Fat Cats - are they earning the cream?

Citation

(1998), "Fat Cats - are they earning the cream?", Anti-Corrosion Methods and Materials, Vol. 45 No. 5. https://doi.org/10.1108/acmm.1998.12845eaa.001

Fat Cats - are they earning the cream?

Fat Cats ­ are they earning the cream?

Keywords Directors, Metal treatments, Remuneration

In the metal treatments industry the average fee paid to a director of a company is £32,700, but the companies in the top quartile in respect of directors fees pay an average £111,400. Are these people warranting the remuneration they receive?

Of the companies paying their directors the most, 49 per cent were rated strong or good in terms of their financial strength, while 34 per cent were rated as caution or danger reflecting a need for these companies to make changes in their financial structuring in order to ensure their future viability. Unless the companies' position has been weakened in the short-term ventures which will later pay off, there is a definite need for change and the question should be asked ­ "Are the directors doing their job?"

Examining sales growth of these companies paying top directors salaries shows that 30.7 per cent of these companies exceeded the industry average sales growth but 68.4 per cent performed worse than the industry in general. The industry average sales growth was found to be 9.7 per cent, 20.2 per cent of the top quartile managed 15 per cent or better sales growth but 38.6 per cent reported no growth or a contraction in sales.

Profit margins too showed considerable variation among those businesses which place a high value on their board members. Of the companies paying directors the most, 54.4 per cent managed to return pre-tax profits better than the industry average of 5.0 per cent while 13.2 per cent of these companies recorded a loss. Of course there may be extraordinary circumstances behind these losses; the companies involved may be executing an ambitious expansion strategy which has not yet had time to bring benefits to the organisation, for instance.

The Plimsoll Portfolio Analysis ­ Metal Treatments, 2nd ed., 1998 individually analyses 1,484 companies in the industry over their last four financial years. The standard layout and graphical interpretation of the key financial ratios allow the user to compare company performance easily within the industry and give the ability to distinguish the strong from the weak.

Once strong companies, or weak ones, have been identified it is possible to examine the company's accounts in more detail to assess how success has been achieved or how failure has occurred. It is also very simple to see who is paying their directors what!

In Table I are the names of some companies which are growing at an above average rate, returning better than average pre-tax profit margins yet are not in the top quartile in terms of the fees they pay their directors.

With examples such as these, those companies grooming their fat cats should possibly set higher standards of performance for them so that they earn their cream!

To obtain a copy of the report or more information, contact Mark Haynes at Plimsoll Publishing. Tel: +44(01) 642 257800; Fax: +44(01) 642 257806. Main reports at £305 and the supplements (where available) at £205.