The construction industry has come under a lot of scrutiny over the past year. The fall of Carillion has highlighted the need for a change in the way the big contractors operate, and one of the main things shareholders are shining the spotlight on is executive pay.
Last month, Construction News published a report showing the top 20 highest paid executives within the industry*. Unsurprisingly, the big bosses take home a hefty pay package. The top highest paid construction CEO’s last year were:
|Name||Company||Basic Salary||Total Package|
|Leo Quinn||Balfour Beatty||£800,000||£5,393,891|
|John Morgan||Morgan Sindall||£491,000||£2,578,000|
|Robin Watson||Wood Group||£600,000||£1,420,000|
|John Sutcliffe||Henry Boot||£388,000||£1,299,000|
|Ian Lawson||Severfield (Has now left)||£373,000||£1,205,000|
|Peter Truscott||Galliford Try||£515,000||£1,046,000|
Whether or not you agree with the take home package of the highest paid in the industry, it’s a fact that the current talent pool remains as tight as ever. The skills shortage means that, companies have to build a strong case to entice the best talent into their executive roles.
What’s interesting to note, is that for all of the CEO’s listed above, their basic salary is less than 50% of their package, the additional perks they receive on top (such as share options) can make a big difference.
A good benefits package can often be more appealing than the base salary alone and will hopefully align objectives of the CEO with shareholders, and retain the CEO long-term.
So what are executive packages made up of?
Whether it’s balanced score card based or discretionary, 99% of companies will have a bonus scheme in place for Directors.
Bonuses motivate and retain top performers and are a major factor when putting together a salary package. You can offer a base salary that competes with their current package, but if they are consistently receiving a 50% bonus on top, when you are only offering 20%, then your offer needs to compensate with a higher salary.
For many top executives, bonuses are just ‘salaries in disguise’, if a CEO has a base salary of £300,000 and a bonus of £150,000, with soft targets that will be achieved regardless of personal performance, then that CEO’s guaranteed compensation is effectively £450,000.
It is far more beneficial to the company for bonuses to be tied to performance, overall business objectives and aligned with shareholders. People tend to prioritise achieving objectives that are directly linked to their compensation.
Timing can be a significant factor for potential senior recruits; if your ideal candidate is due a large bonus in two months’ time they may forfeit this if they resign before. Agreeing a “golden handshake” payment for them on joining may be required
2. Long Term Incentive Plans
According to the CIPD, LTIP’s account for 48% of a Director’s total pay on average and over £213 million was paid out in LTIPs for FTSE 100 CEOs last year**.
Typically only available for more senior staff, an LTIP works on the basis that if an Executive or Director meets certain key business or performance targets over a set number of years, they receive an incentive – usually in the form of an additional bonus or shares in the company.
It has been recently proposed by MP’s that LTIP’s should be scrapped as they over complicate pay outs, saying that “pay must be reformed and simplified”***. And while the odd company will get the balance of the scheme wrong, such as the likes of BP who came under fire for awarding its Chief Executive £14m during a massive share price slump; for the most part, LTIP’s encourage employees to support and work towards the long term goals of the company.
A hefty chunk of the package will be allocated to benefits. They typically include items such as pension, company car or car allowance, health insurance, life insurance, tax advice, relocation expenses, housing and education allowances, tax equalisation, exchange rate adjustments and even gym membership.
Shareholders rely on CEOs to adopt strategies that maximise the value of their shares. So it stands to reason that some level of the executive package should be tied up in shares.
Shares can be gifted to bosses as part of the package, for example Balfour Beatty’s Leo Quinn received £1.2m worth of shares to compensate for those that he gave up when he left Qinetiq. Alternatively, they can be offered as part of LTIPS’s, or to all staff as options, where shares are offered at a discounted price.
Your companies approach to benefits and perks will significantly affect your chances of attracting and retaining the best talent in the transport and infrastructure sectors. If you are looking at making senior hires then click HERE to see how we can help with salary and benchmarking advice.