Bull run ensures CEOs stay in the saddle

Sir Martin Sorrell is the longest-serving CEO, having been at WPP more than
20 years. The survey also found that there was a very similar tenure for company
chairmen (4.5 years) and FDs (4.8 years).

Roddy McDougall, editor-in-chief of
Cantos,
says that one reason for the small increase in chief executives’ ability to keep
their job is the fact that the stock market is now in the third year of its bull
run. “That has resulted in fewer CEO departures than in the past,” he says. Only
13 CEOs were appointed to FTSE-100 companies in the last year.

But Adam Steiner at SVG Capital believes that four-and-a-half years is too
long for CEOs to remain in situ. “Anyone who is involved in budgets and strategy
knows that planning beyond three years is impossible to do,” he said on
www.cantos.com. “If you believe that the sole purpose of a management team is to
hit financial targets and increase the share price of their company, [then] if
they’re not able to do that within a two to three-year timeframe, they’re
probably not the right people for the job.”

But Patricia Peter, head of corporate governance at the
Institute
of Directors, suggested that some people in the investment community may be
“looking at too-short a timescale for performance”.

John Viney, chairman of Zygos Partnership, said that he no longer believes
that CEO tenure of less than five years is a sign of instability. “Boards have
galvanised themselves still better at succession planning and are preparing
themselves for the next step somewhat earlier,” he said.

In a separate survey, researchers at Deloitte found an increase in the
proportion of executive pay that is linked to financial performance. Incentives
make up around half of total pay for FTSE-350 executive remuneration. De
loitte’s report, entitled Measuring Up, concluded that companies are applying
more stringent and bespoke performance measures, which increasingly use a
combination of measures such as total shareholder returns (TSR), earnings per
share or return on capital, rather than one measure in isolation.

Other measures used include health and safety KPIs in the mining and oil
sectors, customer service in utilities and cash flow in industrial goods and
services companies.