RVP Vs the CEO
Later tonight, Robin Van Persie is likely to make his debut for Manchester United. The move has had universal approval (Emirates Stadium dwellers aside) with even the most critical of opponents secretly wishing their club could have stumped up the cash.
The move will cost Man Utd £24m, plus wages of £36m over 4 years, plus £10m ‘loyalty’ money. Then he will get performance bonuses on top of that. At £200k per week (plus his loyalty money), RVP’s earnings will be approaching £13m per year….plus bonuses.
Once you factor in the average premiership footballer works between 22 and 26 hours per week (Source: http://www.le.ac.uk/) it’s not a bad deal…. …but a deal that won’t even make him a top 10 football earner.
This comes in the same year as virtually every ‘premiership’ CEO has been vilified over their pay. Can you imagine if a public company CEO (THE boss, not just one of the star performers) was given a £13m salary, plus bonuses, for 22-26 hour week? As it is, the average FTSE-100 CEO’s total remuneration is a quarter of that at £3.4m (and shrinking), for a week that is four times longer (and requiring several decades of experience).
So how can we say CEOs are the ones who are overpaid?
‘Funny Old’ game
Company heads are a rare breed. The skills required, particularly at FTSE 100 level, are unlike those needed for any other role. As stated before, CEOs of large public companies typically don’t need to work: they perform the job because they want to. It is therefore a dangerous, not funny game to take away that enjoyment and replace it with a distracting, needless fight against the attitude of largely ignorant shareholders, media and politicians.
Force the wrong tactics on the pitch and businesses critical to our economy and its continued (eventual?) recovery will be left without leaders. Is that what the shareholders really need to protect their interests?
Furthermore, not only do you risk losing your leader, once you remove incentive, you remove attraction to your business, particularly in the current climate where appetite to move is not overflowing. Having been involved in searches for FTSE 100 C-Level executives this year, the desire to move into such a role (which comes with greater media scrutiny than a premiership footballer on a seemingly indefensible race charge) is far from abundant. Private and Private-Equity backed businesses demonstrating a far more attractive home for disgruntled former public company execs.
The media will highlight the disgrace of some businesses having a ratio of 400:1 from top earner to lowest earner. In reality, it is a very unusual occurrence. Even considering this ratio against a low paid employee on £15k, a 400:1 ratio would result in a £6m salary – I don’t know any C-Level exec on a £6m salary (although there are dozens of footballers on that and far more….). Even the focus of every vigilante’s hatred, Bob Diamond wasn’t on that level of salary, the bulk of his remuneration being performance related, and in stock.
Another focus for shareholder (read: Media) hatred, Sir Martin Sorrell’s business, WPP Plc, slammed for having his pay increased to £1.2m, has an earnings ratio of less than 100:1, and WPP are a high performing business in the FTSE 100 (and thus one of the few businesses who account for circa 80 per cent of the market capitalisation of the entire London Stock Exchange).
As with many other professions (football being a prime example), the desire to seek the best talent means paying premium rewards – however unlike football, the bulk of C-Level remuneration is performance related.
Whilst total pay awards increased for the nation’s top CEOs in 2011 (ranging from 8-23% dependant on how red the ‘red top’ is), the majority of a public company CEOs remuneration is given in stock, typically with a 3-5 year vesting period, and latest figures shows that for the 12 months to March 2012 remuneration actually decreased (source: IDS). With the events of the Shareholder Spring, that is likely to slip further.
Most CEOs salary is typically less than 25% of their overall remuneration package and has typically decreased over the past 4 years; only the performance element has seen material increases, again mostly in stock awards, average cash bonuses having shrunk for the 3rd year running.
The increase in overall remuneration is partly reflective of lower pay awards over the past few years, thus remuneration is paying catch up (average professional earnings in many sectors have increased by more than those of the CEO in the last 12 months, largely as the last 12 months have seen the first bonuses and raw salaries increases for 2/3/4 years), but overall increases are moreso the effect of improved performance. As businesses do better 2011 compared to 2010/09/08, so those with a bias towards performance remuneration will increase, but those increases are stock based, ensuring commonality in interests with shareholders.
As someone who deals with C-Level execs and their remuneration levels on a weekly basis, the truth is lower still. Very few FTSE-100 C-Level salaries get even close to £1m.
Put £1m per year into context, £1m per year is £19,000 per week. What level of footballer earns as little as £19k per week? What about movies stars who make tens-of-million for 6 months part-time work? That can equate to £1m per week!
If the media began vilifying Europe’s top footballers (the top 10 of which earn in excess of £250m between them), or even quoting their remuneration in annual terms rather than weekly, public/fan sentiment would soon change.
How is Sir Martin Sorrell, who not only leads, but founded WPP Plc, and grew it into one of the 100 biggest businesses in the UK, and has worked for 90+ hours per week for over 25 years suddenly NOT worth £1.2m when a 25 year old footballer that struggles to do 24 hours per week is paid £1.2m per month?
CEOs have been criticised for damaging their business’ brand through their excessive pay demands, despite the ease in which the businesses are able to afford such a package. Contrast that with the average Premiership club that typically spends 70% of their total revenue on wages (90% for Championship……120% for Manchester City!) with many fielding first teams, each paid more than a FTSE-100 CEO (Martin Sorrell’s wage equates to £23,000 per week. What class of footballer does that get you?
We live in a society which, on the whole, is increasingly intolerant of so-called economic inequality when it comes to business. Footballers and movie stars – who make tens-of-millions for six months part-time work – are paid amounts which were unheard of in the 1970s, and yet not only escape the public vitriol reserved for ‘Fat Cats’, seemingly see improvements in the brands of football clubs or Hollywood.
As most will really appreciate, Shareholder Spring actually has very little to do with the rewards paid to CEOs – amounts which, in reality, have been similar (in relative terms) for many years. The issue is the media who have chosen to vilify these people and the uninformed masses that have lapped it up like lambs.
Giving shareholders power is a false goal in itself. The masses vote for a quick fix, In 2007, they bullied prudent executives to take on more debt – look where that got us. Today they can see that cutting C-level pay might provide a direct redistribution to their own dividends in the short-term, but saving even £1m would give pence to each shareholder. Lest we forget that shareholder income (from dividends) has increased by 22% in the first 6 months of this year compared to 2011 – yet shareholders begrudge CEOs that have had increases of around a third of that?
Surely the sensible approach is to see corporate pay as an investment in the right person to steward an economically important enterprise in which shareholders, not to mention CEOs, will benefit? The current economic climate should be an argument to bolster executive investment rather than cut it.
Lessons from Sweden
Anti-‘Fat Cat’ activists will often cite Swedish CXO remuneration levels; notably lower than most of their global counterparts. Sweden has long been a unique economy, a fantastic mix of immense social responsibility and economic (and capitalist) achievement. Sweden’s might comes from huge appetite to embrace change and innovation allied to an environment that has seen decades of long term investment.
This coupled with a very low reliance on imported commodities (especially energy with hydropower/nuclear power and more recently biomass) has seen decades of immense political and economic stability, which in turn has encouraged further long term investment and ultimately, wealth creation.
Their openness to change and development (when the rest of the world was walking out of it’s factories over the brand of toilet tissue used) has been at the root of their success. Remember it was Sweden who created the template for bailing out the banks, not Gordon Brown!
The Swedes themselves attribute much of the success to the belief in strong leaders, and leadership breeding empowerment – reasons why Sweden achieves an electoral turnout of 82%.
This leads us back to Bob Diamond. The UK immediately seeks to discredit its leaders, adopting the attitude that strong leaders are a bad thing, overpaid, need their wings clipped and simply not needed. In this culture, leaders of British blue-chips (who don’t NEED to work) do need greater incentives to put themselves, and their families through such a life.
If we look at the performance of the businesses these mega leaders have achieved, again using the ‘worst’, Bob Diamond. He increased his business turnover 5-fold and profits 12 fold….all during the worst macro-economic environment in living memory. Does that sound like poor performance?
The bigger issue here is that executive pay is increasingly NOT geared towards, nor based on performance, it is geared around tabloid media hype and public sentiment. One of which is out to find (create?) scandal the other is largely ignorant.
We pay our CEOs well, but even the best paid get paid fractions of percentages of the profits that their businesses create. The British public, thanks to the hype of the media hype, think our CEOs are overpaid, yet their pay pales into insignificance compared to S&P 500 and Fortune500 CEOs (averaging $12m compared to £3.4m for UK), and when you consider that If you look at longer term reward, UK business has faired far far better – the FTSE-100 generated a 24% return over the last decade, the S&P500 a 9% decline (source: Dimson, Marsh and Staunton).
We assume all FTSE-100 CEOs lead lives of unbridled luxury, social engagements and power lunches. The truth is that these individuals have committed 80-100 hours per week for 20+ years to attain the CEO position, and still give the same 80-100 hour commitment along with the stress that responsibility for 10,000s of employees and a blue-chip business brings. They earn their money, and yet shareholders (whose dividend return has seen a 22% increase so far this year), begrudge them for any form of increase, and vilify them if they dare to accept their contractual bonus.
Contrast that with Mr Van Persie who may, or may not, do 90 minutes of work tonight. He’ll get his £13m per year regardless of performance. If he helps his side reach any number of championship titles or trophies, he’ll get an extra bonus. If he doesn’t, he’ll have to make do with his £13m, plus monies gained from sponsorship. Furthermore, he IS highly likely to lead the life of luxury, and by the time he gets to the age when most CEOs finally make it to the level of 7-figure earnings, he’ll retire.
Top footballers might be some of the fittest men on the planet, but they are arguably fatter than the fattest fat-cat.
Great blog and some very interesting stats and points. I can’t think you’ll get universal agreement, but the case FOR the CEO is well presented and their damnation proven to be a little more groundless in light of external comparisons.
Well done Gary. A well thought out and researched blog.
Good blog but surely misses the point. With one kick Van Persie can completely change the fortunes of his club. That one kick could make or break a championship which in itself could net two or three times his earning?
How does a CEO rival that?
Alan, easy – Bob Diamond (to use an example) increased Barclays Capital’s pre tax profits from £250 million in 1997 to £3 BILLION in 2011.
No single footballer will ever come close to doing that.
The difference between first and last place in the Premiership (for example) is about £15 million per year from TV rights (£756,000 per place).
One kick will not make that much difference but consistent, high quality, dedicated CEO level hard work will!
Do you seriously think that Van Persie will “completely change the fortunes” of Manchester United? He is (I’m told) a good player but they have (again – I’m told) more than a few already.
I’m with Gary on this – (some) sports people are overpaid compared to almost anyone. I realise that their careers are short lived and they are (often) unable/unsuited for work afterwards but still – £200,000 or more a week? come on.
That will be the same Bob Diamond, partially responsible for Libor rate fixing and operating in a cartel with other banks. Great guy!!!!!!
To the point though, this is all pointless…we know premier league players are a bunch of grossly overpaid prima donna’s, none of them can even start to justify what they get paid!
Interesting blog. I wonder how player wage talks would go if they had to be voted on by the season tickets holder with the cost creating a corresponding increase in ticket price?, or post-IPO, by Man Utd’s new shareholders?
The bulk of fans would be nothing but supportive of big signings, and alas, the shareholders of such a business are likley to be either blinkered in the same way as the fans, or smart enough to twigg that high profile players add massively to the clubs PR, brand and marketability.
Enjoyable blog Gary, but not really an equal comparison. CEOs take minimal risk to get to their mega salaries, contrast that with a footballer who yes, may be earning £10m by their mid-20s, but by then they will have had to commit massively to that vocation for 15 years or more, knwoing that they only have a 10-15 year window to make their money before they are too old.
How does the poor underpaid Martin Sorrell rival that kind of commitment. OK, so he had to work hard at University no doubt before being picked off by som prestigious firm, pushed throught the ranks to become a glorified manager running a business, and netting millions in earnings and 10s of millions in shares. Where was his commitment 10/15/20 years ago compared to the footballer that practiced for hours per day from the age of 5/8/10 etc and risked everything by being not quote good enough, and still risks everything with the potential of injury every day?
What is interesting is how UK CEOs rate in comparison with other countries, and here you do make some very good points.
Good blog again Gary, really do like your writing style. The environments you talk of (Hollywood/sports stars) etc are a different world – and effort certainly doesn’t equal reward. Look at all our Team GB stars, very few of them reach anything like the levels of earnings of footballers, yet many are more dominant in their own games. Take Jess Ennis. Worlds best Heptathelete, not one of the top 50, or even top 10. The best in the world. Does she get £millions per year in wages?
Even the amazing Usain Bolt. After 4 years as the fastest man in the world, his currently estimated at £20m, the majority of which has been made in the last 18 months and almost all of it from sponsorship agreements (which footballers have outside of their salaried positions). Bolt’s direct earnings? £300,000, all from performance, i.e. winnings.
All that said, to fight the fat cats over their wages when they do have to work so hard is highly questionable and often highly misjudged.
Well done on provoking thoughts and responses.
Big difference here, footballers are rewarded for their talent. CEOs are rewarded for their work, commitment and to a huge extend, their good luck in being in the right place at the right time.
So CEOs don’t have ‘talent’?
And footballers are never in their positions solely due to being in the right place at the right time?
Footballers are usually school drop-outs that would otherwise be making up social welfare statistics if they hadn’t been spotted kicking a football about and had been allowed to ditch homework to do so.
To suggest footballers are all talent and no luck is laughable.
Easy to pick on footballers but their positions are not any more special than say Formula One drivers, many of whom earns far far more than footballers and only ‘work’ for 90-100 minutes 18 times per year?
How are they more deserving than premium footballers?
Just because footballers are wildly overpaid doesn’t justify other people’s extortionate salaries. The whole notion of the professional sports person is flawed and creates an unreal universe where not only do the ‘stars’ themselves suddenly transcend into parallel universe where accountability, social responsibility and financial awareness are unimportant, their various hangers-on do likewise. Then we have the breed of wannabe WAGs whose life ambition is to marry a footballer, then we have the damage to the locality these people reside in with whole villages and towns being geared around the life, habits and spending power of young multi-millionaire footballers.
To then ask us to feel sorry for CEOs because they are not quite as bad as footballers is a bit rich, no pun intended.
Are these people purely rated according to their net worth? How about the social benefit a morally upstanding footballers can bring to the youth of today?
How about the CEOs that lead there businesses and promote youth enterprise? Or the Alan Sugars of the world that give 20 no-bodies the chance to be somebodies through The Apprentice?
or for both footballers and execs, how the results of hard work and focussed energies can elicit great success.
We see many footballers doing great work for charity, putting their celebrity status to great effect. Can the CEOs claim the same thing?
Footballers agent’s may arrange many charity appearances, but charitable giving isn’t that high. Contrast that with Bob Diamond who as Gary reported on another blog gave 25% of his pay to charity last year, c£7m!
Great blog. The discrepancy between effort and reward for footballers in comparison to company execs is huge and is so often ignored.
Great blog Gary. The issue of exec pay has been over reported for a long time and the bulk of it stems from jealousy. People are too busy nitpicking on individuals successes (and their weaknesses) and not enough time celebrating people who are doing well.
Drawing comparisons between millionaire earners is very interesting, CEOs usually standing out as the most deserving.
Let’s see if Van Persie manages a full season before we consider his value. He’s only had one at Arsenal without major injury. At least it’s now a different club gasping everytime he goes down.
Back on track, if a CEO had VPs sickness record, would they still be employable?
Great blog. Exec pay has become a real political hotbed with every commentator suddenly become an expert, but the levels set are the same as in football, it is all supply and demand. The get the best you have to pay. Yes both are getting out of hand, but if people keep paying the asking price, the suppliers will keep asking – thats capitalism.
RVP could have gone to any club – he would have been foolish not to go for the best payers, others things being equal.
Interest blog and interesting debate. I suspect most people forget quite how much footballer earn predominantly down to the way wages are quoted weekly.
After last night, maybe Man Utd need all the help they can get?
I suspect no-one really knows what a FTSE 100 boss really has to contend with but those that are doing the role, but for average wages to be in excess of £3m is morally wrong. If hthese individuals wouldn’t do it for less, then they need to bring people through the ranks that will. Fresh blood is always good.
As for footballers, their wages are farcical. It is time to bring in a cap like they had in the 1950s and let extra earnings be based purely on performance.
A cap would never work, someone would find a way around, and that it if you got global agreement, otherwise players would flock to the country that didn’t cap.
Great blog and a great angle. Puts the exec pay argument into perspective.
Good work Gary.
Interesting blog and an interesting comparison that I am sure many overlook. We have become accepting of footballers high wages yet intolerant of execs who have without question done more to earn their spoils.
Easy to pick on Bob Diamond. Libor maniplulation has been going on since time began, everyone here in the City knows it, as did Whitehall, as did Blair/Brown, as did everyone with half a brain. The cartel is nothing of the sort.
What Bob was was a Leader who increased Barclays profile, turnover, and profitability; made them the ONLY major bank that didn’t need a government handout and maintained above average lending to all customer groups.
On a personal level, he also gave massively to Charity.
Shame some people are too stupid to see past Daily Mail headline eh?
…following on the Libor issue, on the basis the UK economy will have BENEFITTED from the issue, why are the trashy media so upset about it?
Back on topic, great Blog Gary. Interest comparison and even moreso when we bring in Movie stars. Hollywood uses ROI as a great justifier to paying mega stars, mega money (would Tom Cruise movies have made the same money if it had been Richard Bryers in the lead role) but even top movies grossing $500m, the actual return is nothing spectacular to justify $20-30m on the star.
I suspect ‘trashy’ media, and non trashy media, are upset about it because it is wrong, immoral and illegal? May be they are old fashioned like that?
You’re not for real? Wrong, immoral and illegal are media modus operandi, especially those who have been gunning for Bob Diamond. Between them and the parliamentary commitees, the rules are being policed by the villans, persecuting the (comparative) innocents.
Just picked up on your tweet to Lucy Marcus on this topic. I do agree that execs do have to be respectful of shareholder opinions, although should freely disregard public opinion. But it should also be stated that shareholders should be equally respectful of the job the CEO does. The amount they are paid is insignificant in regards to the value they bring to their business. The comparison to footballer is great and highlights what real talent is and how these kids kicking balls around are the ones who are overpaid and should be held up to public scrutiny. How can shareholders of football clubs accept £15m salaries for players who only perform for a couple of hours per month?
If they are CEOs of public businesses, why should they “freely ignore public opinion”? Priviledged people should be thankful.
Because the public is ignorant and have nothing to do with the businesses unless they are shareholders. Most CEOs are there through bloody hard work and time dedicated, not some Privilege and with 100+ hours per week, they are not necessarily all that Privileged!
Not sure how I missed this blog last month but another great article. I don’t however totally agree, anyone complaining about how low their seven-figure salary is should give their job up to someone who would appreciate it and the immense lifestyle that would bring to any person.
The lifestyle it brings is typically working from 6am until gone 10pm, 6 if not 7 days per week. Thanks to people like you, it also brings huge scrutiny from ignorant jealous members of the public and and sensationalist media. We then wonder why so many execs call it a day and/or move to less vitriloic cultures.
Interesting to read the above in context of Lucy Marcus’ post. The downside of a meritocracy, you can’t dictate your own terms. If your shareholders don’t believe in you, you need to gain that beleif and quickly. To sit there and defend, not win over will end in tears.
Interesting to compare the link posted by Lucy Marcus and this Blog. Both make valid points, and the defense of the exec is justified, but just because it can be justfied, doesn’t mean you have to. Why not just get execs to soften a little? Be a little more tolerant and understanding of the public sentiment and seek to win that sentiment over, at least partly. Playing fat cat will mean people view you as one.
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