FTSE 100 CEOs earn 117 times more than average employees
A new report published today by the The Chartered Institute of Personnel and Development and the High Pay Centre, has revealed that CEO’s of the nation’s top 100 listed companies earn around 117 times more than average workers.
The report examined executive pay across the FTSE 100, and revealed that the UK’s largest publicly listed companies paid their top leaders, known as Key Management Personnel, a total of at least £2.08 billion in 2018.
The startling statistic means that it takes the average worker one year to earn what a FTSE 100 CEO earns in just three working days.
Lack of transparency
The report also highlights concerns around corporate reporting on pay and performance for key management personnel, which it found to be inconsistent and lacking transparency.
“Executive pay is often disconnected from the reward strategy of the wider organisation – and therefore HR teams,” the CPID said. “But there are steps that people professionals can take to think about this issue in a more holistic context and address pay inequality”.
Impact of pay disparity
“The gap between executive pay and the rest of the workforce is damaging to individual businesses and society. So, it’s firmly on the UK Government’s radar”, the HR industry body said.
From April next year, regulations around executive remuneration transparency come into play, with large listed companies having to disclose and explain the gap between CEO pay and that of their average employee.
Executive pay is meant to incentivise and reward longer term performance, and yet evidence suggests a disconnect between CEO pay and performance. There are some assumptions that should be challenged.
Using shareholder returns as the only measure of success is a blunt metric given rises in the share price are often tied to wider economic factors, and nothing to do with leadership performance.
Persimmon CEO tops FTSE 100 high pay list
For example, the CEO of house builder Persimmon, Jeff Fairburn, was the highest paid in the FTSE 100 in 2018 and 2017, but his pay package was linked to a share price spike due to the announcement of the Government’s Help to Buy scheme.
Incoming pay ratio reporting will increase public, media and shareholder scrutiny of executive remuneration, and may prove a reputational risk for companies, the CIPd noted.
The amount of time and energy spent on setting and then defending the pay packages of top earners is taking attention away from areas of strategic importance, it said.
The CIPD cited a recent report from Nesta which found that executive pay systems were discouraging innovation, due to being overly focused on short-term financial measures.
Could some of that bonus package be reinvested in R&D or training for the rest of the workforce? The CIPD asked, adding that ignoring this opportunity cost could hinder productivity as well as make it difficult for employers to increase the earning potential of their lower paid staff.
Inequality leads to mistrust
Income inequality contributes to mistrust in business. According to the 2019 Edelman Trust Barometer, only 43% of the general population in the UK say they trust CEOs.
The same survey has also found that more than half (52%) of people say that the way business works today is not good for society; when asked what needs to change, 62% said addressing the high pay and bonuses given to senior management and business leaders was important or very important.
“This disparity risks impacting engagement and workforce productivity”, the CIPD said. “After all, success is a collective endeavour.”
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