- Modest restraint by company boards saw FTSE 100 CEO pay fall last year but the pay gap between the top and average worker remains wide
- New era of transparency through pay ratio disclosure will keep up pressure on remuneration committees to check and challenge CEO pay levels and performance
Thursday 4 January 2018 is 'Fat Cat' Thursday. In just three working days, the UK’s top bosses will have made more money than the typical UK full-time worker will earn in the entire year. This is according to calculations from independent think tank The High Pay Centre, and the CIPD, the professional body for HR and people development.
The figures show that pay for top executives will pass the median UK gross annual salary of £28,758 for full-time employees on Thursday 4 January 2018.
The CIPD and the High Pay Centre’s calculations come in a year which saw the mean FTSE 100 CEO pay packet fall by a fifth, down from £5.4m million to £4.5 million. FTSE 100 CEO median pay also fell to £3.45 million in 2016 (down from £3.97m in 2015). However, despite this year-on-year reduction in total pay among FTSE 100 bosses, the ratio of CEO pay to the pay of the average full-time worker stands at 120:1.
The High Pay Centre and the CIPD are working together to ensure that high pay is addressed as part of a much broader review of corporate governance in the UK, including greater transparency on workforce data.
Peter Cheese, chief executive of the CIPD, said: “The drop in pay in the last year is welcome, although relatively marginal, and will have largely been driven by the growing public and shareholder concerns and the Prime Minister’s stronger focus on boardroom excess and plans to reform corporate governance. To ensure this year’s fall in CEO remuneration isn’t just a blip on the consistently upward trend of recent years, it’s crucial that the Government keeps high pay and corporate governance reform high on its agenda. We also need business, shareholders and remuneration committees to do their part and challenge excessive pay, to understand pay and reward for top executives in the context of the whole organisation, and look at how pay is linked to driving sustainable performance. We need a significant re-think on how and why we reward CEOs, taking into account a much more balanced scorecard of success beyond financial outcomes, looking more widely at the impacts of businesses on all stakeholders from employees to society more broadly.
“The current review of the UK Corporate Governance Code provides a great opportunity to consider these issues. In particular, it should broaden board focus and the remit of remuneration committees to ensure there is much more understanding of the wider workforce and corporate cultures, and in particular how to engage employee voice and improve fairness and transparency.”
Stefan Stern, director of the High Pay Centre, said: “While it was encouraging to see a tiny amount of restraint on pay at the top of some FTSE100 companies last year, there are still grossly excessive and unjustifiable gaps between the top and the rest of the workforce. Publishing pay ratios will force boards to acknowledge these gaps. We look forward to working with business and government to make this new disclosure requirement work as effectively as possible.”
Charles Cotton, Senior Reward and Performance Adviser at the CIPD, said: “When considering executive and employee pay, reward decisions must be principles-led, evidence based and outcome-driven. It should be aligned to both financial and non-financial measures of business success, reflecting both short and long-term performance. Executive pay should also be considered alongside how the wider workforce is being rewarded. In a year when real earnings will have fallen for many, excessive reward at the top will be strongly felt by the rest of the workforce.”
Previous CIPD research has shown that excessive CEO pay can have a damaging effect on the workforce. In its 2015 research report ‘The view from below: What employees really think about their CEO’s pay packet’, a CIPD survey of more than 1000 working adults found that:
- 71% agreed that CEO pay levels in the UK are generally too high
- 60% agree that CEO pay levels in the UK demotivate employees
- 54% agree that CEO pay levels in the UK are bad for an organisation’s reputation
As part of efforts to enhance trust in business and improve corporate governance in the UK, the CIPD and High Pay Centre recently welcomed the Government’s corporate governance reforms and the Financial Reporting Council’s proposals for a revised UK Corporate Governance Code. As part of the Government’s reforms, new laws will require around 900 listed companies to annually publish and justify the pay ratio between chief executives and their average worker.
The reforms also include the introduction of the world’s first public register of listed companies where more than a fifth of investors have objected to executive annual pay packages. The first public register was published by the Investment Association on December 19 2017 and includes more than a fifth of the FTSE 100. Companies on the register include fashion label Burberry, retailers Sports Direct and Morrisons, broadcaster Sky and the advertising company WPP.
