The High Pay Centre’s annual review of FTSE 100 chief executive pay says that the largest increase last year was at Rolls-Royce (RR.): £13.6mn in 2023, compared with £3.8mn in 2022. To compile this, the centre uses the “single figure of total remuneration” as “prescribed by government regulation” and published in each company’s annual reports. Fair enough. The single figure was devised to enable like-for-like comparisons between companies. It’s broad-brush, though, and can be misleading.
The 2023 single figure for chief executive Tufan Erginbilgiç included compensation for the substantial amount he’d stepped away from by leaving his previous role in private equity. Rolls-Royce’s remuneration committee said they’d positioned “the value awarded... at the lower end of a fair value range”. The amount? £7.5mn. He received this as Rolls-Royce shares. Half will be held until March 2027; the other half until March 2028.
Deducting this buyout reduces his ‘single figure’ to an underlying £6.1mn. That’s still 59 per cent more than the 2022 figure, which was received not by him, but by his predecessor, Warren East. When East joined in 2015, Rolls-Royce still resembled a collection of fiefdoms in various locations, each with its own supply chain and bureaucracy. In 2016, losses of £4.6bn forced a dividend cut; in 2018, East cut 4,500 roles and aimed to deliver annual cash flows of £1bn by 2020. That plan was scuppered, first by the cost of resolving durability issues on the group’s Trent 1000 engines, and then by the grounding of aviation during the pandemic lockdowns. In July 2020, Moody’s cut Rolls-Royce’s credit rating to junk status. The reason became clear a month later when an alarming cash outflow of £2.8bn was reported in the interim results. The dividend was scrapped. Many of Rolls-Royce’s 167,391 individual shareholders (as of the end of 2019) hung on, in the hope that the company would recover. East raised over £5bn of emergency funds, including a heavily discounted rights issue.