AIM executive pay: big paydays persist

When most AIM companies were determining appropriate levels of executive remuneration for 2008, the brutal brunt of the worst recession in recent memory had yet to fully bear down on the economy.

As such, the remuneration levels studied in Growth Company Investor’s latest unique research report – Directors Pay on AIM 2009 – were set in a markedly different environment to the one in which directors subsequently found themselves. Therefore, investors expecting directors to have shared the burden of the secondary market’s sharpest ever descent may be disappointed.

That said, AIM executives may never have had to work as hard for their money as they did during the year under review. In fact, this, the seventh annual investigation into the remuneration of AIM’s boardroom personnel finds that the median AIM chief executive receives £190,000 in total. The median increase in pay of 4.9 per cent is comparable to the level of inflation that ushered in 2008.

Having tracked the average, or mean, pay of AIM directors since this research series began in 2003, we find that this is historically higher than the median. The median is perhaps the fairer figure to use as a primary reference as the mean can be weighted towards a small number of very high-paying companies, which can distort the market. With shareholders undoubtedly focused on any excessive director remuneration in this economic climate, it is noticeable that this was the first time in four years that the average pay of CEOs dropped, from £268,036 in last year’s survey to £231,967.  

Bonus culture?

A new aspect of the research this year is an examination of all the constituent parts that make up a total pay package for chief executives. This reveals that the median AIM chief was awarded a basic salary of £164,000, up by a sub-inflationary 3.8 per cent from their previous fee.

As would be expected in the current climate, benefits and share-based payments decreased. Bonus payments have been more variable, and it must be remembered that not all companies will have been impacted by the recession to the same degree, while some companies will have undoubtedly benefited from the situation.

The total paid in bonuses decreased – with macroeconomic conditions clearly limiting the capacity for companies to meet performance targets – from £36.5 million to £23.4 million, equivalent to 3.9 per cent of total board pay, compared with the previous 5.9 per cent. However, those bonuses that were awarded to CEOs actually increased by 7.7 per cent to £70,000.

Appropriate packages

There is a significant difference in pay between directors at profitable and loss-making companies. The median CEO pay at loss-making companies is £171,835, while that at profitable companies is 26 per cent higher at £216,013. For the entire boardroom, the median pay at loss-making companies was £440,535, with that at profitable companies being £593,000.

As profitability eludes many AIM companies, their value as determined by the market can be a more appropriate means of setting pay. For example, chief executives at AIM companies capitalised at below £4 million received a median take-home package of £123,000, while those at the largest companies, valued at £200 million and above, received £303,783 on average.

Indeed, as turnover is another measure against which pay can be measured, we find that CEOs of companies making revenues of less than £11 million earned a median of £146,000, while higher up the scale, those heading companies making sales of between £200 million and £400 million were paid a median £341,919.

The highest-paid directors

The combination of tougher targets and awareness of a more sensitive climate has served to reduce the number of directors taking home truly vast sums. Last year’s survey included 24 executives who took home more than £1 million of their company’s cash, while our recent survey finds only four receiving more than £1 million.

The highest pay package in the study was the £2.2 million (HK$31.97 million) in salary, bonus and pension contributions paid to the senior executive of biometrics and radio frequency products specialist RCG Holdings, who was also a member of the remuneration committee until required by Hong Kong Listing Rules to step down after the year-end. The company has delivered for shareholders, generating growth in profits of 35 per cent to HK$613 million and in earnings of 33 per cent to HK$2.68, and issuing investors with a tripled dividend of 1.5p per share.

The second and third highest-paid directors are at online gaming company Sportingbet and global engineering group Kentz. The chief executive of Sportingbet took home £1.57 million, including £951,000 of bonuses, after delivering strong profits growth during the year and reinstating the dividend. After a busy year, Kentz’s CEO received a £1.5 million package that consisted mostly of a performance-related bonus. Both packages represented just under 1 per cent of their company’s market cap.

This feature is a shorter version of the full report, Directors’ Pay on AIM 2009. To order the report for £295 + VAT, call 020 7250 7056 or email blanka.biernat@vitessemedia.co.uk