The best performing companies pay their CEOs relatively less

European study into the remuneration of CEOs in 861 listed companies in 2016

Between 2014 and 2016, over 70% of the CEOs of Bel 20 and Bel Mid companies received a salary increase compared to a mere 46% in the smaller listed companies. The increase was the largest in the Bel 20 companies and was mainly due to variable remuneration. When the actual market data, the size, sector and profitability are taken into account, the German and English CEOs are overpaid. In stark contrast to that is the conclusion that CEOs in the best performing companies are paid relatively less and that the so-called pay ratio (the ratio of the remuneration for the CEO and the average employee) is also considerably lower in these companies.

These are the main conclusions to come out of the annual study into salaries paid to CEOs by Professor Xavier Baeten and researcher Said Loyens from the Executive Remuneration Research Centre at Vlerick Business School. The companies used in the 2016 study consisted of 861 listed companies in Belgium, France, the Netherlands, Germany, the United Kingdom and Sweden.

Remuneration level: increase mainly in large stock indexes

The median of the total remuneration (fixed salary, bonus and long-term incentives) of CEOs in Bel 20 companies amounted to 2,080,000 euros in 2016, which is 26% higher than in 2015. With regard to the relatively smaller listed companies, remuneration has remained more or less stable: in the Bel Mid companies this was 690,000 euros in 2016 (675,000 euros in 2014) and in Bel Small this was 560,000 euros in 2016 (575,000 euros in 2015).

Considering the international data, we can state that 59% of the CEOs have received an increase over the last three years (between 2014 and 2016). This increase is the greatest in the largest listed companies. In the AEX (largest Dutch stock market index), the increase amounted to 20% and, in the DAX (largest German listed companies), it was 30%. In total, the remuneration of 26% of the CEOs decreased , and it is notable that, in Dutch companies, more CEOs have clearly seen their remuneration decline (AEX: 39%; AMX: 25%; AScX: 50%).

If we look at the underlying remuneration components, it is striking that fixed remuneration has remained almost constant and that the increases can mainly be attributed to an increase in the bonus, and in particular to so-called long-term incentives (e.g. share-related remuneration).

Long-term incentives: growing in popularity in Bel Small

The number of companies allocating those long-term incentives to their CEO remains stable to slightly declining in the Bel 20 and Bel Mid companies, but there is a notable increase in the Bel Small companies. Whereas, in 2014, 22% of the listed companies allocated long-term incentives to their CEO, in 2016, this had risen to 33%.

Belgium is atypical in the sense that share options are more popular here than in other countries. Where 36% of the Belgian listed companies allocated share options to their CEOs, in the Netherlands this amounts to 19%, in Germany 6%, in France 9%, and in the UK 7%. In most other countries, the so-called performance shares are clearly more popular (Netherlands: 49%; France: 37%; UK: 45%; Belgium: 7%).

Another interesting finding is that not all companies allocate long-term incentives each year. Where one in three of the Belgian listed companies has allocated these each of the past three years, only 20% have allocated these long-term incentives in one of those years and 16% in two of the three years. It is also apparent that there is a positive correlation between the number of allocations and the size of the company and that there are more allocations in the Netherlands, Germany and the UK.

CEOs earn the most in Germany and the UK

The study also specifically investigated which factors significantly affect the levels of remuneration given to CEOs. Again, this year, the size of the company has the strongest impact. Furthermore, it appeared that the telecom sector pays less, that a more fragmented share ownership goes hand in hand with higher CEO remuneration and that CEOs who remain in their role for longer are allocated lower remuneration. With regards to the geographical impact, it appears that CEOs in Germany and the UK earn significantly more than their Belgian colleagues. On the other hand, there is no significant difference in CEO remuneration between Belgium on the one hand, and the Netherlands, France and Sweden on the other hand.

The ‘pay ratio’ unmasked

Nowadays, a great deal still has to be done regarding the ‘pay ratio’, the relation between the remuneration of the CEO and that of the average employee. The study calculates the remuneration of the average employee on the basis of accounting data and generally, over the entire sample, concludes that the CEO earns 34 times more than the average employee. This is also strongly related to the size of the company, In the Bel 20 companies, the pay ratio amounts to 37, in the Bel Mid 23 and in the Bel Small 13. This pay ratio is clearly higher in the Netherlands (AEX: 71), Germany (DAX: 89), France (CAC 40: 91) and the UK (FTSE 100: 94). The pay ratio in Sweden is, however, clearly lower than in those countries (OMXS 60: 40). Generally, we can state that the pay ratio in the UK is significantly higher than in continental Europe.

Better-performing companies do not pay their CEOs better 

This year, the study more closely examined companies that continually deliver strong financial performances, over a seven-year period. This led to a number of striking conclusions:

  • The remuneration of the CEO is relatively lower.
  • The proportion of variable remuneration is relatively lower.
  • There is less leverage in the bonus (difference between target and maximum bonus).
  • It is not the case that they would increase or decrease the use of long-term incentives.
  • The pay ratio is lower.

Download the detailed results of the Executive Remuneration study for Belgium.

Download the detailed results of the Executive Remuneration study for the Netherlands.

Besides the known characteristics, such as the European focus, the attention to remuneration levels as well as their design, the inclusion of company data and also details of the CEO, there are a few additions this year that accentuate the unique character of this study. The number of companies in the UK was gently increased by, besides the FTSE 100 companies, also including the FTSE 250 index. Furthermore, sector data has now also been included, as well as data on the fragmentation of share ownership. Also, more characteristics of the bonus were added, such as the target level, the maximum level, whether or not there was a deferred payment, and the weight of the underlying performance indicators. Another unique aspect is that the pay ratio is included as well as giving specific attention to companies whose financial performances are more sustainable than the rest of the sector. 

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