LONDON--(BUSINESS WIRE)--A new Index, launched today, offers a fresh look at the extent to which top CEOs are providing real value to their shareholders for their pay. The Patterson Index, designed by Patterson Associates, the London office of independent U.S. remuneration advisors Pearl Meyer & Partners, gives Boards and remuneration committees a clear understanding of which companies are delivering on the pay-for-performance promise.
“The sound and fury of the executive pay debate in Britain has focused in large part on whether the steady overall rise in CEO pay levels is aligned with meaningful growth in shareholder value,” said Simon Patterson, managing director of Patterson Associates.
“The Patterson Index addresses the lack of a consistent framework that can be used to compare programme results among companies, eliminating the bias created by benchmark peer pay comparisons.”
Business Secretary Vince Cable has called the Patterson Index “a thought –provoking analysis” saying the idea of ranking CEOs against changes in shareholder value is consistent with the drive to stop rewarding executives for failure.
The Patterson Index is based on a straightforward metric applied to FTSE 100 companies: how much shareholders gained for every pound of pay taken home by the CEO over a four year period (2008-2012). This longer timeframe helps recognise longer term value creation and includes any pay deferred through longer vesting periods.
The Index reveals that the companies in the FTSE 100 with the best value chief executives over the past four years include Shell, HSBC, Glaxo Smith Kline and Vodafone.
| Company | Value delivered for every £1 paid to CEO | ||
| Royal Dutch Shell | £3,631 | ||
| HSBC Holdings | £2,828 | ||
| Glaxo Smith Kline | £2,815 | ||
| Vodafone | £2,754 | ||
| Fresnillo | £1.928 | ||
Strikingly, the Index shows that 77% of comparable FTSE 100 companies deliver less than £1000 in shareholder value for every pound paid to their CEOs, Patterson said. “This ‘mediocre middle’ is the biggest barrier to progress in reforming executive pay in the UK,” Patterson said. “Companies that clump in this group tend to deliver ‘me-too’ incentive programmes that focus on similar performance metrics over similar time horizons – undermining the concept that CEO pay should drive the unique needs of each company.
“Thinking about what level of pay will provide a particular return to shareholders is a good starting point for remuneration committees in devising future reward schemes, Patterson. added. “The current tendency of companies to base programmes on what peer executives are paid,” he said, “is like driving a car by looking out the side view mirror.
“The Patterson Index can act as a simple rule of thumb guide to pay and performance, as well as providing a useful insight as to the future value CEOs must deliver if they are to justify their pay packages.”
Click here to download a copy of The Patterson Index.
About Patterson Associates
Patterson Associates LLP, a Pearl Meyer & Partners Practice, (www.pattersonassociates.co.uk) is an independent remuneration advisory firm established in the UK in 2005. It advises publicly listed and privately backed companies outside North America with independent expertise in the design, implementation and communication of effective incentive compensation plans. Founder Simon Patterson is a recognized expert in remuneration governance, incentive compensation design and performance measurement. Mr. Patterson previously co-founded the London office of SCA Consulting and, after the SCA partnership was acquired by Mercer in 2001, served as Worldwide Partner in charge of Mercer’s executive compensation practice in London.
About Pearl Meyer & Partners
For more than 20 years, Pearl Meyer & Partners (www.pearlmeyer.com) has served as a trusted independent advisor to Boards and their senior management in the areas of compensation governance, strategy and program design. The firm provides comprehensive solutions to complex compensation challenges for multinational companies ranging from the Fortune 500 to not-for-profits as well as emerging high-growth companies. These organizations rely on Pearl Meyer & Partners to develop global programs that align rewards with long-term business goals to create value for all stakeholders: shareholders, executives, and employees. In addition to London, Pearl Meyer & Partners maintains offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston, Los Angeles, San Francisco and San Jose.