Who’s the best boss for your buck?

The issue of chief executives’ pay is provoking growing controversy, as the earnings of the UK’s top bosses race ahead of the average worker’s wages.

Earlier this year, a survey found that the chief executives of the biggest public companies enjoyed a 33% increase in their pay packets over the past year.

Total expected remuneration of FTSE 100 bosses went up 19%, according to a survey by remuneration consultant MM&K and proxy voting company Manifest.

Meanwhile, senior EU policymakers have condemned as scandalous the growing differential between executive pay awards and those of ordinary employees.

The average UK worker has seen pay increase by around 4% in the year to March 2008.

Shareholders have also become increasingly concerned about the escalating pay packets of the top executives.

Some top institutional investors have said that there is insufficient differentiation between executives who deliver superior performance, and those who are merely enjoying the benefit of a good trading environment.

When times are good it can be difficult to restrain executive pay awards, investors say, but when the market is tough than the debate over remunerations becomes more aggressive.

The structure of executive remuneration is changing, and this has in part contributed to the rapid rise in executives’ pay awards.

Companies’ remuneration committees are increasingly putting more emphasis on performance-related pay at the expense of basic salaries.

A few years ago, chief executives might have earned bonuses worth 20% of salary. Now, top executives can achieve bonuses of as much as 150% of base salary for superior performance.

The value of long-term incentive plans, which are designed to link rewards to shareholder return, is also rising, pushing up executives’ total pay.

As the UK economy continues to slow and the soft insurance market continues to take its toll on insurers’ performance, the remuneration of the top executives will come under increasing scrutiny from shareholders.

With this in mind, Insurance Times has examined the pay of the chief executives of FTSE-listed insurance groups with a view to gauging which one is providing the best value to shareholders.

The analysis cannot be seen as definitive as it examines only base salaries and annual bonuses, and does not include the value of long-term incentive plans, nor the weighting given to these. But it does attempt to give a sense of who are the top performers in the insurance sector.

The results of the analysis showed a draw between Henry Engelhardt, boss of motor insurance specialist Admiral, and Charles Philipps of Lloyd’s insurance giant Amlin.

Engelhardt has achieved stellar returns for Admiral shareholders, posting a return on equity of 56% in 2007, way ahead of the market average.

He would have overtaken Philipps in the ranking, had it not been for an even better 2006 performance, which saw ROE of 116%. Admiral’s ROE therefore declined in 2007.

Admiral pays below median base salaries, so this has boosted Engelhardt’s value rating.

Meanwhile, Philipps is a highly-rated chief executive and he achieved a strong performance against all four measures in 2007.

At the other end of the table is Novae’s Matthew Fosh. His position at No. 12 does not do him justice.

Under his leadership, Novae has been recovering from a period in which it was mired in toxic US liabilities and has restructured its capital base with a £100m bond issue. It is growing profitably and analyst forecasts are positive.