(*Represents potential interests in all option, share match, long-term investment, SAYE and other share schemes.)

Vodafone and GlaxoSmithKline provide a bit of a dilemma. The boards at both companies own ordinary shares worth millions, but these holdings are dwarfed by some potentially massive option payouts. Associated British Ports and Capital Radio are a little easier to judge, with their ordinary holdings among the smallest in value and outnumbered significantly by options.

Performance versus bonus

There's no end of performance yardsticks for remuneration committees to use to set bonuses, with pre-tax profits, earnings per share, share price performance and comparator groups among the most popular. However, though used by few firms and still liable for some board manipulation, the dividend is one of the best measures of judging long-term progress. Importantly, dividends are not subject to an accountant's opinion.

This last table summarises the income rises enjoyed by the bosses and shareholders of the watch list constituents:

(*Starts from the earlier of current boss' first full year in role, or five years prior to latest results. **2004 annual report unavailable. ***Not yet completed a financial year as boss.)

Jean-Pierre Garnier of GlaxoSmithKline fails badly on this test. Despite overseeing an 11% dividend increase -- the worst on the list -- he's pocketed by far the biggest bonus and received a 19% basic pay rise to boot. The pay of David Mansfield (again) and John McCann of Ulster Television are also suspect. Although both have enjoyed substantial salary hikes of late, their shareholders have lagged in the income payout stakes.

Halma probably has the most shareholder-friendly pay and performance record, with Stephen O'Shea collecting the smallest bonus from the third largest dividend improvement. (An honorary mention should go to Rotork, which is similarly muted with its extra payouts.) And given the sizeable dividend improvements, shareholders of Imperial Tobacco, Johnston Press and Games Workshop shouldn't begrudge the bumper bonuses paid to their boards.

Conclusion

This is not a perfect study. It involves a small sample of businesses, which vary widely in size and commercial activity. Even so, the study has thrown up a few interesting discoveries. It's safe to say the board at Capital Radio has fat cat tendencies, while plump feline characteristics are also in evidence at Ulster Television and GlaxoSmithKline. Interestingly, acquisitions have been a prominent feature at these three firms in recent years.

Nevertheless, boardroom remuneration is just one part of the company evaluation jigsaw. There are many other factors to consider, not least assessing the quality of the firm's competitive advantage. A greedy boss may be at the helm, but if he runs an unregulated monopoly, long-term shareholders could still do very well. However, exactly what buy price discount prospective investors should apply to companies with over-generous board remuneration is difficult to say. Thankfully, none of the watch list members has seen their finances deteriorate simply because the directors are siphoning off vast sums every year.

Of course, investors can offset the risks of fat cattery entirely by focusing on quality operations where the directors appear to have the owner's eye. Encouragingly, a handful of watch list boardrooms score generally well in this study, with Halma, Rotork, and Games Workshop in particular standing out.

Maynard owns shares in Associated British Ports, Games Workshop, GlaxoSmithKline, Halma, Johnston Press and London Stock Exchange.

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