For UK finance directors pay rises 8%

Global Finance, Sep 1997 by de Lion, Conor

The percentage gain was up from last year and also beat the increase won by chief executives..

For the second straight year, Hans Eggerstedt is the bestpaid finance director in the United Kingdom. Unilever's chief financial officer earned 615,000 ($9.8 million) in direct salary in 1996, according to Monks Partnership, an Essex-based remuneration consultancy that tracks pay levels of FT-SE 100 companies' board members. Eggerstedt's total earnings package (salary plus bonus) of l817,000 was especially impressive-not only was it 22.2% above his 1995 total pay package of L636,000, it also was more than two and a half times greater than the average L296,000 total compensation package earned by finance directors of Britain's largest companies.

Number two on the list is also a repeater: Hugh Collum, SmithKline Beecham's CFO, pulled in a hefty L730,000 in 1996, only L400,000 of which was salary. That was 18% above his 1995 total of L600,000.

As a group, finance directors of Britain's largest companies did not do quite as well as those at the very top of the heap: Both the average base salary of the 81 finance directors tracked by Monks, as well as their average total earnings, increased 8.1% in 1996 over the previous year, to L224,000 and L296,000, respectively. That average percentage increase beat the 7% growth experienced the previous year, however. And interestingly enough, finance directors received greater increases than did chairmen and chief executives from the same group of companies, whose base salary rose an average 5.7%, to L329,000, and whose total earnings increased 7.4%, to an average 545,000.

The public airing of finance directors' pay packages is relatively new in the United Kingdom. Until 1995 publicly traded British companies needed only to disclose pay of the chairman and best-paid director, as well as a lump sum figure for directors as a group. Now that they must reveal pay for all executive and nonexecutive directors in annual reports, "companies in similar sectors and of a similar size seem to be grouping together in terms of salaries," says David Atkins, a Monks consultant. For example, base salaries for the CFOs at retailers ASDA, J. Sainsbury, and Next are all within L10,000 of each other. In the beverage business, salaries of finance directors at Bass, Whitbread, and Allied Domecq hover within a L6,000 spread.

Utilities still pay their directors relatively less than other sectors, with pharmaceuticals and chemicals, and food, drink, and tobacco companies leading the field. Directors in financial and property organizations typically receive a lower base salary than peers in industrial and service companies, but their bonuses generally run at a higher level. If the company performs well, the potential for high earnings is greater. A case in point: Peter Wood, number four on the list and finance director of Standard Chartered Bank, took nearly half of his 1996 L609,000 compensation in bonus.

Among the top earners, finance directors from the usual multinational suspects dominate. Unilever, of course, is among the most international of UK companies. "It's definitely been a challenging time for Eggerstedt," says a Unilever spokesman. The company's finance director is helping to implement a monitoring system based on Stem Stewart's Economic Value Added formula. More visibly, Eggerstedt was heavily involved in the May sale of Unilever's specialty chemicals division to ICI. His charge now includes reinvesting the $8 billion gross proceeds from the sale.

Collum at SmithKline Beecham had a comparatively quiet year. "This has been a year for organic growth of the company," says one analyst. Collum did oversee the tidying-up of the company's share structure. As a hangover from the company's original merger in 1989, US shareholders still owned preference shares. Last year SmithKline Beecham redeemed them for cash and compensated the holders of preference shares with a small rights issue.

David Reid, number three on the list, is a bit of an aberration in that he is finance director at an almost exclusively UK operation, although the home market focus appears about to change. One-third of his L720,000 earnings came from bonus compensation, as supermarket chain Tesco recovers from strategic setbacks in the late 1980s. The company, which is gaining market share over archrival J. Sainsbury, has enjoyed a bull run in recent years.

Reid is set to hand over the finance reins in November to Andrew Higginson, who, coincidentally, is currently number 13 on the list as finance director of the Burton Group. Fifty-year-old Reid is about to take on the title of deputy chairman with responsibility for developing Tesco's corporate strategy in Europe. Reid had much to do with this year's acquisition of the Quinnsworth group in the Republic of Ireland, and Stewart's Food Stores across the border in Northern Ireland. "Reid is a great advocate of using strong cash flow from the home market to gain footholds in less developed markets," says one analyst. Last year Reid masterminded the 77 million acquisition of 13 Kmarts in the Czech Republic and Slovakia.