The 2020 UK CEO Value Index

Published annually since 2012, the UK CEO Value Index aims to provide a unique perspective on pay for performance. Our unique and extensive database allows us to understand how remuneration committees are investing in their top executives, and the returns being made to shareholders.

The UK CEO Value Index measures how much value a CEO adds to their company for every pound they are paid. The Index has a simple methodology which remuneration committees can easily apply to their own companies.

Methodology

Total Remuneration and Total Value Added are calculated over the four years from 2016 through to the end of 2019. (Note: The calculation is applied only to those companies that have added value over the period.)

In recent years we have restricted our analysis to the FTSE 100 but this year we extended our analysis to also include the FTSE 250. The 2020 UK CEO Value Index reviewed the FTSE 350 companies as defined on 30 June 2019. For comparative purposes we also prepared backdated analysis for the whole FTSE 350 as follows.

The following tables shows the top performers in our 2020 Index. These companies had the highest Value Index, or in other words, the CEOs of these companies added the most value per pound they were paid.

FTSE 100

FTSE 250

Key Findings

 The graph below shows the Value Index scores of all the FTSE 350 companies included in the 2018, 2019, and 2020 Indexes.

Our last three Indexes show that around 20% of FTSE 350 companies consistently lost value over each of the respective periods whilst just over 70% added value of up to £10bn each over each of the four-year periods measured. This leaves a very small minority of companies that delivered returns in excess of £10bn over a four-year period.

Looking at total four-year remuneration payable across the 2018, 2019, and 2020 Indexes, we see just shy of 20% of companies are paying less than £5m over four years whilst 4% pay in excess of £40m.

Concerningly, there are a handful of companies—four in the 2018 Index, five in the 2019 Index, and four in the 2020 Index—who are losing value over the four-year period yet paying total remuneration in excess of £20m over four years. That is to say, a small group of companies are essentially in the bottom 20% of companies in terms of total value added, yet are paying in the top 15% of companies. 

To illustrate this disparity more clearly, below we plot total four-year remuneration against the value added over the same period.

There is a worrying group of companies (circled in red) that are paying very significant sums for very little (or indeed losses) in terms of total value added to shareholders. In these cases, one would hope remuneration committees are taking a serious look at their programmes to ensure that they continue to be fit for purpose.

If we exclude those companies that lost value over the period, then we see a fairly reassuring relationship between value added and pay. (Note: A log scale has been applied to better visualise the data across such a wide range.)

Trends and Looking Ahead

Looking at pay on an annual basis, it has remained relatively consistent year-on-year since 2016. It is very likely that we will see a dip in 2020 as the ongoing pandemic challenges company performance and, in turn, bonus and LTI payouts.

This document is intended to cover only a few headlines from our 2020 work. If you’re interested in hearing more about our work or if you would like us to prepare a tailored report for your company, then please don’t hesitate to get in contact at london@pearlymeyer.com.