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Business planning

The Illusion of Corporate Success: A Critical Look at Chief Executive Pay and Performance

Strategic Insights

— 2 min read

As reported in The Financial Times, chief executive pay in the UK rose by 168% between 1998 and 2003. However, during the same period, the FTSE All-Share index declined by 16%, and the net dividend paid on the All-Share increased by only 3%. Meanwhile, the gross value added at factor cost increased by 28%, corporate profits for the private non-financial sector rose by 17%, and the financial sector saw a profit increase of 71%. This stark contrast between corporate performance and executive compensation has sparked a debate about the qualities required to succeed in the corporate world.

Key Takeaways:

  • The 168% increase in chief executive pay from 1998 to 2003 is significantly higher than the 16% decline in the FTSE All-Share index during the same period.
  • The net dividend paid on the All-Share increased by only 3% between 1998 and 2003, suggesting that executive compensation may not be closely tied to corporate performance.
  • The gross value added at factor cost increased by 28% between 1998 and 2003, indicating a growth in economic output.
  • Corporate profits for the private non-financial sector increased by 17% during the same period, while the financial sector saw a profit increase of 71%.
  • Lucy Kellaway's article "I want to be like you - advice for the would-be CEO" highlights the importance of qualities such as respect, ethics, and listening in corporate success, but neglects to mention leadership, integrity, and other essential traits.
  • The responses from readers, including Kenneth Armitage and Peter Barnard, suggest that many CEOs may be relying on similar management advice or attending the same management courses, rather than thinking critically about their own performance.

Statistics:

  • As reported in the Independent Remuneration Solutions, chief executive pay in the UK rose by 168% between 1998 and 2003.
  • The FTSE All-Share index declined by 16% between 1998 and 2003.
  • The net dividend paid on the All-Share increased by only 3% between 1998 and 2003.
  • The gross value added at factor cost increased by 28% between 1998 and 2003.
  • Corporate profits for the private non-financial sector increased by 17% between 1998 and 2003.
  • The financial sector saw a profit increase of 71% between 1998 and 2003.

Sources:

  • The Financial Times, May 24, "Chiefs' pay soars 168 per cent in five years"
  • The Financial Times, May 24, "I want to be like you - advice for the would-be CEO"
  • Independent Remuneration Solutions, report on chief executive pay in the UK, 1998-2003
  • Office for National Statistics and the UK economic accounts, 2003, Q4
  • Kenneth Armitage, letter to the editor, The Financial Times, May 24
  • Peter Barnard, letter to the editor, The Financial Times, May 24

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