Average top 100 CEO in Europe earns salary & bonus of €5.8 million

03 December 2018 Authored by Consultancy.eu

Chief Executive Officers (CEO) of large European companies are seeing continued growth in their compensation packages – an average CEO bags more than €5 million per year in salary and bonuses. Growing pressure from the public, politicians and shareholders is however changing the remuneration landscape for executives. 

In a new report by Willis Towers Watson, the firm’s HR consultants analysed the CEO pay of the largest stock-listed companies in Western and Eastern Europe – companies listed on the STOXX All Europe 100 Index. The data for instance includes the pay of the CEOs of British-Dutch oil and gas giant Shell (Ben van Beurden), the world's largest food and beverage company Nestlé (Ulf Mark Schneider), Belgium-based drink and brewing company AB InBev (Carlos Brito), Swiss healthcare firm Roche (Severin Schwan), UK banking institution HSBC (John Flint), and FMCG and consumer goods player Unilever (Paul Polman). Companies with the lowest market capitalisation built-in in the analysis include Swedbank, Amadeus IT, Essilor, Deutsche Bank and Swiss Re. 

The authors found that, on average, a CEO of a STOXX All Europe 100 company is paid €5.8 million in total direct compensation. Of this amount, the base salary represents around €1.5 million, with the remainder gained through bonus payout and more long term grant incentives. Chief Executives in the top quartile however – those responsible for companies with an average revenue of €53 billion and 133,000 employees – are paid €1.7 million more, with the elite group taking in an average of €7.5 million.

Top 10 actual TDC - Financial year 2015-2017

Companies that lead the list of top payers are Roche, AB InBev and UBS – all three companies pay their CEO a total direct compensation of over €12 million. Novartis and SAP both pay more than €10 million, while also the CEOs of Volkswagen, Shell, Reckitt Benckiser, Sanofi and British American Tobacco belonging to the best paid figures on the continent. The companies that pay least are Glencore, Swedbank, Orange, ING and Danske Bank. 

While looking into patterns across the data set, the researchers found that CEOs leading smaller companies in size and those operating in regulated industries are more likely to be among the bottom quartile. Interestingly, while average CEO pay has trended upwards in recent years, the average total direct compensation level of the bottom 10 CEOs has decreased over the past three years from €2.3 million to €1.99 million in the most recent fiscal year. 

The Swiss versus the Scandinavians

From a country perspective, Swiss companies on average pay their leaders the most. This is of course linked to the average standard of living and pay in the country, which is higher vis a vis other European countries. Nordic companies tend to be the lowest payers, which, according to the researchers, is closely linked with the cultural approach in Scandinavia to pay – remuneration differences between executives and operational staff being among the lowest in the world.Median actual TDC by country - Financial year 2017

Country differences are also visible in average pay growth. In the UK, median total direct compensation dropped by 7%, while in Germany this figure increased significantly. The latter outcome echoes the results of a study by PwC Germany, which concluded that the salary of top CEOs (DAX CEOs) has increased every year since 2014. PwC’s analysis further discovered that DAX CEOs earn nearly twice as much as other board members in the country, and more than double the amount of their colleagues at smaller public listed companies (MDAX organisations). In the Benelux, which spans the Netherlands, Belgium and Luxembourg, all five CEOs included in the assessment saw their pay-out increase. 

The breakdown of CEO compensation packages at STOXX All Europe 100 Index companies is mixed across the continent. CEOs in Switzerland and the UK have the lowest portion of fix base salary. Long term incentives (LTI), contrary to short term incentives (STI), are used most by companies in the UK, followed by their counterparts based in the Benelux and France. In certain regions, such as Spain and Nordics, LTI remains a relatively minor element of remuneration.

The authors highlight that in many countries, companies use deferral schemes as part of their mix. Deferred compensation is an arrangement in which a portion of an employee's income is paid out at a later date after which the income was earned – the main benefit of the arrangement is to ensure that employees only pay tax at the date when they actually receive the income. In Willis Towers Watson’s methodology, deferrals are not included in long term incentives, but in actual bonus payouts, which means that LTI comparisons require deeper analysis. “The majority of Europe's top 100 companies have deferral schemes in place that in addition to or sometimes in absence of LTI plans support a long-term orientation of total pay,” says Sven Slavenburg, who leads Willis Towers Watson’s Executive Compensation practice in Western Europe.CEO average pay mix by country - Financial year 2015-2017

Changing rewards landscape

Looking forward, two trends are identified for CEO compensation in Europe. On the one hand, executive pay is set to continue to rise in line with the improving economy and the growing complexity that comes with holding such a role. As CEO pays are often benchmarked, the situation occurs that when one company raises its payments to the CEO, other companies are in due time expected to follow suit.

On other hand, there is growing awareness on the moral and ethical part of CEO pay, with pressure mounting for a more fair pay policy to be embedded in the payment structures. “Driven by emerging legislation, shareholder activism, demographic shifts and public opinion, the focus on pay fairness continuous to increase,” comments Slavenburg.

One of the developments driving this line of thinking is the so-called Shareholders’ Rights Directive (SRD). The SRD requires companies to explain how they are taking pay across the organisation into account when setting director remuneration, and that Remuneration Committees need to be familiar with broader trends. “The SRD is the key driver influencing Executive Director compensation in forthcoming years. A small number of countries have published implementation drafts, while others are still awaiting further guidance. In the past year we have observed increasing shareholder pressure on exceptionally high pay levels and a further alignment in pay practices across Europe. Alongside this, we see that pay levels for almost every element analysed remained stable. In relation to incentive design, companies are concentrating on reviewing metrics and amending their calibration – with a focus on both weighting and defining payout curves,” says Slavenburg.

The discussion however tends to be more diverse than focusing on CEO pay ratios only, he adds. “It also covers equal pay, minimum wage, gender pay reporting, female representation on boards and a broader inclusion and diversity agenda.”

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