[LONDON] Chief executives at Britain's largest companies had a pay cut last year. But profits fell further, ensuring a decade-long trend of bosses taking a rising share of corporate profits continued.
The average pay for chief executives of a company in the blue chip FTSE 100 index was 5.23 million pounds (S$10.26 million)last year, down from 5.36 million in 2014, a Reuters examination of corporate filings shows.
However, FTSE 100 profits fell over 40 per cent, helping to lift CEOs' earnings to the equivalent of 0.58 per cent of their companies' total profits for the year, from 0.32 per cent in 2014.
This represents a leap over the past decade. In 2005, CEO compensation, including pensions and share awards, was just 0.1 per cent of pre-tax earnings, the Reuters analysis of annual reports over the period shows.
Rapid growth in executive pay has long drawn criticism from some politicians and media headlines denouncing corporate "fat cats". Now shareholders are increasingly raising their concerns, notably over a bumper deal for BP Plc's boss Bob Dudley as the oil giant reported its biggest ever annual loss.
Measured against share prices, the balance of gains and losses has also tipped in CEOs' favour.
The FTSE 100 index dropped around five per cent last year but CEO pay at the component stocks fell only 2 per cent. Between 2005 and the end of 2015, the index gained almost 30 per cent, while CEO pay doubled at the 87 current FTSE companies where comparable data is available.
Executive pay consultants say UK packages are well above continental European levels but fall short of those in the United States.
Most companies deny there is a problem with pay. They say they have responded to investors' demands to link packages to performance, limiting fixed payouts including pension contributions. Any apparent lack of correlation with profits or share price is often due to market spikes, broader economic trends or one-off events, they say.
In recent weeks, investors have expressed their anger at annual general meetings.
Over half of BP shareholders voted against Mr Dudley's US$20 million pay deal for 2015, a year when the company lost US$6.5 billion. The vote was not binding but the company said it will consult investors on future pay deals.
BP said Mr Dudley's pay partly reflected the fact that he hit targets including safety goals, while the loss reflected low oil prices and legal settlements related to the 2010 Gulf of Mexico oil spill, which occurred before he became CEO.
Pay campaigners and governance groups have also criticised a 70 million pound package for WPP chief Martin Sorrell before the world's biggest advertising company holds its AGM next month.
WPP said the payout was linked to a share plan which required Mr Sorrell to agree not to sell some of his shares in the company for five years. This exposed him to considerable financial risk, a spokesman said.
Some pay experts say the Reuters data shows a fundamental shift in value from investors to bosses. "Shareholders really need to be concerned," said David Pitt-Watson, Executive Fellow of Finance at the London Business School and an adviser to insurer Aviva.
"If you're getting statistics where you're seeing a hugely greater proportion of the profits of a company going out to one individual ... then that's something that needs to give you a greater worry," added Mr Pitt-Watson, who was previously a board member of Hermes Fund Managers.
The recent voting against pay plans is not new. During the "shareholder spring" of 2012, investors - who had historically used their advisory votes to back management overwhelmingly on the issue - voted in large numbers against remuneration schemes. This prompted some companies to amend their policies.
CEO pay is usually set by a company's remuneration committee, which typically comprises three non-executive directors.
Critics say such "remcos" are often made up of people with links to the CEO, sitting or former CEOs of other companies, or others who are predisposed to pay bosses a lot of money.
Louise Patten, head of the remuneration committee at FTSE 100-listed shopping centre operator Intu Properties, denied she and her peers were "old chums, back-scratching" the CEO.
"There are some outliers but I think, generally speaking, the system works. Remcos think about remuneration a lot and whether we have the right strategic drivers," she told Reuters on the sidelines of Intu's AGM.
Ms Patten said the aim was to ensure alignment between remuneration and shareholder returns so that bosses had a strong incentive to do their job well. The proportion of profits that went to the CEO wasn't usually a focus for remuneration committees, with other measures such as relative performance against peers or share price being more important.
But even some company insiders question whether the split of rewards is fair.
"A lot of shareholders have got concerns about the direction of travel of executive pay. I share those concerns in some measure," Philip Hampton, chairman of GlaxoSmithKline, told the drugmaker's AGM this week. "Sometimes, maybe even frequently, it is not easy to see the linkage between the shareholder experience and the executive remuneration," said Mr Hampton, a past chairman of the Royal Bank of Scotland and retailer J Sainsbury Plc.
Not every element of remuneration has risen over the years. While seven figure pension contributions were common in 2005, the abolition of defined benefit plans and the introduction of caps has reduced the cost to shareholders of executive pensions.
Yet the expansion of share-based rewards has more than made up for this and largely explained the doubling of pay in a decade.
Some corporate leaders say CEOs may also be effectively charging more for their services because shareholders have been given a greater ability to get rid of them.
But some politicians and campaigners say shareholders are to blame for failing to hold companies to account.
Fund managers say it is hard to assess whether shareholders are getting value for money from a CEO. Profits can be erratic and executive windfalls can be generated by actions taken a few years earlier.
"To analyse it is very, very difficult and has so many elements and legs to it that it's not straight-forward," said Aidan Farrell, small-cap equities fund manager at Eaton Vance.
Last year was the first year for which companies were obliged to publish a single figure for total CEO pay. Previously, companies reported pension contributions and share awards separately and in their annual reports discouraged investors from including the value of pensions in CEO remuneration calculations.
Current reporting rules force companies to include pension and share payments.