The first Thursday of 2018 will see the average FTSE 100 CEO having already been paid a typical UK worker’s yearly salary
Thursday 4 January has been dubbed ‘Fat Cat’ Thursday as the UK’s top bosses will have already made more money than the average UK full-time worker makes in a year, in three working days.
According to calculations from independent think tank The High Pay Centre and the CIPD, pay for top executives will pass the median UK gross annual salary of £28,758 for full-time employees on Thursday.
Pension funds are long-term investors in the economy, representing more than 60% of all institutional investment in the UK (£2.2 trillion). As such, they are affected by the governance and pay culture of the companies they invest in.
Luke Hildyard, Stewardship and Corporate Governance Policy Lead at the Pensions and Lifetime Savings Association, commented, “Huge pay differences between executives and the wider workforce symbolise how too many companies fail to understand or appreciate the value of their workers.Pension scheme investors use information about the employment models and working practices of the companies they invest in, including the pay gap between the top executives and the rest of the workforce, as indicators of the corporate culture.”
While companies spend a lot of time devising complicated and very generous pay awards, our Hidden Talent research found that only 7% of FTSE 100 annual reports detail the ratio between the CEO’s pay and the wider workforce; only 21% provide evidence of how much they are investing in training and staff development; and just 7% show how much they rely on agency workers or other types of insecure employment.
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.”
While they still make more than the average UK worker, the calculations also revealed that the mean FTSE 100 CEO pay packet fell by a fifth, down from £5.4 million to £4.5 million. The median pay also fell to £3.45 million in 2016 (down from £3.97 million in 2016). Despite this reduction in total pay, the ratio of CEO pay to the pay of the average full time worker still stands at 120:1.
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.”
CEO pay has always been a source of contention as a CIPD research report found that 71% of UK workers believed that CEO pay levels in the UK are generally too high. A further 60% agreed that excessive CEO pay levels demotivated employees and 54% stated that this had a negative effect of an organisation’s reputation.
The Government has recently introduced corporate governance reforms and the Financial reporting Council has made proposals for a revised UK Corporate Governance Code, in an effort to enhance trust in business and improve corporate governance in the UK.
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.
Peter Cheese, chief executive of the CIPD, adds, “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.”