Have energy firm bosses' wages doubled in the last decade?

"The probe into the so-called Big Six companies shows their average top salary and perks package in 2010 was £1.35million, compared with £637,000 in 2001. But the national average wage rise since then is just 31%..."

Daily Mirror, 19 February 2012

In today's current economic climate, media fury over high salaries is a serious matter for the UK's biggest corporations.

Now, energy sector chiefs have come under fire in one tabloid paper for doubling their own remuneration packages over the last ten years, now earning "52 times more than the typical British worker", while increases in electricity (69 per cent) and gas (131 per cent) energy prices have outstripped average wage rises of 31 per cent over the same period.

Such startling figures are likely to further fuel public anger about 'unjustified' pay for those at the top. But is that anger — like bosses' salaries — out of proportion?

Analysis

The numbers used in the Mirror article are taken from an investigation by campaign group Greenpeace, which examined the accounts of the 'Big Six' energy firms between 2001 and 2010.

Their blogpost, 'Big Six CEOs: Failing customers, failing the climate', refers to bonuses that inflate directors' salaries, before helpfully linking to the publicly available annual reports released by the energy companies, from where Greenpeace's data is compiled.

Greenpeace's pay data file sets out both the salaries of the highest paid Chief Executives at the Big Six firms and the average UK worker's pay between 2001 and 2010, demonstrating a clear difference between both groups' earnings over the period.

The figures also comprise an average for the Big Six, which shows that, by 2010, their remuneration package of £1,352,235 was indeed 52 times higher than the average UK worker's salary of £25,879.

By the data, if we take total pay as our headline figure, it is also correct to suggest that their total pay has doubled, on average, over the last decade.

But comparing wages like-for-like highlights exactly how much of a difference a bonus makes.

Both Greenpeace and the Mirror derive the 52 times higher figure by comparing the total pay package of the Chief Executives with the basic salary of the average worker. As far as the average worker is concerned, any bonus they may receive can hardly be expected to match the sums some executives collect in their remuneration deals.

However, it would be useful to highlight how the Big Six Chief Executives' basic salaries compare to their bonuses. This way the nature of the pay gap between them and the average worker can be better understood.

Basic salary figures are, however much less readily available in the Big Six energy giants' annual reports, so we cannot obtain a full picture of the situation.

But in those that do publish such information, Full Fact discovered that the basic salary of some CEOs rose by as much as three-fifths over the last decade. Centrica is one of those firms with a comprehensive breakdown of pay year-by-year. The figures read like this:

In 2001:

And in 2010:

Of course, some degree of inflation would need to be factored in to obtain the clearest picture. Nevertheless, in 2001, the then Chief Executive Roy Gardner's basic pay was £590,000. In 2010, his successor Sam Laidlaw took home £941,000, an increase of 59 per cent.

Although as a percentage it is nearly double the 31 per cent increase for a typical British worker, it is still less than the 141 per cent stated in The Mirror. However, a quick glance at the money paid into the bosses' Annual Incentive Scheme — later termed "Annual Performance Bonus" — shows that this element of CEO pay rose 302 per cent in the same timeframe.

This is perhaps a reflection of the bonus effect on the remunerative package, as well as other kinds of compensation. The particular of instance of E.On's chief executive being paid more in bonuses than in basic pay in 2008 is an extreme example of the main point expressed in both The Mirror and Greenpeace articles.

Conclusion

On the one hand, the Mirror is correct to claim that pay increases for energy bosses have accelerated faster than the average UK worker over the past decade. They are also right to attribute this, in part, to the influence of bonuses on the remunerative packages of top directors at the Big Six.

But we must be aware of the nature of the comparison made, because the article does not make like-for-like comparisons of the salaries of both groups of earners. Energy firm bosses' total pay, including 'perks', has doubled in less than a decade; their basic wage has not.

Image attributed to stevendepolo on Flickr.