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Which CEO is paid most on AIM? Which is paid the least? Oliver Haill and Christopher Spink reveal the results of our unique survey of directors’ pay on AIM

Management is arguably the most important aspect of any growth company. It is they who will devise the corporate strategy, drive and manage the growth and make key decisions at the major crossroads on the expansion journey.

When it comes to management though, retail investors face many problems. you don’t appoint them (in any real sense), can’t get rid of them and invariably can’t talk to them much (apart from once a year over canapés at the AGM).

Assessing their commitment and contribution to the business can be difficult. You may look at their history and expertise, their track record in the hot seat, the amount of money (if any) they have invested and the size of their shareholding. You might even check the number of options they hold.

Another key way of measuring their commitment and contribution is assessing their pay in relation to the company’s annual performance, comparing the executive remuneration packages against annual sales growth, profits growth, earnings improvements and the enhancement in the share price.

To assist you, the investor, in this process Growth Company Investor has completed its third annual survey of directors’ pay on AIM, looking at over 700 companies on the market and uncovering some revealing statistics when measuring the directors’ pay against the variables above.

New issues
AIM has changed substantially over the past two years. The number of companies has more than doubled to 1,340 since January 2004 as more than 770 have joined the market.

But over the past 12 months average remuneration – including pension payments and bonuses – of the chief executives on this burgeoning market has fallen more than five per cent to £137,000. This may reflect the fact that many of the new admissions have been investment companies with no trading business.

However, a good proportion of these newcomers still reward their executives handsomely, despite their businesses being at varying stages of development.

For instance, Orchid Developments, set up only this year to invest in real estate and leisure in Bulgaria, pays its joint chief executives almost as much, at £440,000, as that of the boss of DiC Entertainment, the established US media concern behind Inspector Gadget and other lucrative children’s characters (and which posted interim sales of $29 million).

Whether any progress is made in its Bulgarian developments or not, Orchid’s chief executives will receive a reasonable pay cheque. Investors should consider this.

At the other end of the scale, the lowest-paid chief executives on AIM tend to be heading cash shells or mining explorers, a flurry of which joined the market earlier this year. Two newcomers top this table – Belgravia Telecom and Lapp Plats – both of whom pay their chief executives nominal sums.

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As with many others with high growth hopes, these companies favour rewarding their directors through share-based incentives. The highest-paid director of telecoms shell Belgravia has 83 per cent of the shares, whereas platinum prospector Lapp has chosen to motivate its directors with share options.

Motives for a float
Our survey also reveals that many major new entrants to AIM have given their senior directors generous bonuses for managing the float process. Take marine equipment specialist Hamworthy, which tops the table of highest-paid chief executives in our survey.

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Immediately prior to the group’s flotation, which saw major backer Nikko sell its stake, the company’s executive directors split a one-off £2.9 million incentive scheme payment. Without this boost, no director would have received more than £205,000.

The board as a whole were paid £3.5 million. This equates to 3.9 per cent of turnover but represents 83 per cent of last year’s pre-tax profits. Interestingly, the group has performed well since and the shares have nearly trebled.

Stockbroker Arbuthnot, which joined AIM in June, also rewarded its finance director healthily, paying out £484,000 for his services. Both companies rank amongst the highest-paid boards in our survey.

Value for money?
Our research also shows that the average total board pay of AIM companies has risen marginally, by 0.9 per cent, this year to £382,200. It has remained around this level over the past three years, indicating that the mounting costs of compliance, and more non-executive directors, has not affected AIM companies.

The survey also scrutinises the pay of both the largest and smallest companies in our sample, by market capitalisation and turnover. We also assess the most profitable and those with the biggest losses.

Only ten of the top 100 highest-paid chief executives in our survey receive pay that is greater than ten per cent of their company’s turnover. Most receive a much smaller proportion than this.

The former group understandably includes companies with low turnovers because they have products in an early stage of development. Examples are fuel cell developer Ceres Power and drug concern Evolutec. Both reward their chief executives with a salary more than 300 per cent of turnover.

Loss-makers
Shareholders in loss-making bedmaker Airsprung Furniture, whose market cap has declined by 40 per cent in the past year, may be disappointed to realise their chief executive was one of the most highly remunerated on AIM, being paid £360,000, including a bonus of £188,000 for the disposal of part of the business.

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It is a similar story at drug developer Fulcrum Pharma, which has seen its value fall by 80 per cent over 12 months to £1.52 million. Its nine-strong board, which own 18.3 per cent of the loss-making company, maintained their remuneration levels, receiving £599,000 in total.

Meanwhile, Monsoon increased profits 15 per cent to £44 million last year making it easily the most profitable company in our survey. The clothes retailer’s directors were consequently given an 86 per cent total pay increase, amassing £1.2 million in salaries, plus £1.1 million of bonuses and £104,000 of pension contributions.

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The change in emphasis might also reflect the fact that chairman and majority shareholder Peter Simon has controversially scrapped the group’s dividend and instead seems to be rewarding himself by alternative means.

Seventeen of the boards at the 100 most profitable companies in our survey receive over £1 million. Among the 100 heaviest loss-makers in our survey, six boards receive more than £1 million – including clothes retailer Jacques Vert and troubled IFA Millfield, which recorded a £14 million deficit.

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Buy the full report
• A copy of the full report on Directors’ Pay on AIM 2005 in pdf format is available for £195 + VAT. To order a copy,
call 020-7430 9777 or e-mail info@growthcompany.co.uk.
• The 22-page report features 15 tables, each with 100 entries, showing in-depth information on the highest- and lowest-paid chief executives and entire boards on AIM, and how these have changed over the past year. The remuneration is also measured against changes in companies’ market capitalisation, turnover and pre-tax profits or losses.