3. Potential Risks to Good Corporate Governance
3.25
The absolute sums of money paid to executive and non-executive directors were far in excess of even high rates of pay in the economy. Although directors may expect ‘high pay’, there is no reason for the level of remuneration to greatly exceed other well-paid occupations. Survey findings from the Survey on Income and Living Conditions show that nine out of ten households had a gross annual income of less than €102,000 in 2005, less than €111,000 in 2006 and less than €119,000 in 2007. Putting this in another way, income above these levels in each year can be defined as ‘high pay’. To put this level of pay in context, between 2005 and 2007 over one in six households had a low income that made them ‘at risk of poverty’. More than one household in sixteen (6.3 per cent) was in consistent poverty during the same period. Hence, high pay between 2005 and 2007 was already over ten times the risk of poverty threshold.
Figure 6 – Comparison of directors’ annual remuneration with the normal economy
€1,800,000 €1,600,000 €1,400,000 Poverty Treshold
€1,200,000
High Pay Non-Executive Directors
€1,000,000 €800,000
Chairpersons
€600,000
Executive Directors CEOs (state)
€400,000
CEO’s (private)
€200,000 €0 2005
2006
2007
3.26
As shown in Table 8 and illustrated in Figure 6, the average pay of directors over the period 2005-2007 was many times the level of ‘high pay’ (€102,000-€119,000) in the economy as a whole. The poverty threshold averaged €10,835 during this period.
3.27
CEOs in private companies in 2005 were paid nearly 11 times (10.9) the ‘high pay’ threshold of €102,000 for that year and 110 times the ‘at risk of poverty’ threshold. This rose to nearly 14 times (13.6) the high pay threshold of €119,000 in 2007, and 136 times the ‘risk of poverty’ threshold. In the 21 companies for which this information was available, the lowest CEO payment in 2007 was €140,000 (Kerry Group) and the highest was €3,998,000 (Bank of Ireland). The median payment was €1,362,000 (Irish Life and Permanent).
3.28
Two additional factors may enhance the above remuneration: share options and loans. Board executives typically benefit from share options in private companies and can have access to loans on favourable conditions. Professor Gerard Hughes has noted that the average annual employer pension contribution in 2008 for executive directors in large
27