The Financial Director 2013 Salary Survey

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CORPORATES’ tax activities are currently drawing the ire of politicians and public alike, but cast your minds back to the spring and it was individuals, rather than organisations, that were being given a hiding as enemies of the public good.

Outbreaks of shareholder activism and stern pronouncements from business secretary Vince Cable put executive pay packets under intense scrutiny.

The flurry of shareholder rebellions that swept the annual general meeting season claimed some notable scalps. Sly Bailey of Trinity Mirror and AstraZeneca’s David Brennan were both forced to step down as irate shareholders rebelled against company pay policies.

With executive pay increasingly seen as being out of kilter with company performance, Cable waded into the controversy and announced a raft of proposals intended to curb excessive pay. With all this going on, one wonders who would want to be a finance director of a large listed business.

Poor financial performance can lead to FDs being shown the door, while juicy bonuses for hitting the numbers could end up in the wider maelstrom of criticisms levelled at executive pay. Yet despite all this, nailing a top finance role at one of the country’s leading companies remains the ultimate aspiration for many up-and-coming finance professionals.

The job of a FTSE 350 finance director brings with it undoubted pressure. But the financial rewards are certainly not to be sniffed at.

In the face of the strong economic headwinds that continue to batter swaths of British business – high street giant HMV became the latest casualty as it was forced into administration in January – FDs plying their trade at the highest level were still able to book an increase in average total pay.

Nudge, nudge

According to Financial Director’s latest annual salary survey, the total average pay of FTSE 100 finance directors increased by 4.2% to £1.15m in 2011/12, compared to £1.10m in the 2009/10 survey. Their opposite numbers in the FTSE 250 also booked a 13.2% increase, with average pay sitting at £586,384.

Using data provided by Manifest, the global proxy voting and corporate governance support service, our survey reveals that as many as 57 finance directors earned in excess of £1m last year, while 195 managed to top £500,000.

“In terms of traditional base salaries, we see that nudging up, but in most cases holding relatively steady,” says Mark Freebairn, partner in the CFO practice at Odgers Berndtson.

The increases are just a continuation of the long-term trend. Remuneration has been on an upward trajectory since Financial Director began its survey back in 1992 – though FTSE 250 FDs didn’t enter the list until 2003. Over the past nine years, only in two – 2008 and 2009 – did FTSE 100 finance directors suffer a fall in average pay, while FTSE 250 FDs suffered a fall in only 2009 – hardly surprising given the economy was in the teeth of the recession.

Conversely, it could be argued that this is precisely when FDs prove their worth. Those able to succeed in the toughest of times – whether by growing the bottom line of firefighting by implementing a turnaround – are undoubtedly worth the bulging pay packets. More important, perhaps, is the career currency that such skills provide – rather than the more literal currency.

FDs that can produce the goods now will find themselves in demand, and will garner sweeter pay terms as a result.

“The demand for FDs continues to be high,” says Ashley Whipman, director at Robert Half. “Prior to 2008, FDs were seen in the background. Now they are in the forefront.”

Deferral rewards

The real brouhaha in the media, as previously mentioned, has not been around base salary, but aimed at bonus awards. Last year, the total base salary of the FTSE 350 reached £213m, while £104m in bonuses were awarded during the same period.

Importantly, however, a fair chunk of this was deferred. Of the £213m, as much as £31m was mandatorily deferred, while £3.8m was deferred on a voluntary basis and 25 finance directors within the list took no bonus at all last year.

On that list were a number of FDs who have either retired after long and illustrious careers – Rio Tinto’s Guy Elliott springs to mind – or jumped ship in order to make more promising career moves, such as Ocado’s  finance director Andrew Bracey who left to join headhunter Michael Page.

Of more interest will be the amount of bonuses being deferred, a figure far higher than in previous surveys. This, says Freebairn, could be linked to the attention being paid to encouraging long-termism among company executives.

“There is definitely a focus on trying to create long-term interest in remuneration structures … trying to get people in the mindset of being about for the long term,” he explains.

Once again, attitudes to long-term bonus structures tie in with rhetoric from the business secretary. In November, Cable threw his weight behind a stock market study that attacked short-termism in the City.

While the need to tackle the “quick-buck mentality” of the City ostensibly relates to investors, there is a correlation to executive pay. A 40,000-word review by leading British business economist professor John Kay, published last summer, was established in order to consider how well equity markets are achieving their core purpose of enhancing the performance of UK companies and enabling investors to benefit in returns from equity investment.

One of his key recommendations was that companies should consult their major long-term investors over significant board appointments, and to allow companies and their investors to assess the long-term effects of their actions, and focus on long-term performance – including practices such as holding company shares until after the executive has retired from the business.

“Long-term is key,” says Ashley Whipman at Robert Half. “There are certainly organisations that have share schemes where shares vest 25% over a four-year period.”

Swing voters

Nevertheless, it remains a thorny issue. While in the case of turgid performance, criticism of remuneration terms appears to be a natural reaction of institutional investors, but finance directors that have delivered the goods can also find themselves in the spotlight.

For instance, Paul Richardson, finance director of advertising giant WPP, experienced just this. Overall, profit for the year stood at £916.5m for 2011, £661m in 2010 and £506.9m in 2009, with basic earnings per share up from 35.9p in 2009 to 64.5p in 2011.

Yet, along with chief executive Sir Martin Sorrell and strategy director and CEO of WPP Digital Mark Read, Richardson – who picked up a bonus of £1.8m for 2011/12 of which £930,000 was deferred – submitted his remuneration package, only to see the shareholders veto the idea, although their votes are non-mandatory.

“Long-term plans and awards are a complex area for each company and they are difficult to understand at the best of times. Sometimes, these things are paying out as a result of past performance just at a very different economic time in the cycle,” Richardson told Financial Director in an interview last year.

Pooled resources

So what other trends can be drawn from the survey? Firstly, the very highest earners are drawn from a small pool of sectors. Financial services and natural resource FDs lead the way. Out of the top ten FTSE 100 earners, eight can be drawn from this list – including the finance heads of Xstrata, BP, Royal Dutch Shell, Anglo American, Barclays, HSBC, Schroders and Standard Chartered.

Similarly, seven of the top ten FTSE 250 finance directors are drawn from the same sectors – including New World Resources, Heritage Oil, ICAP, Intermediate Capital Group, Close Brothers Group, Ferrexpo and Tullett Prebon.

Interestingly, the list is also dominated by finance directors who either stepped down or announced their intention to do so in the past year. For instance, Byron Grote, the veteran finance director of BP, retired last year after ten years in the job but still garnered a total pay packet of £2.2m.

Yet this year’s undoubted winner, in terms of remuneration at least, was Trevor Reid, finance director of Xstrata. Reid picked up a total reward package of £3.1m for his efforts last year, which included steering the company through its merger with Glencore, which created a combined entity with a market cap of £57bn. However, like Grote, Reid is also leaving a company with which he has spent the best part of his career, having held the finance role since its inception in 2001.

Reid had been due to continue in a similar role in merged group, Glencore Xstrata, but walked after investors voted down a package of retention bonuses for senior Xstrata staff, part of which would have seen him granted £11m in shares by 2014. Instead, he leaves with a severance payment of £5.45m – not included in the 2011/12 figures – a contractual entitlement after the change in control at the company.

Despite Grote and Reid featuring prominently long service is no guarantee of achieving whopping hikes in pay. Reid’s pay was actually down 15% on the previous survey, while Grote booked an 8% increase on 2010.

“If you spend a long time in the business, what you earn is identified against what goes on in the market,” says Freebairn. “If you have been there a long time you get incremental increases that flatten out.”

But in a kind of catch-22 to bumping up your salary, moving around will not guarantee a rise in earnings either. Refreshingly for a headhunter, Suzzane Wood, who specialises in board-level finance and non-executive director assignments at Russell Reynolds, explains that new appointments should not always expect the salaries of their predecessors.

“We see in the last two years in the listed world that when company replace an incumbent don’t assume that you will get what they were earning as a basic rate of pay,” she says.

Perhaps the most lucrative contracts for finance directors – though no figures are included in the salary survey – is pursuing a portfolio career once the hard yards have been put in as a FTSE finance director.

One-time Tesco finance director Andrew Higginson is a case in point. Since leaving the retailer in 2011, he has built up a portfolio that includes non-executive directorships at BSkyB, Poundland, McCurrach the RFU and N Brown, the fashion business behind Jacamo.

And, according to Wood, finance directors in non-exec positions are in demand like never before.
“The demand for the CFO skillset has increased because of the macro economic climate,” she says. “It is an option if you are aged 50 and don’t need to keep on with an executive career or wish to pursue the route to CEO.”

BY THE NUMBERS

The Financial Director Salary Survey has been produced using data provided by Manifest, based on disclosure in annual reports and supplemented with analysis by Financial Director.

Remuneration information is provided for all companies where the finance director sits on the board of directors. In instances where the finance director is part of the management, but does not sit on the board, no information has been provided.

BHP Billiton, Carnival, Evraz, Fresnillo, International Consolidated Airlines, Polymetal International and Vedanta Resources all have no finance director on the board, and therefore there is no salary information available.

Information has also been provided for investment trusts and specialised hedge funds that are constituents of the FTSE 350.

Constituents of the FTSE 350 are correct as of June 2012.

All information relates to annual accounts for the 2011/2012 financial year.

Some finance directors featured in the list resigned from their roles during 2012, but feature in the list as remuneration terms were provided in their company’s annual accounts.

Experian had no FD at year end (March 2012). The current finance director, Brian Cassin, was appointed on 30 April, replacing Paul Brooks, who died on 9 January 2012. Therefore, there was no finance director on the board at the financial year end.

Brooks’ salary was paid up to and including 31 January 2012. He had been paid £408,000 in salary, and a cash bonus of £980,000 which is for the full year to March 31. He also received £24,000 in other benefits.

FD PROFILES

Name: Marek Jelinek
Company: New World Resources
Index: FTSE 250
Total pay: £2,508,375
Jelinek has served as CFO for New World Resources since 2007 and led the group’s bond issue and IPO in London in 2008. He now holds an executive directorship with the coal and coke producer.
Previously, he held a finance role at private investment group BXR Group and was responsible for group financing, restructuring and divestitures. He also worked as an analyst and associate of the corporate finance department at Patria Finance, a Prague-based investment banking boutique, from 1995 to 2004.

Name: Simon Henry
Company: Royal Dutch Shell
Index: FTSE 100
Total pay: £2,061,124
Henry has recently been locked away inside the headquarters working closely with chief executive Peter Voser on a bid for Cove Energy. However, they face stiff competition from Thailand state oil group PTT. Henry also announced this year that the business removed 135 illegal connections from pipelines in Africa during the first ten months of the year, but the company still loses 150,000 barrels a day from theft.
Henry has been with the business for years having started as an engineer and worked his way up the corporate ladder.

Name: Christopher Lucas
Company: Barclays
Index: FTSE 100
Total pay: £2,628,000
2012 will be a year to forget for
Lucas, as an investigation by the
FSA was launched against him
over fees related to the bank’s fundraisings.
The bank is said to be considering cutting 2,000 jobs, while it is also looking to cut down on compensation for its investment bankers.
However, profits climbed for the nine months to 30 September 2012 to nearly £6bn, from £5bn for the same period a year earlier.
Return on average shareholders’ equity was 8.8% over the period,
from 8.4%.

Name: Richard Meddings
Company: Standard Chartered
Index: FTSE 100
Total pay: £2,409,895
Meddings found himself inadvertently in the headlines during 2012, accused of swearing at US regulators looking into the banks’ dealings tied to Iran – which saw it shell out several hundred million dollars to settle.
However, Standard Chartered still recorded its tenth successive record-breaking H1 profit, to £2.5bn, stepping up its investment programme in transaction banking and also mobile technology.

Name: William Waggot
Company: TUI Travel
Index: FTSE 250
Total pay: £1,191,000
TUI picked up some headlines in December as capital allowances and losses brought forward saw the company pay no corporation tax on its £390m profits for the year ending 30 September 2012.
The improved performance came as a wet 2012 saw Europeans head for sunnier climes.
TUI’s share price recently fell as Morgan Stanley downgraded the stock over concerns about its earnings quality.

Name: Byron Grote
Company: BP
Index: FTSE 100
Total pay: £2,306,986
Until his retirement last year, Grote had been with BP for 24 years, having joined in 1988. Though he stepped down as CFO in December 2011 – a role he held since 2002 – he still managed to pick up a healthy £2.3m pay packet.
Grote’s retirement had long been expected, with many BP observers expecting him to leave prior to the Deepwater Horizon oil rig disaster. Naturally, Grote stayed on to clear up the mess, particularly as chief executive Tony Haywood was forced out amid a storm of acrimony.
That done, Grote has moved
on – though he is still executive
vice-president of corporate
business activities.

Name: Trevor Reid
Company: Xstrata
Index: FTSE 100
Total pay: £3,172,459
The outgoing Xstrata FD topped this year’s survey as the highest earner. Reid had been in the finance role since the miner’s inception in 2001 and had been due to continue in a similar role following the company’s mega-merger with Glencore.
Though Reid is to step down – a decision made after investors voted down a package of retention bonuses for senior Xstrata staff – there is no doubt his efforts in driving the merger forwards have earned him a place among the best-paid FDs in the land.

Name: Iain Torrens
Company: ICAP
Index: FTSE 250
Total pay: £1,927,850
Last year ICAP announced in its annual report that it would overhaul its remuneration system and cut executive pay amid fears of a shareholder revolt.
The inter-dealer broker, with a market value of about £2.1bn highlighted that revenues for the full year to 31 March 2012 were down 3% to £2.68bn. Pre-tax profits were also down 7% to £217m and the board voted to increase full-year dividend by 2p to 22p a share.

Name: Paul Richardson
Company: WPP
Index: FTSE 100
Total pay: £2,637,000
Richardson’s been a busy man. The world’s largest advertising business increased revenues by 1.6% to £2.5bn in the first nine months of 2012 to 30 September 2012. Like-for-like revenues were also up 3% for the first nine months.
However, average net debt at WPP increased £329m to £3.11bn compared to the same period a year ago. There was a slowdown drop in North American and Western European like-for-like revenues for Q3 compared to the same period a prior, but the UK forged ahead with a 4.7% increase.