AIM executive pay: restraint rather than austerity

When the remuneration packages analysed in Growth Company Investor’s latest research report – Directors’ Pay on AIM 2010, compiled in association with accountancy specialist Deloitte – were being negotiated, the world economy had plunged into an unprecedented state of panic, and during those two months, the FTSE AIM All Share Index fell from 802 points to 424, the lowest figure in its 13-year history.

It was against this backdrop, that remuneration committees were deliberating appropriate pay levels for the coming year.

Restraint, not austerity
Our research reveals that pay settlements for AIM directors were clearly affected by the prevailing climate, but not as drastically as might have been expected. The median total CEO pay was £190,300, fractionally higher than last year’s £190,000 figure, but clearly a cut in real terms.

Meanwhile, when looking at total board pay, costs have clearly been controlled, with this figure down from a median of £490,042 to £460, 670, a striking fall of 6 per cent, which cannot simply be explained by boards having become marginally smaller.

CEO pay in detail
A majority of AIM CEOs endured a freeze or even a cut in basic salary, but were able to make up the shortfall, to some extent, through bonuses and benefits. Where the individual in the post was the same as the year before, the median increase in basic salary was zero. But when you look at total pay for those chief executives, that figure rises to 2.2 per cent.

The median bonus for CEOs, where a bonus was awarded, was £73,394, substantially higher than the £63,000 figure recorded in our last report. One possible explanation is that less stretching targets were set due to very low expectations for trading in 2009/10 – expectations that were exceeded in some cases.

Notably, CEOs’ pension contributions and other benefits also rose, to median figures of £16,165 and £11,000 respectively. On the other hand, the number of CEOs receiving a bonus appears to have fallen. Last year, 21 per cent of AIM-quoted companies paid their CEOs a bonus, but that has now dropped to 18.3 per cent.

Looking at year-on-year pay differences from another angle, our analysis shows that just over half of CEOs (51 per cent) took a freeze or a cut in their basic salary. But fewer than half (45 per cent) earned the same or less when their full package is taken into account.

A premium on profitability
The gap between the best- and worst-paid directors remains substantial and has more to do with company size than profitability. Nevertheless, profitability does command a premium, with the median CEO pay at profitable companies coming in at £200,897, compared with £181,677 at loss-making concerns. However, this profitability premium is the narrowest it has been since we began measuring it in 2007.

Back then, there was a gap of £51,000 between CEO pay at profitable and loss-making companies. That expanded to £63,947 in the following year before falling to £44,178 in last year’s report, and has now shrunk to just £19,220.
This could reflect the fact that fewer bonuses were paid, but it is difficult to draw firm conclusions about the relationship of company profit to CEO pay. Since AIM is designed for smaller, growth companies, losses may be regarded as an inevitable part of their growth strategies, rather than as a mark of failure.

AIM high rollers
In terms of AIM high rollers, the CEO of Hong Kong-based RCG Holdings, who stepped down following the period under review and is now non-executive chairman, again tops our list of the highest-paid directors by a considerable margin.

The biometrics business also boasts the highest-paid board, whose combined emoluments have almost doubled year-on-year. Although RCG is a large AIM concern, with sales of just over £200 million, it is by no means the market’s largest business. However, it is highly profitable, with pre-tax profits of £53 million on £203 million of sales.

The second and third highest-paid directors head Conygar Investment, which invests in UK property, and Datatec, a provider of IT systems and services. Conygar, after not quite breaking even in the previous year, generated pre-tax profits of £13.7 million in the period under review, while Datatec reported the largest sales figure of any company in our sample, some £2.45 billion, and profits down year-on-year at £54 million. Each of the three highest-paid directors was awarded emoluments amounting to between 0.34 and 2.16 per cent of his company’s market capitalisation.

Going forward, Bill Cohen, partner, executive remuneration consulting at Deloitte LLP, says, ‘For the year ending 31 December 2010, we are still seeing restraint, with a large number of salary freezes.’ Mindful that bonuses on the Main Market are expected to increase, Cohen believes that ‘because of the cash challenges in AIM companies, I think there will be less of a catch-up on bonuses. I think they’ll still be bumping along at the bottom, with a slight rise’.
The tables included in our full report offer a more detailed look at the highest- and lowest-paid directors and boards, as well as a breakdown of executive remuneration by sector and a full list of all companies in our sample.

To order the full report, Directors’ Pay on AIM 2010, call 020 7250 7039 or email samantha.hay@vitessemedia.co.uk