London - The chief executive squeezed along the row to a
cramped economy class window seat on an ageing 737 flown by one of Italy's less
He had spent the previous hour scanning emails on his
BlackBerry in an airport cafe where all the food came wrapped in cellophane.
The regional airport's budget doesn't stretch to the hospitality lounges
usually associated with executive travel.
"People think the life of a chief executive, the
international travel, is glamorous. It's not," he told the Reuters
reporter sharing the flight, adding that the perpetual globe-trotting often
kept him from his wife and children for weeks on end.
"Something has to give in this job, and it's usually
the family," he said. "People need to be compensated for that."
In Europe, headlines about "fat cats" no longer
refer only to bankers, as popular disdain for bountiful bonuses spreads to
CEOs are increasingly feeling the heat from a public
resistant to the argument that big companies need to pay big salaries if they
wish to generate big profits.
A sign of the frustration CEOs feel is their increasing
tendency, when quizzed on the subject, to refer to personal sacrifice rather
than economic argument.
"I work every day... seven days a week," oil
company BP's boss Bob Dudley said, a little plaintively, when asked if it was
fair that CEOs' pay should rise much faster than average wages. He made no mention
of BP's financial performance.
Both CEOs earned over $6m last year, modest by US standards
but contentious in a continent uneasy with yawning gaps between rich and poor.
The tone of the pay debate has grown so poisonous, corporate
leaders say, it is tarnishing Europe's image as a place to do business.
"The initial, and in some cases justified, attack on
bank bonuses is now infecting the public perception of big business,"
Roger Carr, president of lobby group the Confederation of British Industry,
wrote in a recent newspaper editorial.
"Damaged businesses run by demoralised managers are not
a firm foundation for encouraging vital inward investment," he said.
Bosses vs workers
European bosses still earn much less than their US peers.
Thomson Reuters ASSET4 data shows median pay for companies' highest earners,
usually the CEO, was $2.5m in Europe in 2010, against $9.8m in the USand
But eight- and even nine-figure pay deals, driven by share
awards that are a multiple of base salary, are becoming more common in Europe,
and raising public hackles.
Volkswagen, Europe's biggest carmaker, said last week it had
paid its boss Martin Winterkorn €17m ($22m) last year, prompting headlines such
as "Yet more millions for the bosses" in German newspapers.
The British press scoffed at the idea that GlaxoSmithKline
CEO Andrew Witty had been underpaid before its board almost doubled his pay to
just under £7m ($11 million), having found a "competitiveness gap"
between his compensation and that of his peers.
As a lifetime company man, he was "probably the FTSE 100
chief executive least likely to quit to join a rival", an article in The
News that Carlos Brito, CEO of Belgium-based brewer
Anheuser-Busch InBev, was in line for a bonus of more than €100m brought
protesters onto the street, under banners saying the boss was "drunk on
Unusually, the bonus was tied to a single criterion, a debt
reduction target that reflected anxiety about overstretched balance sheets when
markets took fright after the 2008 collapse of investment bank Lehman Brothers.
What irks many in an era of austerity is that bosses' pay is
rising sharply as low level workers' real incomes are falling.
Directors of the 100 biggest listed companies in the UK
enjoyed a 49% increase in pay last year, according to data from Income Data
Services. Average wage rates across the economy rose only around 3%, which
didn't even keep up with the cost of living, which rose 5.2%.
This all means a growing gap between bosses' and employees'
pay. In 2010, the average European CEO earned 149 times the pay of his or her
employees' average wage, up from 105 times in 2009, according to Thomson
Reuters ASSET4 data.
This trend is mirrored in the United States, though the gap
there is much larger.
Even some industry leaders say CEO pay has got out of
control; the head of the British bosses' own lobby group, the Institute of
Directors, concedes that some large pay deals are "corrosive" to the
Just as some bankers gave up their bonuses to calm or head
off public criticism, some companies are now cutting payouts.
British oil explorer Cairn Energy dropped plans to award
chairperson and founder Bill Gammell share options worth £2.5m in January,
following pressure from investors.
The CEO and chief financial office of miner Rio Tinto waived
their rights to bonuses for 2011, after the group swung to a loss in the second
half of the year, and Nick Buckles, the chief executive of security group G4S,
waived his bonus entitlement after the failed takeover of a rival last year.
But this isn't enough to satisfy European governments and
politicians from both sides of the left-right divide.
The UK's Conservative Prime Minister David Cameron has
described the rising gap between pay at the top and bottom as
"concerning", and his government is planning measures to make it
easier for investors to block payouts.
Right-leaning French President Nicolas Sarkozy and his
Socialist Party challenger in upcoming elections, Francois Hollande, have both
proposed measures to curb executive payouts. Poll leader Hollande has promised
to tax income of more than €1m at 75%.
Pay for performance?
Underpinning much public anger is a suspicion that CEOs
appoint cronies, or at least like-minded people, to their boards, who then
scratch the CEO's back on matters of pay.
DeAnne Julius, who has sat on the boards of drug company
Roche, Lloyds Banking Group, property firm Jones Lang LaSalle, services group
Serco and BP, said there used to be some truth to this view, and noted that
former CEOs were often not the most demanding members of remuneration
However, she said companies were increasingly recruiting
directors other than former top-tier executives of the corporate world,
minimising the risk of such cronyism.
Julius' own background was as an economist with Shell,
British Airways, the World Bank and the US Central Intelligence Agency. She
also sat on the Bank of England's interest rate-setting committee.
She said globalisation was leading to greater pay
disparities in all professions, including entertainment and sport, as was a
desire to align directors' interests with those of shareholders, which had led
to pay structures with highly variable outcomes.
Those structures don't always produce an obvious correlation
between pay and performance. The big rise in executive pay last year was in
spite of a fall in European share prices. It also exceeded the average 6%
year-on-year growth in earnings reported so far this year by Euro STOXX 50
Even where weak earnings have led to cuts in CEO pay, the
bosses seem to take a smaller hit than shareholders. Swiss food maker Nestlé
cut CEO Paul Bulcke's pay 7.3% last year after profits dropped 72%.
Companies counter that focusing on short-term share price
movements and earnings alone is misleading because it is better for managers to
be rated on longer-term performance and on measures that reflect the underlying
health of the organisation.
Whatever the measure, some question whether a CEO deserves
the credit for the outcomes for which he or she is rewarded.
Peter Voser, CEO of Royal Dutch Shell, Europe's largest
company by market capitalisation, enjoyed a doubling in his pay in 2011 to
€11.7m, largely thanks to a three-year bonus scheme linked to cashflow.
However, the rise in cashflow was tied to three giant
projects sanctioned by Voser’s predecessor, Jeroen van der Veer - who famously
declared that he would not have performed any better or worse had he been paid
more or less - and devised by van der Veer’s predecessor, Phil Watts.
Julius said it would be better if CEOs received a higher
base salary and a bonus capped at 50% of that. And if they underperform, they
should be sacked.
Other senior business figures believe that Europeans are
hardwired to bridle at high pay, even if there were an irrefutable commercial
The problem, they say, is a culture that is suspicious of
enterprise and personal wealth, which augurs ill for the continent's ability to
compete in a globalised world.
"The business of America is business. Making money is
respected," said the former chairperson of one of Europe's largest
companies, who has served on boards across the continent.
"In Europe, money is toxic."