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Danny McCance 3 Jan 2018 12:39pm

Internal executive hires add more value than external

Internal appointments add as much as 6% in value to organisations but are paid 20% less

Remuneration committees would be better served putting greater emphasis on succession planning and actively developing a wider pool of talent, according to Simon Patterson, managing director of executive pay consultancy Pearl Meyer, who carried out the research.

“We discovered about 70% of new chief executive appointments in the FTSE 100 in the last five years were promoted from within the business,” Peterson told the BBC’s Today programme.

The issue is that salaries rose dramatically throughout the 2000s before plateauing around 2010, but still remain too high, Paterson argued.

The solution is to introduce more young talent. “If you get younger, new talent into the executive suite, that’s going to drive down the price of executives overall, and I think that would be a good thing,” he said.

This is preferred to regulating executive pay. “I think it’s very likely that the regulation is not going to solve the problem, but what it’ll do is it will freeze where we are, and where we are is probably too high,” Patterson added.

At the end of last year, research showed that FTSE 100 executive pay had dropped by 19% in 2017 – from £4.5m on average in 2016 to £3.5m – while executive salaries in the FTSE 250 rose by 11% from 2015.

In November, Denise Coates, founder and head of gambling company Bet365 was revealed as the UK’s highest paid executive, and the best-paid in British corporate history, after she paid herself £217m in 2016.

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