The 1,000% Difference Between FTSE Pay And Dividends

Published in Investing on 3 August 2011

Blue-chip bosses collect 10 times as much in pay and bonuses as they do from dividends.

Even though I always knew FTSE bosses collected relatively modest dividends in comparison to their fat pay cheques and bumper bonuses, I was still shocked when I worked out the figures.

According to my sums, the aggregate remuneration of the chief execs at twenty of the largest FTSE companies is 1,000% -- or ten times -- greater than the total of their personal dividend payments.

Having looked through the figures in detail, I'm now convinced blue-chip leaders in general are not aligned with the income interests of ordinary shareholders such as you and me.

Twenty top bosses

My study encompassed familiar blue-chip names such as Diageo (LSE: DGE), Imperial Tobacco (LSE: IMT) and Vodafone (LSE: VOD). I ploughed through their latest annual reports and noted each chief exec's current salary and reported total remuneration, as well as then deducing their annual dividend income from their disclosed ordinary shareholding.

Remuneration statements are complex at the best of times, so there was a bit of interpretation with some of the figures, and I had to make adjustments for foreign-exchange movements as well, but here's my overall summary for the twenty FTSE shares:

Chief exec
basic pay
Chief exec
total pay
Chief exec
dividend income
Div inc as
% of basic pay
Div inc as
% of total pay
£22.3m£67.7m£6.5m29%10%

Essentially the twenty bosses collected basic salaries, bonuses and other benefits of about £68m, yet I reckon their aggregate dividend income is currently running at less than £7m.

This next table reveals the five FTSE leaders within my study that earn the most in dividends in relation to their total annual remuneration:

ShareChief execDiv income as
% of basic pay
Div income as
% of total pay
Reckitt Benckiser (LSE: RB)Bart Becht168%41%
SABMiller (LSE: SAB)Ernest Mackay58%12%
BHP Billiton (LSE: BLT)Marius Kloppers26%12%
Tesco (LSE: TSCO)Philip Clarke24%12%
AstraZeneca (LSE: AZN)David Brennan31%10%

Sad to say, but only one boss in my study received more in dividends than his basic pay last year -- Bart Becht -- and I feel it's a real shame this payout-orientated leader is stepping down at the end of the summer. Excluding Mr Becht, dividends would represent just 8% of the total remuneration paid to the other 19 FTSE bosses in my research.

And so to the five bosses within my study that I reckon collect the least in dividends in relation to their salaries, bonuses and benefits:

ShareBossDiv income as
% of basic pay
Div income as
% of total pay
GlaxoSmithKline (LSE: GSK)Andrew Witty10%4%
BP (LSE: BP)Robert Dudley3%3%
Royal Dutch Shell (LSE: RDSB)Peter Voser8%2%
Standard Chartered (LSE: STAN)Peter Sands8%2%
Anglo American (LSE: AAL)Cynthia Carroll2%1%

True, Bob Dudley's dividend income has been affected by BP's problems in the Gulf of Mexico, but essentially it's a very poor showing from all these chief execs. Bottom of the pile is Cynthia Carroll, whose tight-fisted payout policy at Anglo-American -- the miner distributed only 16% of its earnings in 2010 -- leaves her collecting dividends of just £21,000 (Her annual salary tops £1m).

A few encouraging signs

Reading all those annual reports, I did see a few encouraging signs of blue chips spending more on dividends than executive pay.

For instance, I noticed the executives at Unilever (LSE: ULVR) have not received salary increases for three years, during which time the group's payout has advanced 16%. Meanwhile, the new man leading British American Tobacco (LSE: BATS) is paid less than his predecessor, yet the cigarette firm has just lifted its latest payout by a further 15%.

But all in all, I remain very disappointed with how our leading executives are still reaping far more in pay and bonuses than from the dividends that the likes of you and me receive.

The obvious ways to counter this bias would be for blue chips to lift their payouts while keeping a lid on board pay, or perhaps even better, to ensure their chief execs hold enough ordinary shares so that dividends become really important to them, too.

Either way, I'm extremely keen to see that shocking ten-fold gap between executive pay and dividends reduce in the future. I'll let you know if I see any progress.

More from The Motley Fool:

> The Motley Fool owns shares in AstraZeneca, GlaxoSmithKline, Tesco, Reckitt Benckiser and Standard Chartered.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

DIYIncome 03 Aug 2011 , 10:16am

Yes David, it would be better if senior management were more interested in dividends - then perhaps they would stop wasting money on share buy-backs (OK, they may be a good idea in some limited circumstances).

Still, a lot of companies don't pay decent dividends, either.

XMFSonia 03 Aug 2011 , 11:11am


It looks like Alex Brummer, City Editor at the Daily Mail agrees with you David. He says Bart Becht sets a useful precedent.

http://www.thisismoney.co.uk/money/markets/article-2021709/ALEX-BRUMMER-Britain-s-utilities-act-reliable-cash-generators-foreign-buyers.html

Fingered 03 Aug 2011 , 12:41pm

I'm surprised you are so surprised.......senior company execs make far more out of share option perks. Perhaps you should look at the scale of how they cash in by unloading stocks as soon as possible for a short term gain rather than holding stock as a long term buy and hold investment. Divi's are for the market punters,.....it's beer money to them. .You might be surpised.

StrangeAlienFool 03 Aug 2011 , 12:55pm

On the other hand, just think how many shares they'd have to be given in order for the dividends to come close to their salary?! It would be easy to be just as outraged if they were given huge piles of shares, wouldn't it....

snoekie 03 Aug 2011 , 2:43pm

It should be a condition of the any bonus package, that the bonus is to be taken in shares, not cash, that the execs must hold the shares for a minimum period, say 5 years before they can deal in them.

That would mean that the exec would have to concentrate on the company to earn extra, and make them concentrate more on the success of the business they are running and the more successful they are for the shareholders the more they earn.

For the pay of many chiefs, they are overpaid, and this should be scaled back a fair bit. If they make a success of the business then they will reap the rewards in the value of shares and dividends.

And oh, finally, if they mess up, no severance pay.

Fingered 03 Aug 2011 , 4:16pm

snoeie........well that's really up to the large institutional inverstors such as pension and hedge fund managers isn't it? ...The retail schmuck investors got diddly squat clout. So Mr Kuo can beat his drum, and moan and winge all he likes, or, he can just write more churnalism.

TMFDragon 03 Aug 2011 , 4:20pm

Hi Fingered

I’m surprised you are surprised that I am surprised.

I always knew that chief execs were amply rewarded but not to the extent where dividend income became meaningless for them. If we pay the piper then we should, at least, have some say as to what the tune should be.

David

Fingered 03 Aug 2011 , 4:25pm

........Eventually though, Mr Market, who is a demonic son-of-a-bitch herdsman, armed with a very nasty cattle prod, could very well force the situation one day :-)

Fingered 03 Aug 2011 , 4:30pm

Not saying you are wrong in principle on having a say David. Keep up the good fight ;-) Bon courage!

Fingered 03 Aug 2011 , 4:59pm

Then again, rather than go stocks route sarching for a divi yield, you could always go corporate bond path and get yield that way with no capital gains. ....I would stay *well* away from "sleeping beauty" bonds such as the Walt Disney 100yr at 7.55% back in 1993. Either a) You will be dead before you get your principle back at maturity or b) The company goes bust and out of existence before you do. Weird times eh? ;-)

ANuvver 03 Aug 2011 , 6:26pm

"Someday my perps will pay,
But inflation will eat it all away..."

ANuvver 03 Aug 2011 , 6:26pm

Anybody want to buy a pair of gold underpants?

jackdaww 03 Aug 2011 , 10:27pm

are you sure theyre gold?

Fingered 04 Aug 2011 , 12:43am

ANuvver, no ta, not quite yet......I'm looking for shorts first. You tried Mexican government?

ANuvver 04 Aug 2011 , 2:10am

No but the Koreans are interested.
jackdaww - okay, okay, copper gusset.
Sorry - I've trivialised this thread. I shall desist.

spinquark 21 Oct 2011 , 2:41pm

erm I can't see that it is as simple as that. Dividends and share price rises are equivalent. If a company pays little dividend but its share price rises then you can sell a few shares to get some income from the capital gain. Equally one way of increasing the share price is to increase the dividend thereby making the shares more attractive to income investors. Directors should be deciding whether it is financially better to reinvesting profits in further growth or to pay them out to owners. Some companies pay high dividends because they do not need to retain the profits for reinvestment, others see huge opportunities from reinvesting all profits and so that is what they do. This seems like a pointless argument to me.

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