Pockets full of cash
One reason for this discrepancy between levels of pay and share price performance, of course, is that remuneration inevitably tends to reflect and reward past and current progress, rather than what lies ahead. However, if the company is a relatively new prospect, the board may opt to receive a low salary until such time as profits allow for a more reasonable remuneration. The salary paid by the company to its board members may also not be the main concern for the directors. They may have other sources of income and other concerns. ‘Most of the directors of Rurelec are shareholders, so we wanted to get to a position from which we could pay dividends as soon as possible. If a director’s salary is disproportional to the success of the company, it is being run for the interests of that director, rather then the shareholders, and that’s just wrong’ says Earl. There are usually other elements to be weighed, relating to the individuals concerned and their market worth, the companies and sectors.
Trends and averages
Institutional shareholders, who control more than half the shares on AIM, typically expect certain factors to be taken into account when setting directors’ rewards. Chief
among these considerations are: objective market data, individual and corporate performance, experience and responsibilities and pay and conditions throughout the company in question. Investors will also expect a balance between fixed pay, including salary, benefits and pension rights, and variable pay, chiefly bonuses and equity incentives designed to stimulate directors to add value for shareholders. The preference is usually for a weighting towards performance-based remuneration. Of course, performance can change, sometimes unexpectedly and sometimes because of external factors outside a company’s or directors’ control.
The Growth Company Investor survey shows that the mean AIM company chief executive officer’s salary rose no less than 27 per cent last year to £174,000. That followed an average fall of five per cent in the previous year. While finance directors are now receiving £110,000 a year, seven of those at the helm of AIM companies were last year paid more than £700,000. That is the same as the basic salary of the chief executive of a FTSE 100 company. Size and profitability are clearly significant influences. The top 100 AIM companies by turnover pay their chief executive officers an
average £311,751, with finance directors receiving £201,601.
The chief executive officers of the 100 most profitable AIM companies, meanwhile, receive an average £328,000 and their finance directors are on £159,000 a year. Rising market values of AIM companies, which have on average almost doubled since 2003 to £47 million, have played a part in these trends. Structural changes in the market have also been important. These larger AIM companies tend to raise more money when they float and 375 joined in the past year, raising a total of £8.66 billion.
Not only is AIM home to an increasing number of domestic companies which operate globally, it has also become the market of choice for overseas companies seeking funds for expansion, usurping the role once played by the US exchange.
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