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The new Directors’ Salaries on AIM survey, the fourth on this topic produced by Growth Company Investor, in association with Halliwell Consulting, shows that, while the average pay of AIM company executives increased in 2006 for the first time in two years, share price performance did not necessarily perform in line with remuneration.

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If you had invested in September last year in the ten AIM companies with the highest-paid chief executive officers, the chances are you would have done no better, and probably worse, over the following 12 months, than if you had gone for the ten companies at the other end of the boardroom pay league. Thus, as Table 1 shows, Allan Kerr, chief executive officer of metals trading group Wogen, which floated on the junior stock market at 122p in October last year, saw his salary for the year to September 2005 leap from £657,000 to £2.5 million, following a jump in pre-tax profits from £9.6 million to £23.2 million. The shares peaked at 187.5p in January, but later headed south on deteriorating trading conditions and plunging interim figures to 70p and lower. Consolidated Minerals, the Australian-based nickel and manganese group, paid its chief executive Michael Kiernan £1.67 million in its last full financial year, much of it in the form of a ‘termination payment’, while its shares fell 37 per cent from September to September and now, at 79.5p, are less than half their 2005 peak. NETeller, a strongly performing online money transfer specialist, paid its own chief executive officer £834,600 last year, but the US Unlawful Internet Gambling Enforcement Act has forced the company to re-think parts of its business model and sent its shares down 44 per cent over the period surveyed â“ at 146.75p, they are now only a fraction of last year’s 919p high. By contrast, Table 2 shows that Albidon, an Australian nickel explorer in Zambia and elsewhere in Africa, paid its managing director a modest £8,800 in the year under review, making him the third lowest-paid boss on AIM. Nevertheless, encouraging drilling results from the company’s projects sent the shares up 195 per cent over that period and have left them at 58.5p â“ more than double their level a year ago. Your Space, which provides office accommodation for smaller companies, paid its chief executive officer an undemanding £12,500, yet saw its shares gain 196 per cent between September 2005 and September 2006. Since then, they have advanced another 50 per cent to 110p â“ good news for CEO Shaun Mealey, as he has a 22.9 per cent stake. Rurelec, is another adventurous group that pursues electrification projects in South America. It has paid its chief executive officer, former maverick financier Peter Earl, a modest £14,000 in the year under review, making him the ninth lowest-paid boss in the market. But the shares have been among the market’s better performers, rewarding Earl, who owns nearly ten per cent of them. One reason for this discrepancy between levels of pay and share price performance, of course, is that remuneration inevitably tends to reflect and reward past and current progress, rather than what lies ahead. There are usually other elements to be weighed, relating to the individuals concerned and their market worth, the companies and sectors.

Trends and averages

The institutional shareholders, who control more than half the shares on AIM, typically expect certain factors to be taken into account when setting directors’ rewards. Chief among these considerations are: objective market data, individual and corporate performance, experience and responsibilities and pay and conditions throughout the company in question. Investors will also expect a balance between fixed pay â“ including salary, benefits and pension rights â“ and variable pay â“ chiefly bonuses and equity incentives designed to stimulate directors to add value for shareholders. The preference is usually for a weighting towards performance-based remuneration â“ and, of course, performance can change, sometimes unexpectedly and sometimes because of external factors outside a company’s or directors’ control. The Growth Company Investor survey shows that the mean AIM company chief executive officer’s salary rose no less than 27 per cent last year to £174,000. That followed an average fall of five per cent in the previous year. While finance directors are now receiving £110,000 a year, seven of those at the helm of AIM companies were last year paid more than £700,000. That is the same as the basic salary of the chief executive of a FTSE 100 company. Size and profitability are clearly significant influences. The top 100 AIM companies, by turnover, pay their chief executive officers an average £311,751, with finance directors receiving £201,601. The chief executive officers of the 100 most profitable AIM companies, meanwhile, receive an average of £328,000 and their finance directors are on £159,000 a year. Rising market values of AIM companies, which have, on average, almost doubled since 2003 to £47 million, have played a major part in these trends. Structural changes in the market have also been important. These larger AIM companies tend to raise more money when they float, and 375 more companies joined in the past year, raising a total of £8.66 billion. Not only is AIM home to an increasing number of domestic companies, which operate globally, it has also become the market of choice for overseas companies, which are seeking funds for expansion, thereby usurping the role once played by London Stock Exchange suitor Nasdaq.

Total board pay

The survey also shows that the combined boardroom pay of an average AIM company has risen from £382,000 to £495,000, after remaining almost static for two years, while the number of AIM companies paying their combined boards £1 million or more rose from 47 to 59. In all, 18 AIM companies paid their chief executive more than the combined salaries of an average AIM board, £495,343. As Table 3 shows, the companies with the highest-paid chief executive officers, Wogen, Consolidated Minerals and the investment group, Charlemagne Capital, have also had the most expensive boards in the year under review, though not in the same order. Retailer Monsoon and property groups Rugby Estates and Halladale also feature again among the 10 highest paid boards. Monsoon, however, paid out a modest 0.4 per cent of annual turnover in boardroom salaries, while Halladale and Charlemagne devoted more than 9.5 per cent of turnover to their directors. Companies engaged in speculative ventures, which have yet to pay off appropriately, feature among the lowest-paid boards, with resource hopefuls Red Rock Resources and Regency Mines paying their combined directors no more than £3,000 and £4,300 respectively. Lacklustre investment minnow Bidtimes paid its board £20,200 all told, but that was still more than a fifth of its turnover.

Size, profits and pay

Tables 5 and 6 highlight bosses’ and boardrooms’ pay at the largest and smallest AIM companies during the year in question. At the top end, Russia focused-oil and gas group Sibir Energy, controlled by Russian business heavyweight Chalva Tchigirinski, and bloodied in battle with Chelsea FC-owning oligarch Roman Abramovitch, paid its board more than £1 million in its last financial year and saw its market value surge by 194 per cent over the same period. Peter Hambro Mining, producing gold in eastern Russia and particularly well-connected with Moscow’s military establishment, paid its board £1.7 million and enjoyed a share price rise of 84 per cent over the same period. The directors of wind turbine play, Clipper Windpower, together received a less munificent £588,000 and watched that company’s shares triple in the 12 months to last September and has put on another big chunk since then. As shown in Table 7, resources-oriented investment banker and asset management group Crosby Capital Partners paid its directors a collective £2.24 million â“ half of it to chief executive and ex-Nomura star Simon Fry â“ which they justified by delivering profits of £66.17 million. Crosby shares shot all the way from 16p in 2004 to 106.75p at the beginning of this year, but have since retreated to 45.5p. The correlation between profitability and directors’ pay is far from exact. Construction and plant hire company Abbey showed up as the fifth most profitable company on AIM, yet it ranked only 33rd in the league of combined boardroom pay.

Methodology

Growth Company Investor examined the chief executive, finance director, chairman and total board pay of 783 AIM companies in compiling this survey, taking information from the company’s most recent annual reports. Where companies only detail the pay of ‘the highest paid director’, this has been assumed to refer to the chief executive. Total pay, for both individuals and boards, includes basic salary, bonuses and pension contributions. Compensation payments for directors who have left during the year have been taken into account for ‘total board pay’ calculations.

Wogen	AIM	£12.12m	27.00p	-10.50p
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Other company articles:
Directors pay and performance on AIM			02/01/2007
Medal rises out of the Ashes			28/04/2006
Newcomer - Wogen			31/10/2005