Median CEO pay in the FTSE 100 is 117 times that of an average UK worker earning £29,600, according to a new analysis from CIPD and the High Pay Centre. That’s despite a 13% fall in median pay for CEOs at those 100 firms between 2017 and 2018. [1]


Indeed, the figures suggest that the fall has had little bearing on the broader reality of the UK’s pay disparity, for it would take a FTSE 100 CEO just three days to earn the annual pay of the average worker.


The research partners attribute the fall to the possibility that there is now greater restraint on high pay – which they welcome – and that less money being awarded through long-term incentive plans (LTIPs) because of variations in corporate performance and the cyclical nature of the relevant pay-outs. But even so, complex LTIPs continue to form the largest component of executive pay, despite criticism from various stakeholders, and were awarded to 84% of CEOs in the study period.


In total, FTSE 100 firms paid out £465.4 million to their chief executives in the financial year ending 2018.


But that pales in comparison to the amount paid to ‘key management personnel’ – a category that the researchers analysed for the first time, encompassing non-executive and executive board members, along with senior managers. CIPD and the High Pay Centre noted a “significant variation” in reporting, with different firms’ disclosures covering between two and 32 individuals. In total, the FTSE 100 spent more than £2.08 billion on remuneration for key management personnel in 2018, dwarfing the amount paid to chief executives.


There is also evidence that shareholder dissent is having little effect: this year, the majority of remuneration packages have been voted through with levels of support upwards of 90%, and no remuneration reports have been defeated. Between 2014 and 2018, dissenting shareholders defeated only six pay packages.


CIPD CEO Peter Cheese said: “Fairness is one of the biggest challenges facing society today. The gulf between the pay at the top and the bottom ends of companies is slightly smaller this year but it’s still unacceptably wide and undermines public trust in business. We must question if CEOs are overly focused on financial measures and are being incentivised to keep share prices high rather than focusing on the long-term health of their business. Being a custodian for the business and its people over the longer term must surely be a chief executive’s ultimate duty, rather than simply focusing on short-term gain.”


What do these figures reveal about leadership priorities in FTSE 100 firms?


The Institute of Leadership & Management’s head of research, policy and standards Kate Cooper says: “Research continues to support the idea that pay doesn’t provide job satisfaction. But what it does do is broadcast a tangible message about how much you are valued by your organisation. One of the biggest leadership challenges is encouraging staff to engage, be more productive, go the extra mile, identify with the company and see its results as a reflection of their input. But how is that possible when the message that employees are constantly receiving from the C-suite and senior managers is that they are worth hundreds of times less than those at senior levels?”


Cooper notes: “Essentially, it’s demoralising. You cannot have that encouragement and collective spirit operating in parallel with messages that undermine workers’ sense of self-worth. The more transparent companies are required to be, the more they will have to acknowledge the fact that you cannot pay one section of the workforce so much more than all the others, and either expect those employees somehow not to notice, or presume that they will simply accept it as part of the daily routine. It goes to the very heart of whether or not they will engage with the organisation and its broader aims.


“That’s the bottom line. Until these sorts of inequalities are addressed, you’re still going to get issues with commitment, and a host of other issues that flow from that.”


For further insights on the themes raised in this blog, check out the Institute’s resources on building trust


Source ref: [1]


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