The Directors’ Salaries on AIM survey, the fourth on this topic and produced in association with Halliwell Consulting, shows that if you had invested in September 2005 in the ten AIM companies with the highest-paid chief executive officers, the chances are you would have done no better, and probably worse, over the following 12 months, than if you had gone for the ten companies at the other end of the boardroom pay league.
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 and, 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 of £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 major 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 more companies 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, which are seeking funds for expansion, thereby usurping the role once played by London Stock Exchange suitor Nasdaq.