Big bucks go to bigger chiefs

Huw Richards reports from the annual conference of the Royal Economic Society in Swansea on take-overs, pay and satisfaction.

Despite the huge controversy that has attended the pay rises of managers in newly privatised companies in recent years, research suggests that these effects have largely been confined to larger companies.

Public concern has focused as much on increases in pay in privatised companies as on their overall rates of pay, with unfavourable comparisons being drawn between the ever-mounting rewards of bosses and the often sluggish performance of their companies. Concern has also been expressed about vast salaries in existing major private concerns, with the Pounds 1 million director becoming reality.

In a survey of 1,676 Stock Exchange companies, researchers Martin Conyon, of Warwick University and Daphne Nicholaitis of Oxford, found 17 directors earning Pounds 1 million or more in 1995, a mean of Pounds 203,160 and a median of Pounds 136,000 for the highest paid director of each company.

But, as the researchers explained to the RES conference this week, their intensive study of small and medium-sized companies told a rather different story. Taking 47 companies, all with 250 or fewer employees, in the period 1985-92, the researchers found that the median pay of the highest paid directors at constant 1990 prices rose from Pounds 49,594 in 1985 to Pounds 61,005 at the end of the period.

Pay increases in real terms varied between 3.5 per cent and 6 per cent in most years but were static over 1990 and 1991, and actually fell in 1990.

Dr Conyon said: "This is a great deal lower than for large companies and appears to be pro-cyclical." They found a significant relationship between the chief executive's pay and the sales performance of the company.

They were also interested in the relation between company performance and changes at the top. They expected there to be fewer changes in periods of good performance. This was found to be true with smaller companies, many of which were still family-run, which were slower to make changes at the top.

One conclusion is that the chief executives of large companies are more likely to face the loss of their job, rather than a cut in pay, as the penalty for poor corporate performance.

The researchers emphasise that their findings are still at the preliminary stage.