being a member of a committee can potentially boost a NED's total remuneration by about 11 per cent.

"Committees are integral to good governance and it's only right that they should receive an adequate compensation," she added. "However, very large increases of this type are open to question. They come in a year when many workers have had their pay frozen. Shareholders have been promised for years that increased NED fees are part of the process of building a more robust corporate-governance regime. However, shareholders might soon be tempted to start asking whether these pay rises are really delivering better governance and better shareholder returns.

"Being a NED in the financial-services sector is likely to require greater time commitments than in the past, particularly in banking and financial institutions. It will be interesting to see if there is an increase in NED remuneration in response to this."

The report was completed after it emerged that Goldman Sachs and JPMorgan Chase had vetoed plans that would otherwise have been agreed by the major banks in London to exercise restraint over pay and bonuses.

Bank bosses, including the Barclays chairman Magnus Agius and chief executive Mr Varley, as well as senior figures from RBS, Lloyds and HSBC, met at Claridge's hotel to discuss a plan to bring down remuneration across the industry, but the Americans were said to be "furious" about the "socialist" idea. Had the "Claridge's summit" been a success, much public anger might have been avoided.

High rollers: The top 10 chairmen

1......... Barclays......... £750,000 basic fee

2......... RBS......... £750,000

3......... Royal Dutch Shell......... £727,500*

4......... Rio Tinto......... £693,000

5......... BAT......... £620,000

6......... Tesco......... £610,000

7......... BP......... £600,000

8......... Unilever......... £574,000*

9......... Vodafone......... £560,000

10......... GlaxoSmithKline......... £540,000

* converted from euros using exchange rate at end of company's financial year