At 5:30pm on Wednesday 6 January, UK CEO pay overtook the average, annual median wage for full-time workers, according to the High Pay Centre.
In research published the previous day, the campaign group noted that while national pay figures were not yet up to date enough to illustrate the effects of the pandemic, CEOs nonetheless only had to work 34 hours this year to surpass the average, median earnings of employees at all other levels.
That makes current, average CEO pay 120 times greater than that of the typical worker: a significant jump on 50 times at the turn of the millennium and 20 times in the early 1980s.
In a press statement, the High Pay Centre explained: “Factors such as the increasing role played by the finance industry in the economy, the outsourcing of low-paid work and the decline of trade union membership have widened the gaps between those at the top and everybody else over recent decades.” (High Pay Centre Press Office, 5 January 2021)
It noted: “These figures will raise concern about the governance of big businesses and whether major employers are distributing pay in a way that rewards the contribution of different workers fairly. They should also prompt debate about the effects that high levels of inequality can have on social cohesion, crime, and public health and wellbeing.”
The 2021 edition of the Centre’s annual study of CEO pay in relation to the average wage builds on its recent research on pay ratios – published in December – which revealed that for every pound a FTSE 100 boss could earn for fulfilling an employee-related target, they could potentially make £41 for hitting a financial metric. (High Pay Centre Press Office, 3 December 2020)
However, speaking to the BBC, Adam Smith Institute director of programmes Daniel Pryor suggested that the approach of such analysis fuels the politics of envy and overlooks the valuable contribution that CEOs make. (BBC News, 6 January 2021)
“Good management is more important than ever in a globalised world,” he said, “and small differences in top talent make a big impact on a business’s bottom line. That bottom line makes a big difference to workers across the UK, anyone with a private pension, and shareholders.”
Is it merely envious to criticise high CEO pay – or does the High Pay Centre’s research send leaders an important message?
The Institute of Leadership & Management’s head of research, policy and standards Kate Cooper says: “The impact of a CEO will vary radically, depending upon the type and size of the organisation – for example, in a smaller organisation, there may be scope for the CEO to make a greater impact than a boss who leads a larger one. Another critical influence on the CEO’s impact will be the extent to which decision making is shared or distributed. A great, recent study that emerged from Denmark [Bennedsen et al, 3 March 2020] looked at what happened to company performance in cases where CEOs were hospitalised. It concluded that the absence of CEOs for that reason adversely affected performance.”
She notes: “Where there are compelling arguments for a significant ratio between the highest-paid member of an organisation – who one assumes will be the CEO – to the lowest-paid, one important step would be for senior leaders to provide to staff an open and transparent rationale for that ratio, and a strong explanation for why it exists.
“That course of action is available to any CEO – because in the context of their role, they have a track record they can point to that, in their mind, demonstrates the impact they have had at various stages of their career. So, the key elements that an organisation must provide here are i) an explanation, ii) opportunities for analysis and iii) clarity over the KPIs by which the CEO’s effectiveness is being measured.”
Cooper adds: “As Pryor indicates, successful organisations are good not just because they provide greater job security or enable staff to make larger pension contributions – but because they’re great places to be. And if the CEO is seen as someone who has clearly mobilised that success, there will be less envy within the wider staff base. So, this is all a matter of providing grounds for understanding by presenting staff with data that must be gathered at an organisational level, and persuade on its own merits.”
For further insights on the themes raised in this blog, check out the Institute’s resources on ethics